Antitrust Law Daily No liability for oil, gas, mineral assets purchaser in bid-rigging case
Monday, April 16, 2018

No liability for oil, gas, mineral assets purchaser in bid-rigging case

By Nicole D. Prysby, J.D.

An oil, gas, and mineral rights purchaser did not participate in bid-rigging when it submitted a bid for the assets and its business partner did not, held the federal district court in Denver. The evidence demonstrated that the partner had made an independent decision not to bid in the auction. And the seller could show no damages, because there was no evidence that the winning bid would have been higher, had there been another bidder. The purchaser already believed it had robust competition; it bid a higher amount for the assets than its internal evaluation figure and it increased its bid in the second round, which it would not have done had it believed that it had knocked out the biggest competition (Branta, LLC v. Newfield Production Company, April 12, 2018, Daniel, W.).

Background. The Newfield Production Company purchased oil, gas, and mineral assets in Utah from Branta and Harvest Natural Resources at auction. Prior to the purchases, Newfield entered into confidentiality agreements with Branta and Harvest that prohibited it from contacting other entities that may have been interested in purchasing Branta or Harvest’s assets. Newfield’s business partner Ute Energy was interested in a portion of the assets but not bid during the auction; Newfield submitted the highest bid. After the close of the auction, Newfield offered Ute Energy an option to purchase a portion of the acquired assets and Ute Energy did so.

The Branta and Harvest plaintiffs argued that, prior to the auction, Newfield breached the confidentiality agreement’s non-circumvention clause by contacting Ute Energy and offering to compensate it if it did not bid competitively in the auction. They filed claims against Newfield for breach of contract, violation of the Colorado Antitrust Act, violation of the Sherman Antitrust Act, tortious interference with prospective business advantage, and civil conspiracy. The case went to trial in September 2017.

Breach of agreement. For a number of reasons, the court found no breach of the agreement. Branta argued that Newfield breached the non-circumvention portion of the confidentiality agreement, when it communicated with Ute Energy regarding the auction. However, the court found, the agreement was never intended to bar a party from talking to its own partners in the ordinary course of business. Ute Energy did not have an existing or prospective business relationship with Branta before the close of the auction. Branta’s argument was essentially that it would have had a relationship with Ute Energy if not for the interference of Newfield. The court found that the mere hope that Ute Energy would participate in the auction was insufficient to create a business relationship.

The court found there was no agreement between Newfield and Ute Energy that Ute could not compete in the auction. Ute Energy had decided independently not to bid, based on the evidence presented at trial from the Ute Energy CEO and others, who estimated that the price of the assets would be around $300 million and that Ute Energy could not compete with a price above $200 million and possibly significantly less. The court also found that the Branta entities contacted Ute Energy at a time when it was a business partner to Newfield. This contact by Branta was unapproved and was a prior material breach, excusing any later communications between Newfield and Ute Energy.

The court found that Newfield had disclosed no confidential information about the auction to Ute Energy; any disclosures were of publicly available information. With respect to the Harvest agreement, the court made similar findings, holding that Newfield had disclosed no confidential information about the negotiations or the auction to Ute Energy.

In addition, even if Ute Energy had bid, Newfield would not have bid more; the evidence showed that its maximum outlay was about $300 million. Newfield believed there was competition, as shown by the fact that it purchased an exclusivity of negotiating period and bid an amount above its internal valuation of the assets. Newfield’s bid strategy had focused on other potential competitors and would not have changed had Ute Energy also submitted a bid. Therefore, Branta and Harvest could show no damages, because they had alleged damages in the amount of the price received from Newfield versus the price they would have received had Ute Energy also bid at the auction.

Antitrust claims. Branta and Harvest argued that Newfield and Ute Energy had an agreement that Ute Energy would not bid in the auction. The court found that while Ute Energy was a potential competitor, there was no evidence of any bid-rigging. The business relationship between Newfield and Ute Energy was such that Ute Energy knew that if Newfield won the auction, it would have a chance to purchase a portion of the assets. It would therefore have been against its economic interests to bid. In addition, Ute Energy’s decision was made independently; it was not operating from a belief that Newfield was bidding for both of them because if it had been, it would not have asked Newfield if it intended to bid, just days before bids were due.

Branta and Harvest could show no damages, because there was no evidence that the auction price would have been higher had Ute Energy participated. Newfield formulated its bid with the belief that other large bidders would be participating, and it increased its bid in the second round and paid for a period of exclusivity, which it would not have done had it believed it had knocked out the only robust competition. The court also found no potential damages under Branta’s theory that Ute Energy could have contacted it outside the auction process and it could have somehow divided up the assets between Ute Energy, Newfield, and the second (unsuccessful) bidder, because no evidence was presented as to what the likely outcome of that scenario would have been. For similar reasons the court found no civil conspiracy between Newfield and Ute Energy.

Tort claims. Branta and Harvest also argued that Newfield interfered with their prospective business relationship with Ute Energy. But because Ute Energy decided on its own not to bid, there was no prospective relationship. And Ute Energy did not have the resources to submit a bid in the auction for the entire group of assets.

The case is No. 1:15-cv-00416-WYD-KLM.

Attorneys: Matthew E. Johnson (Wheeler Trigg O'Donnell, LLP) for Branta, LLC, Branta Exploration & Production Co., LLC, Harvest [US] Holdings, Inc. and Harvest Natural Resources, Inc. James Martin Truss (Dykema Cox Smith) and Rebecca L. Phelps (Yetter Coleman, LLP) for Newfield Production Co.

Companies: Branta, LLC; Branta Exploration & Production Co., LLC; Harvest [US] Holdings, Inc.; Harvest Natural Resources, Inc.; Newfield Production Co.

MainStory: TopStory Antitrust ColoradoNews

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