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Fracking Pioneer Aubrey McClendon Accused Of Rigging Shale Bids

March 3, 2016

Aubrey McClendon has been called a pioneer and a natural gas evangelist. Now he might just be the architect of his own destruction.

Three years after being forced out of  Chesapeake Energy Corp., the natural gas company he co-founded, the 56-year-old is facing allegations he worked with an unidentified competitor to keep the price of leasing land artificially low.

McClendon is accused of orchestrating a scheme between two “large oil and gas companies” to not bid against each other for leases in northwest Oklahoma from December 2007 to March 2012, the Justice Department said Tuesday in a statement.  

The grand jury indictment comes after the hydraulic fracturing process McClendon championed for accessing trapped oil and gas has caused prices to crater. Chesapeake has sunk 39 percent this year, including losing a third of its value in a single day last month after a report, which the Oklahoma City-based company refuted, that it had hired lawyers for potential bankruptcy.

The conspirators allegedly decided ahead of time who would win the leases and the winning bidder would then allocate an interest in the leases to the other company, the government said. The companies, which aren’t defendants in the case, are identified in the indictment as Company A and Company B. Mark Abueg, a spokesman for the Justice Department, declined to comment on their identities.

Wildcatter Pioneer

During his almost quarter-century at the helm of Chesapeake, McClendon embraced drilling and fracking innovations that unleashed the shale revolution ignored by the world’s biggest energy producers, building the company into what was for a time the largest U.S. source of gas.

McClendon, who co-founded Chesapeake in 1989, oversaw a jump in its market value from its 1993 debut as a public company to a peak of more than $35 billion in 2008, according to data compiled by Bloomberg.

Carl Icahn

McClendon was in the vanguard of the shale revolution that upended U.S. gas markets and paved the way for the renaissance in American crude oil production. At Chesapeake, he amassed a shale empire that rivaled Exxon Mobil Corp.’s before he was dismissed in 2013 amid conflict-of-interest probes and a shareholder revolt led by billionaire Carl Icahn.

After his ouster from Chesapeake, McClendon formed American Energy Partners LPand raised more than $10 billion for acquisitions. With financial backing from private-equity heavyweights including First Reserve Corp. and Energy & Minerals Group, controlled by John Raymond, McClendon’s new vehicle amassed drilling rights and exploratory stakes from the Appalachian mountains to Australia and Argentina before commodity prices cut the company’s growth and restricted its access to credit.

According to the indictment, McClendon was the chief executive officer, president and a director of Company A until at least March 2012. Company B was a corporation with its principal place of business in Oklahoma City, according to the charging document. The Justice Department provided a copy of the filing, which couldn’t immediately be confirmed in court records.

Prison Sentence

Prosecutors said McClendon contacted an unnamed co-conspirator at Company B in 2007 and proposed they stop competing on bids to purchase leases.

The antitrust law McClendon is accused of violating, the Sherman Act, carries a maximum prison sentence of 10 years and a $1 million fine for individuals, according to the Justice Department statement.

McClendon didn’t immediately respond to phone and e-mail messages seeking comment after regular business hours Tuesday.

Chesapeake spokesman  Gordon Pennoyer said the company has been cooperating with prosecutors and received immunity under a Justice Department leniency program that shields companies from  criminal prosecutionif they are the first to report an antitrust violation.

‘Legacy Issues’

“Chesapeake does not expect to face criminal prosecution or fines relating to this matter,” Pennoyer said in a statement. “Chesapeake has taken significant steps to address legacy issues and enhance legal and regulatory compliance throughout the organization.”

The Justice Department’s investigation is ongoing.

Chesapeake paid a $25 million penalty to the U.S. state of Michigan last year to settle allegations it conspired with Canadian gas driller Encana Corp. to rig auctions for drilling rights. In addition to the civil settlement, Chesapeake pleaded “no contest” to two misdemeanor criminal antitrust violations in state court, the Michigan attorney general’s office said in an April 24, 2015, statement. The Justice Department opened a grand jury inquiry into the Michigan bid rigging allegations, though it never brought charges.

 

 

 

 

 

 

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