Drafting Agreement Mires Energy Companies In Bid-Rigging Claims In Michigan

NorthStar Energy LLC is suing Encana Corp. and Chesapeake Energy Corp. in the U.S. District Court for the Western District of Michigan, alleging the two companies’ drafting of an agreement violated antitrust laws by rigging the bidding process for NorthStar’s oil and gas leases.

According to the complaint in NorthStar Energy LLC v. Encana Corp. et al., NorthStar Energy was granted the rights to explore thousands of acres of Michigan land with the goal of finding oil or natural gas in the Utica-Collingwood shale formations.  In early 2010, NorthStar determined there were sufficient resources to begin commercial drilling on 9,838 acres, and asked for bids at the market price of $3,000 per acre.

NorthStar claims that Encana and Chesapeake executives negotiated an Area of Mutual Interest Agreement that rigged the bidding process.  NorthStar alleges that comments and edits to the agreement indicate that Encana and Chesapeake conspired not to bid against one another for NorthStar’s leases in six Michigan counties.

According to NorthStar, the agreement originally included a paragraph that provided the two companies could independently bid for NorthStar’s leases even if it meant that the companies would bid against each other.  According to the complaint, in response to this paragraph Chesapeake wrote, “[w]hy have this [paragraph] if the goal is to keep from running the prices up on each other?”

The complaint alleges that as a result of collusion, Chesapeake secured a lease for $2,250 per acre.  Not only was Chesapeake’s price $750 below the alleged market price, but one month earlier NorthStar had sold leases at $3,727.71.

“Absent collusion, NorthStar would have realized substantially higher price terms, more consistent with the market value and similar to or higher than the price terms at which 16 comparable acreage sold at the May 2010 State of Michigan auction,” the complaint states.