Encana tipped off Chesapeake to land plans in Michigan, e-mails show

OKLAHOMA CITY, Okla., Wed Jul 11, 2012 – As Chesapeake Energy Corp and Encana Corp. face antitrust investigations, emails reviewed by Reuters indicate that top executives of the two rivals shared sensitive information that gave Chesapeake the upper hand in deals with Michigan land owners.
The emails show the competitors traded information about whether Encana was halting new land leasing in Michigan in 2010, and the information prompted Chesapeake to dramatically change its leasing strategy in subsequent weeks and helped send Michigan land prices tumbling from record highs.
In the days after learning that Encana was paring back, Chesapeake CEO Aubrey McClendon ordered Chesapeake to renegotiate or delay closing on at least 10 deals that his company was negotiating with major land lease holders in Michigan, documents reviewed by Reuters show.
Antitrust experts said such discussions could add fodder to probes by the Justice Department and Michigan authorities, who are exploring whether the two companies violated state or federal laws by discussing how to suppress land prices in the state.
They said the emails raise collusion concerns, given that two direct competitors appear to have exchanged critical data. “Information exchange” is not explicitly illegal under U.S. antitrust law, unlike bid-rigging and price-fixing. But it has been found by courts to be anti-competitive when the sharing is done privately, doesn’t promote efficiency and involves information of value to customers – in this case, Michigan land owners.
“It’s highly suspect,” said Maurice Stucke, a former antitrust attorney with the Department of Justice. Said Harry First, another former Justice Department antitrust attorney: “Asking your competitor whether they are going to stop leasing in, or exit, the Michigan market is an offer to collude.”

Michigan land owner caught between energy giants with millions at stake

GAYLORD, Mich., Tue Jun 26, 2012 –A Michigan land owner who alleges he was jilted by two of North America’s largest energy companies says emails made public Monday by Reuters prove that the two companies colluded to kill deals that could have earned him more than $54 million.

Walter Zaremba, who is locked in litigation with Encana Corp., Canada’s largest natural gas producer, said he has long suspected that Encana and Chesapeake Energy Corp. had been working together, which would be a possible violation of state and federal antitrust laws.

Encana and Chesapeake, the second-largest natural gas producer in the United States, withdrew offers for Zaremba’s land in quick succession in 2010. That came after they had engaged in a bidding war for his property in the weeks prior, according to the documents reviewed by Reuters.

Emails and other documents show that executives of the two companies discussed detailed plans for preventing Zaremba from getting the price he wanted for about 20,000 acres of land where both sought to drill for gas and oil.

“If they refrained from bidding that’s problematic,” said Harry First, a former lawyer for New York’s Attorney General and at the Department of Justice. “If the two major buyers are saying ‘Let’s agree that one of us stays out of the bidding and we’ll split this up later,’ then the benefit doesn’t go to the sellers.”

Another legal analyst questioned Zaremba’s contention that talks between Encana and Chesapeake cost him millions. Logan Robinson, a law professor at University of Detroit Mercy, said Zaremba’s claim that he lost out because both companies withdrew their offers could be “iffy” because nothing prevented Zaremba from seeking a different buyer for his leases.

On Monday, Reuters disclosed emails that showed a broader strategy by Encana and Chesapeake — two of North America’s largest energy companies and fierce rivals — to suppress land prices in Michigan, a region with what was once considered to have one of the most promising shale plays in the United States, the Collingwood formation.