We here at Preserve the Beartooth Front are pleased to announce the second recipient — co-recipients actually — of the Rex Tillerson Fracking Hypocrite Award. The Award is a 160-foot water tower, engraved with Rex Tillerson’s photo, delivered to the recipient’s front yard.
We’ve written often about Rex. He’s the CEO of Exxon who publicly complained that “dysfunctional regulation of hydraulic fracturing is holding back the American economic recovery, growth and global competitiveness,” and then joined with his neighbors in a lawsuit to block construction of a large water tower, used to support fracking operations, next to his Texas home.
Second award winner
Our first award winner was Aubrey McClendon, former Chairman and CEO of Chesapeake Oil, who won the award for raising nearly $5 billion by gouging rural landowners out of royalty payments they were supposed to receive in exchange for allowing the company to drill on their property. It’s an inspiring story, and I highly recommend you read it.
Today we have co-winners of the award. The first is Jeff Wojahn, President of Encana Oil and Gas, and his partner in crime (literally) is none other than Aubrey McClendon, former Chairman and CEO of Chesapeake Oil, who is going to be awarded with a second water tower.
What these two competitors did to defraud Michigan landowners sets a new standard for greed and hypocrisy.
According to a story broken by Reuters, Chesapeake and Encana were the two leading competitors to gobble up land in Michigan in 2010, eager to exploit it to frack oil from the shale underneath. According to the article,
At a May 2010 auction of public land run by Michigan’s Department of Natural Resources, Chesapeake and Encana had been the dominant buyers. Through intermediary bidders, the two giants spent almost $165 million combined – 93 percent of the record $178 million taken in by the state – to acquire more than 84,000 acres of land. Chesapeake alone spent $138 million, according to a Reuters review of state data. Firms bid an average of $1,413 per acre for the right to extract oil and gas from the state-owned land.
Not surprisingly this sparked a bidding war in the state. Landowners sought competing bids from the two companies, and were getting up to $3,000 per acre as a result.
But then something happened. At a similar auction of public lands the following October — five months later — there was a very different result.
It raised just $9.7 million from the leasing of about 274,000 acres – more than twice the acreage sold in May but almost $170 million less in revenue.
The average winning bid in October was $46, the Reuters analysis shows. In May, it had been $1,413. Most of the winning bids in October were for the minimum price set by the state: $13 per acre.
A conspiracy to fix prices
Coincidence? Of course not. We’re talking the Rex Tillerson Fracking Hypocrisy Award here. What happened is that the two companies conspired to divide up the state and stop competing for the land and leases, as documented in a series of emails beginning in June:
- In June, a Chesapeake official reached out to Encana to discuss teaming up. McClendon and Wojahn were copied on the email.
- Ten days later, McClendon asked top officials from the two companies which company should handle bidding with one landowner “who wants us to bid against each other.”
- The next day McClendon told another Chesapeake executive, “It’s time to smoke a peace pipe” with Encana.
- In June, logs of the two companies both say that they are working on a deal to avoid bidding each other up.
- On July 2, a map prepared by Chesapeake divides the stat into proposed areas for each company.
- On October 14, just before the state auction, an Encana official emailed a Chesapeake executive that he wanted to identify Encana’s suggested contract lands and bidding responsibilities.
- On October 19, a map prepared by Chesapeake shows “projected acreage to be on at state sale.” The map shows a breakdown that would give the two companies virtually identical positions of oil land.
- On October 20, Wojahn confirmed that the two companies had been working together “on arranging a bidding strategy.”
- At the auction on October 27, the two companies buy no land in the same counties.
These results are clearly depicted in the graphic below.Charges filed in Michigan
It is not uncommon for oil and gas companies to form area-of-mutual interest agreements to allow them to share in the risks and rewards of developing an energy play. But we need to be clear that this is not that kind of agreement.
This is price fixing, which is forbidden by the Sherman Antitrust Act. Companies can be fined up to 10 million and individuals up to one million for each offense. Victims of bid rigging can also seek treble damages.
Because of the Reuters article, the state of Michigan investigated, and in March of this year the two companies were charged with one count each of antitrust violations “relating to a contract or conspiracy in restraint of commerce,” and one count each of attempted antitrust violations.
Under Michigan law, an antitrust violation is considered a misdemeanor, which carries penalties that can include fines and prison terms of up to two years for individuals, and up to a $1 million fine for a corporation.
Encana and Chesapeake still face a separate federal antitrust investigation by the Department of Justice.
Lesson to be learned
There’s a common underlying theme between the first Rex Tillerson Award and this one. It’s that oil and gas companies will do anything for the sake of greed, and it’s the landowner who gets screwed.
Talk of oil and gas companies being “good neighbors” is misplaced. They have a single objective, and landowners and communities are in the way.
If we want to come out of the next several years with a community we recognize, we need to take charge to protect our rights.