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 The criminal charges follow a lengthy investigation by Schuette's
office into whether the firms — the biggest land leasers during a
speculative oil and gas leasing boom in Michigan's Collingwood Shale
region during 2010 — colluded to keep prices from rising as they
acquired land leases from landowners.
Michigan began looking into the companies' activities in 2012 after
a Reuters investigation found that executives from the two firms
discussed proposals to divide bidding responsibilities in the state
for nine private landowners and counties in Michigan.
"I will aggressively prosecute any company who conspires to break
the law," Schuette said in a statement.
The companies are being charged with one count each of antitrust
violations "relating to a contract or conspiracy in restraint of
commerce," and one count each of attempted antitrust violations.
Under Michigan law, an antitrust violation is considered a
misdemeanor, which carries penalties that can include fines and
prison terms of up to two years for individuals, and up to a $1
million fine for a corporation.
Encana and Chesapeake still face a separate, federal antitrust
investigation by the Department of Justice.
"This action has no merit and we will vigorously contest it," said
Chesapeake spokesman Gordon Pennoyer.
Encana denies the charges and will "vigorously defend" them, company
spokesman Jay Averill said in a statement.
The boards of both Chesapeake and Encana previously conducted
internal investigations and said they found no collusion. The
companies have acknowledged holding talks about forming a joint
venture in Michigan during 2010, but said no agreement was ever
reached.
"No agreement was reached and no violation of antitrust law
occurred," Averill added.
In emails reviewed by Reuters in its investigation, then Chesapeake
CEO Aubrey McClendon and other high-ranking Chesapeake and Encana
executives discussed in 2010 how to keep lease prices on both state
and private lands from rising by avoiding "bidding each other
up."(r.reuters.com/deg27v)
The discussions occurred after a land lease frenzy pushed Michigan
prices on private lands as high as $3,000 per acre in mid-2010.
Lease prices subsequently fell sharply in the state later that year.
After prices rose sharply amid intense bidding at a Michigan state
land auction in May 2010, "Chesapeake and Encana agreed not to bid
against each other in future lease auctions," the Michigan Attorney
General alleges in its complaint, reviewed by Reuters. A subsequent
state auction in October 2010 "raised just $10 million on the lease
of 273,000 acres, or less than $40 per acre — over $1,000 per acre
less than the May 2010 prices," the complaint says.
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Documents reviewed by Reuters, and first reported in June 2012, show
that former Chesapeake CEO McClendon and Jeff Wojahn, the former
president of Encana's U.S. unit, were aware of the proposed auction
bidding strategy. "Understand our teams are working on a cooperative
approach to state leasing, that's good I think. Anything else out
there encouraging to talk about?" McClendon wrote in an email to
Wojahn on October 17, 2010.
That chain of internal communications between Chesapeake and Encana
executives could help Michigan's case, one legal expert said. "I
think the Michigan Attorney General has a strong hand in this case.
They have strong evidence and some strong documents," said Darren
Bush, a former antitrust attorney for the U.S. Department of Justice
and a professor of antitrust law at the University of Houston.
A spokesman for McClendon declined comment. McClendon left
Chesapeake last April and now runs a new company, American Energy
Partners.
Market allocation agreements between competitors are illegal under
the Federal Sherman Antitrust Act and Michigan's Antitrust Reform
Act.
Encana and Chesapeake executives had been hoping for a civil
resolution in Michigan.
As recently as February 14, an attorney representing Encana Corp
told a judge in a civil antitrust-related case in Michigan that both
Encana and Chesapeake were working toward a settlement with the
state attorney general that could end his office's criminal
investigation into the firms.
The U.S. Department of Justice has been looking into the possibility
of anticompetitive practices in the purchase and lease of oil and
gas properties in Michigan and elsewhere. That investigation is
ongoing, the DOJ told Reuters last month.
"Michigan is out in front, but the big question now is what the DOJ
will do," said Harry First, an antitrust law professor at New York
University. "That inquiry could be more serious in terms of fines,
and what happens in Michigan could affect the companies' ability to
defend against a federal case."
DOJ spokeswoman Gina Talamona declined comment.
Chesapeake and Encana are expected to be arraigned on March 19 in a
Michigan state court in Cheboygan County, the Attorney General's
office said.
(Reporting by Joshua Schneyer in New
York, Brian Grow in Atlanta and Anna Driver in Houston; editing by Ross Colvin and Peter Henderson)
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