Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Chesapeake Energy allegedly conspired to depress oil, natural gas leasehold market, (Jul 14, 2016)

By Greg Hammond, J.D.

Chesapeake Energy Corp., Chesapeake Exploration, L.L.C., and a number of individuals have purportedly conspired to depress the market for purchases of oil and natural gas leasehold interests and properties containing producing oil and natural gas wells, according to a complaint filed by Pacific Oil and Gas, LLC and others in the federal district court in Kansas City, Kansas (Pacific Oil and Gas, LLC v. Chesapeake Energy Corp., July 13, 2016).

According to the complaint, a leasehold interest in an oil and gas lease grants the lessee the right to develop the mineral interest to explore for and extract oil and natural gas for a specified time period. Producing properties are land with existing wells that are actively producing oil and natural gas. The plaintiffs allege that they owned numerous oil and gas leases covering approximately 7,300 acres located in Kansas (Kansas Leasehold Interests).

The defendants and their co-conspirators engaged in a conspiracy to rig bids and unlawfully depress the prices of leasehold interests and producing properties within the United States, its territories, and Washington, D.C., the complaint asserts. As a result, the plaintiffs claim that: (1) the prices Chesapeake paid plaintiffs for their Kansas Leasehold Interests were artificially depressed below competitive levels; (2) they were deprived of free and open competition in sales of their Kansas Leasehold Interests; (3) they sold their Kansas Leasehold Interests for less than they would have had they sold in a competitive marketplace where the combination and conspiracy was absent; and (4) competition for the purchase of leasehold interests and producing properties was restrained.

The plaintiffs seek actual and treble damages, attorney fees, costs, pre- and post-judgment interest, and permanent injunction, prohibiting the defendants and co-conspirators from maintaining or renewing the alleged conspiracy, agreement, or understanding, or adopting any practice or plan having a similar purpose or affect.

Previous actions. The complaint by Pacific Oil & Gas LLC is the latest in a string of court challenges to Chesapeake’s conduct in the market for purchases of oil and natural gas leasehold interests and properties containing producing oil and natural gas wells. On March 1, 2016, a grand jury in Oklahoma City indicted Aubrey McClendon—founder and former CEO of Chesapeake—on charges of conspiring to rig bids for oil and natural gas leases. The Antitrust Division moved to dismiss the action, however, shortly after McClendon was killed in a one-car accident in Oklahoma City.

The federal district court in Oklahoma City, in April 2016, consolidated 11 putative class action suits against Chesapeake and competitor SandRidge Energy Corp. Later in April, two owners of mineral interests in Oklahoma and Texas filed a complaint, alleging that Chesapeake and SandRidge conspired to rig bids and depress the prices for royalty and bonus payments made for the purchase of mineral leasehold interests.

The case is No. 2:16-cv-02498-JWL-GEB.

Attorneys: James P. Frickleton (Bartimus, Frickleton & Robertson, P.C.) for Plaintiffs.

Companies: Pacific Oil and Gas, LLC; Chesapeake Energy Corp.; Chesapeake Exploration, LLC

News: Antitrust