Chesapeake Emails At Center Of Michigan Inquiry

The Michigan Department of Natural Resources is looking into allegations that Chesapeake Energy and a competing energy company conspired to hold prices down during a 2010 land auction in that state.

A spokesman for the department says they are "evaluating" information, including a series of emails between Chesapeake and Encana, an oil and gas company headquartered in Calgary, that could, some analysts say, be evidence of federal anti-trust violations.

The emails were obtained by Reuters and form the centerpiece of a Reuters story detailing communication between Chesapeake and Encana in the summer of 2010, just a month after the two were the primary bidders in a highly competitive sale of public lands in Michigan. According to the Reuters report, the May 2010 auction raised a record $178 million on the sale of 118,000 acres.

By contrast, five months later, in October 2010, the sale of 274,000 acres brought in $9.7 million. The average winning bid in the October auction was $46, compared to $1,413 in May.

What happened in between, according to the report, is that top executives at Chesapeake exchanged numerous emails with counterparts at Encana, discussing a "joint-bid strategy" to keep "acreage prices from continuing to push up."

CEO Aubrey McClendon was apparently copied on key emails, and, in a June 16, 2010 email, McClendon himself reportedly suggested to a top executive that it was time "to smoke a peace pipe" with Encana "if we are bidding each other up."

According to Reuters, electronic communication between the two companies over the ensuing weeks reveal efforts to develop a plan to divide up the land that was going to be up for auction in October, so that the two companies would not be bidding against each other. Aside from the actual results of the land sale, there are no internal documents proving that the two competitors actually went through with the plan. Still, the report points out, neither company ended up buying land in any county where the other had purchased land.

In response, a Chesapeake spokesman provided the Oklahoma Impact Team with this statement: "While there were discussions between Encana and Chesapeake in 2010 about forming an "area of mutual interest" joint venture (an "AMI") regarding leases in Michigan, no such agreement was reached between the parties and no AMI was formed. Nor did Encana and Chesapeake make any joint bids."

The statement also points out that Chesapeake has invested approximately $400 million to acquire leases in Michigan.

Encana officials also acknowledged having discussions with Chesapeake regarding a possible joint venture, but which never came to fruition. Additionally, Encana says it has initiated an internal investigation into the matter.

The Michigan attorney general's office has also been asked, by the Department of Natural Resources, to review the situation.