Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Royalty owners charge Chesapeake with leasehold interest bid rigging conspiracy, (Apr 22, 2016)

By Linda O’Brien, J.D., LL.M.

Two owners of mineral interests claim that oil and natural gas producer Chesapeake Energy and competitor SandRidge Energy, Inc. conspired to rig bids and depress the prices for royalty and bonus payments made for the purchase of mineral leasehold interests in properties containing producing oil and natural gas wells, according to a complaint filed in the federal district court in Oklahoma City (Van Meter v. Chesapeake Energy Corporation, April 20, 2016).

Chesapeake Energy Corporation and SandRidge Energy, Inc. are oil and natural gas exploration and production companies. James Van Meter owns mineral interests in Lipscomb County, Texas, and entered into oil and gas leases with Chesapeake. John Wright owns mineral interests in Major and Alfalfa counties in Oklahoma and entered into oil and gas leases with Chesapeake.

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. Exploration and productions frequently compete to purchase leasehold interests and such competition increases the prices of royalty and bonus payments for these interests.

Chesapeake and SandRidge were competitors for the acquisition of leasehold interests and producing properties in the Anadarko Basin region in northwest Oklahoma, north Texas, southeast Colorado, and Kansas. By 2012, the oil and gas leasehold holdings of Chesapeake and SandRidge were the two largest by acreage in the Anadarko Basin region, the complaint alleges.

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 Tom Ward, the former chief executive officer of SandRidge, 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. The conspiracy began in December 2007 and continued until March 2012.

Chesapeake has 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, the complaint states.

The complaint also alleges that the defendants engaged in a conspiracy to restrain trade by bid rigging and depressing the prices for leasehold interests and producing properties. 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 restrain trade by rigging bids and unlawfully depressing prices for leasehold interests in violation of Section 1 of the Sherman Act. The action seeks declaratory relief, treble damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 5:16-cv-00403-D.

Attorneys: Douglas D. Wilguess (Wilguess & Garrett, PLLC), Larry D. Lahman, Christopher J. Cormier, and Richard A. Koffman (Cohen Milstein Sellers & Toll PLLC), Warren T. Burns (Burns Charest LLP), Issac Diel (Sharp McQueen PA), and Terrell W. Oxford and William C. Carmody (Susman Godfrey L.L.P.) for James M. Van Meter and John L. Wright.

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

News: Antitrust OklahomaNews