Monopoly Claim in Key Fracking Mineral

HOUSTON (CN) - An Oklahoma company tightened its monopoly on gilsonite - a rock used for oil drilling - by hijacking a rival's contract with a Columbian supplier, the rival claims in an antitrust lawsuit.

Gilsonite is a solid hydrocarbon mined in the Uintah Basin of Utah and Colorado. It is named for Samuel H. Gilson, who settled in Utah after leaving his Illinois home in 1850 with a case of gold fever.

Though he never found fortune in gold, he saw promise in another mineral, a shiny black rock resembling obsidian that was discovered in the 1860s.

Gilson's forgiving wife let him use their kitchen as a lab, where he tinkered, looking for ways to commercialize the rock, according to his biography on the Utah state website.

"Gilson experimented widely with the substance, as his widow remembered decades later: 'It is such a sticky, messy, mineral asphaltum when it's heated and you should have seen my kitchen! There was gilsonite in every pot, pan and kettle I owned. Everywhere I turned I ran into the stuff,'" the biography states.

Gilsonite is used in more than 160 products today. Its value grew with the advent of shale drilling that led to the U.S. oil production boom, because it's used in drilling fluids and as a cement to stabilize the hole drilled to tap oil and gas, called the wellbore.

American Gilsonite Company controls all the major gilsonite mines in the United States and will use any means to keep its grip on the market, its rival Chemjet claims in the Aug. 13 lawsuit.

Chemject International dba Chemjet and La Tigra LLC sued American Gilsonite Company, its vice president David Gallagher and technical director Dario Montes, in Harris County Court. American Gilsonite Co. (AGC) is a privately held company of Palladium Equity Partners, according to the complaint.

Chemjet makes drilling fluid additives, lubricants and bulk dry products that contain gilsonite, which it bought from AGC until Chemjet president David Gaither heard about a family in Columbia that owns mines rich with the rock, according to the lawsuit.

Chemjet says it placed its first order with the Gonzales family for 400 tons in 2011, but they weren't ready to mine at a commercial scale: their workers were still chipping away with picks and shovels.

Chemjet, through Gaither, found financing for the family and worked out a plan to export its gilsonite from Columbia to the Port of Houston for delivery to Chemjet.

Gaither hit paydirt in 2012 when the Gonzalez family signed a letter agreement to "sell 100 percent of their gilsonite production up to 400 metric tons per month" to Gaither and his associate Jose Aramburo, who assigned their rights to La Tigra in December 2012, Chemjet says.

"Thereafter, La Tigra purchased the Gonzalez family's gilsonite pursuant to the letter agreement and then sold the gilsonite exclusively to Chemjet, which in turn manufactured and sold gilsonite products in competition with AGC," the complaint states.

Chemjet says oil drillers like its products because they are cheaper than AGC's and of comparable quality, so that by fall 2014 it had taken 10 percent of AGC's market share and opened negotiations with two major oil service companies to replace AGC as their supplier.

Chemjet claims AGC took steps to beat back its ascendance. It disparaged Chemjet's products as bogus on its website, stating: "Some companies claim to offer 'gilsonite' from other parts of the world, but these products are simply misidentified."

Chemjet calls that a transparent jab since, everyone in the industry knows it is AGC's only competitor.

AGC's parent company Palladium Equity Partners LLC offered to buy out Chemjet and La Tigra in October 2014, and a month later, an AGC sales agent told a Chemjet salesman over lunch that "Chemjet was 'killing the marketplace' and needed to raise its price," according to the complaint.

Eventually, Chemjet says, AGC got desperate and went straight to its source: the Gonzalez family.

"Plaintiffs allege that in or about late 2014, defendants contacted the Gonzalez family for the purpose of inducing them to stop selling gilsonite to La Tigra," the lawsuit states.

AGC induced the family to cancel its contract with La Tigra and start selling to AGC, Chemjet says, citing labs tests showing that the stuff in AGC's products came from the family's mines.

AGC's monopoly is bad for customers, Chemjet says: "AGC's diversion of the Gonzalez family gilsonite has injured consumers of gilsonite products. AGC sells Gilsonite LMP for $1,200 per ton, which equates to $30 per bag. That is approximately $5.00 more per bag than Chemjet's comparable Gilsocol GP product."

Chemjet seeks an injunction to stop AGC from buying the Gonzalez family's gilsonite. It also wants damages for conspiracy, monopolization, attempted monopolization and tortious interference.

AGC's vice-president, defendant David Gallagher said Friday: "We will have no comment on pending litigation."

Palladium Equity Partners, of New York City, did not respond to a request for comment.

Chemjet is represented by Johnny Carter with Susman Godfrey in Houston.

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