Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Energy producer Chesapeake allegedly engaged in leasehold interest bid rigging conspiracy, (Apr 5, 2016)

By Linda O’Brien, J.D., LL.M.

Oil and natural gas producer Chesapeake Energy and competitor Sandridge Energy, Inc. conspired to rig bids, allocate the market, and unlawfully depress the prices for the sale of oil and natural gas leasehold interests and producing properties, according to a complaint filed by royalty owners in the federal district court in Oklahoma City (Crandall v. Chesapeake Energy Corporation, April 1, 2016).

Chesapeake Energy Corporation and Sandridge Energy, Inc. are oil and natural gas exploration and production companies. Curtis and Janet Crandall entered into an oil and gas lease with Chesapeake.

The complaint alleges that a leasehold interest in an oil and gas lease grants the lessee the right to develop the land and to explore for and extract oil and natural gas for a specified time period. Once a leased property begins to produce oil or gas, it is known as a producing property.

On March 1, 2016, a grand jury in Oklahoma City indicted Aubrey K. McClendon, former chairman and chief executive officer of Chesapeake, on charges of conspiring to rig bids for oil and natural gas leases in northwest Oklahoma. According to the indictment, McClendon and the former chief executive officer of a competitor engaged in communications regarding certain leasehold interests and producing properties, agreed not to compete against one another for those interests, submitted bids to owners of those interests in accordance with the agreement, and acquired those interests at noncompetitive prices.

After the indictment was handed down, according to the complaint, Chesapeake publicly announced that the company was cooperating with a criminal antitrust investigation regarding its land leasing practices and received conditional leniency from the U.S. Department of Justice’s Antitrust Division.

Although not named in the indictment, the plaintiffs believe the co-conspirators were Sandridge Energy Inc. and its former chief executive officer, Tom Ward. In May 2015, Sandridge disclosed in a Form 10-Q quarterly report filed with the Securities and Exchange Commission that it was a target of criminal grand jury investigation pending in the Western District of Oklahoma.

The plaintiff alleges that the conspiracy commenced in December 2007 and continued until March 2012. The prices paid for leasehold interests and producing properties were artificially depressed as a result of the conspiracy, the complaint claims. The plaintiffs also assert that they had no actual or constructive knowledge of the conspiracy, and could not have discovered its existence until March 1, 2016, when the indictment of McClendon became public.

The plaintiffs assert claims for conspiracy to engage in bid rigging in violation of Section 1 of the Sherman Act. The action seeks declaratory and injunctive relief, treble damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 5:16-cv-00306-M.

Attorneys: Bradley C. West (The West Law Firm), R. Bryan McCulley and Stuart H. McCluer (McCulley McCluer PLLC), A. Hoyt Rowell, III and James L. Ward, Jr. (Richardson, Patrick, Westbrook, Brickman LLC), and Chris Stucky (Stucky Fields LLC) for Curtis L. Crandall and Janet K. Crandall.

Companies: Chesapeake Energy Corporation; Chesapeake Exploration, L.L.C.; Sandridge Energy, Inc.

News: Antitrust OklahomaNews