The federal indictment this week against Oklahoma oilman Aubrey McClendon should not have been a surprise to him nor to his attorneys. Unless he felt that with his departure as the head of Chesapeake Energy, the Justice Department no longer was interested in him and his operations. But it doesn’t work that way when you’re dealing with the federal government.
It was eleven months ago when Chesapeake coughed up a $25 million penalty to the state of Michigan, settling the state’s claims that the firm conspired with Canadian gas driller Encana Corp. to rig auctions for drilling rights.
Sound familiar? McClendon was indicted this week by an Oklahoma City federal grand jury on a charge of bid-rigging for land leases in northwest Oklahoma. The indictment accused him of carring out a scheme with another company from 2007 to 2012 when he was in charge Chesapeake Energy.
But back to Michigan where State Attorney General Bill Schuette started an investigation in 2012 and later charged that Chesapeake and Encana colluded to suppress land prices during an oil-and-gas leasing boom in 2010. Encana wiped its hands of the matter by paying a $5 million penalty in a civil settlement with the State of Michigan in May 2014.
Here’s the clue that should have tipped off McClendon, now President of American Energy Partners. As Reuters reported last year following Chesapeake’s payment of the $25 million penalty, “In April 2014, Chesapeake and Encana were informed that a Justice Department probe into whether they violated antitrust laws in Michigan had concluded. The Justice Department is still pursuing an investigation into potentially anti-competitive behavior in oil and gas leasing by Chesapeake in other states.”
In other ‘states’? U.S. prosecutors and investigators won’t comment much about any on-going probe and the operative word there might be ‘states’, not just Oklahoma. Could more indictments be coming? Is the Justice Department carrying out similar investigations of McClendon and Chesapeake in other states?
Chesapeake contends it does not anticipate facing any charges in the indictment against McClendon. However, since Chesapeake ranked as one of the top natural gas exploration and production companies in the U.S. at one time, its tentacles had a wide reach into many other states, stretching from Texas and Oklahoma eastward to Pennsylvania and Ohio.
The Michigan case sounds very much like the allegations raised by the federal government against McClendon. The long-time energy executive stands accused of leading Chesapeake in a scheme with another company, yet unnamed by the Justice Department, in agreeing to not bid against each other for leases. The government did not identify the firms by name but only as Company A and Company B and neither is said to be a defendant in the case. The indictment alleges McClendon and the others agreed ahead of time who would win the lease, then the winning bidder would allocate an interest in the leases to the other company.
In Michigan, Chesapeake and Encana came under investigation after Reuters reported in 2012 how the two discussed dividing up their bids on leases of public land in Michigan in a move to stop prices from going higher. Prosecutors alleged Chesapeake made the deal to avoid competing with Encana on the leases at an October 2010 public auction. The State Attorney General’s office said the collusion might have caused lease prices to plummet from a high average of $1,510 an acre down to $40 an acre within a five-month span.
