Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Oil and gas exploration companies allegedly conspired to reduce prices for privately held mineral rights interests, (Mar 3, 2014)

By Linda O’Brien, J.D., LL.M.

Oil and gas exploration companies engaged in restraint of trade by conspiring to avoid competition and depress the prices for oil and gas leases by agreeing not to compete against one another to acquire mineral leases from private landowners and improperly seeking to renege on previously agreed upon mineral leases, according to a complaint filed in the federal district court in Grand Rapids, Michigan (The Teneyck Mineral Trust v. Chesapeake Energy Corporation, February 28, 2014).

The Teneyck Mineral Trust held the private mineral rights beneath certain real estate located in northern Michigan. Oil and gas exploration companies, Chesapeake Energy Corporation and Encana Corporation, were the largest producers of natural gas in the United States.

The complaint states that, in May 2010, the Utica/Collingwood share formation, a geological formation in northern Michigan, became a commercially viable source for natural gas and oil. The State of Michigan conducted a mineral lease auction, with Chesapeake and Encana among the most competitive bidders. Due to high demand, private mineral lease holders received dramatically higher lease bonus rates than had been available previously. Chesapeake and Encana solicited prospective oil and gas lessors, seeking to lease their mineral rights, and many holders, such as Teneyck Trust, accepted their offers in good faith.

Key executives at Chesapeake and Encana conspired to depress prices for mineral rights in northern Michigan by (1) dividing responsibility for dealing with private landowners by county; (2) agreeing to leases with such landowners to prevent them from entertaining bids from other prospective buyers; and (3) maintaining the leases until the conspirators could reduce the pricing level for mineral rights interests at the State’s next auction in October 2010, the complaint charged. At the October auction, Chesapeake and Encana did not compete for a single parcel at the auction and the average lease prices for mineral rights interests were substantially reduced.

Subsequently, hundreds of private mineral owners who had leased their minerals to Chesapeake and Encana in good faith were notified that their mineral leases had been voided and no signing bonuses would be paid. The Teneyck Trust was one of the owners of this attempt to renege on previously agreed upon sales, the complaint states.

The plaintiffs assert claims for breach of contract, unjust enrichment, tortious interference with business relationship, fraudulent misrepresentation, fraudulent concealment, civil conspiracy, and conspiracy in restraint of trade in violation of Section 1 of the Sherman Act and the Michigan Antitrust Reform Act. The action seeks declaratory and injunctive relief, treble damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 1:14-cv-00201-GJQ.

Attorneys: Brian J. Masternak (Warner Norcross & Judd LLP) and Susan L. Hlywa Topp (Topp Law PLC) for The Teneyck Mineral Trust

Companies: Chesapeake Energy Corporation; Silver Lake Energy, LLC; Encana Corporation; Encana Oil & Gas (USA) Inc.

News: Antitrust MichiganNews