Companies colluded to keep land price low

An investigation by a media agency has found evidence that a pair of competitors in the oil and gas industry could have engaged in unfair business practices by conspiring to fix land prices.

The media agency said that officials with the two companies exchanged emails, detailing how they could keep from bidding against each other for land they both sought in Michigan and elsewhere. By agreeing not to engage in a bidding war, they kept the selling price lower. That agreement could violate both state and federal laws, according to experts in antitrust law.

According to the investigation, the two companies began talking in June 2010 as both parties sought land in the Collingwood Shale area in Northern Michigan. Both thought the area would prove ideal for performing drilling called hydraulic fracturing, known more commonly as fracking. Michigan lands are particularly ripe for oil exploration. The two companies together own nearly 1 million acres.

As the prices to acquire land that could hold oil and gas more than doubled to $3,000 an acre, the two sides began conversations on how they could share the land, which could hold down prices, according to the investigation.

The Sherman Antitrust Act bans cartels in private industries. Violators face penalties in the millions of dollars as well as jail terms. Those who lost money because of corporate collusion could reap huge judgments. Officials of the two companies said they discussed forming a partnership in Michigan but decided not to.

One antitrust expert said that forming a joint venture would have had no benefit other than keeping the land price low. That could make the companies liable for illegally conducting business, he said. Partnerships in the oil industry are meant only for companies to share the risks of energy exploration, not to avoid bidding.

At the time the companies exchanged emails, they stopped negotiating with the land owner and one backed away from a plan to buy 20,000 acres. The property owner has sued the company, and he likely will be using some of the results of the media investigation to his benefit as his case moves forward.

Source: Reuters, "Special Report: Chesapeake and rival plotted to suppress land prices," Brian Grow, Joshua Schneyer and Janet Roberts, June 25, 2012