Exclusive: U.S. probes Chesapeake, rival over possible collusion

WASHINGTON Tue Jul 3, 2012 6:40am EDT

1 of 2. Chesapeake Energy Corporation's 50 acre campus is seen in Oklahoma City, Oklahoma, on April 17, 2012.

Credit: Reuters/Steve Sisney

Related Topics

WASHINGTON (Reuters) - The U.S. Justice Department is probing Chesapeake Energy Corp and Encana Corp for possible collusion after a Reuters report showed that top executives of the two rivals plotted in 2010 to avoid bidding against each other in Michigan land deals, a source close to the probe said.

The report uncovered emails showing that the two natural gas companies repeatedly discussed how to avoid bidding against each other in a public land auction in Michigan and in nine prospective deals with private land owners in the state.

Communications between the companies occurred in 2010, when Michigan's Collingwood shale formation was considered one of the nation's most promising new oil and gas plays, and Chesapeake and Encana were among the largest bidders for land leases there.

The source, who was not authorized to speak publicly, said the Justice Department probe could last for months, if not longer.

A Justice Department spokesman declined to comment.

Jim Gipson, a spokesman for Chesapeake, said the company declined to comment. A spokeswoman for Encana said the company had no comment.

The federal government's probe adds more scrutiny to the two energy companies.

Last week, the antitrust division of Michigan Attorney General Bill Schuette's office and Michigan's Department of Natural Resources, which oversees state land auctions, also opened investigations into the allegations in the report, according to three sources familiar with the matter.

"Our commitment is to ensure the integrity of the auction process and to receiving fair market value for public land," said Michigan DNR spokesman Ed Golder. Joy Yearout, a spokeswoman for the attorney general's office, declined to comment.

Congress has also expressed interest in learning more about Chesapeake and Encana's land dealings.

In a letter sent earlier on Monday to U.S. Attorney General Eric Holder, Representative Maurice Hinchey wrote: "I urge you to review this (Reuters) report, open an investigation into whether any federal antitrust laws were violated in this case, and assess whether violations may have been committed in other oil and gas lease bidding across the country."

A Democrat from New York, Hinchey is a critic of hydraulic fracturing, or "fracking," the controversial drilling technology that has opened up vast new reserves of oil and gas in the United States.

A member of the House Appropriations Committee, Hinchey is a co-author of the FRAC Act, which would require drilling companies such as Chesapeake and Encana to disclose the chemicals used in fracking fluid.

'SMOKE A PEACE PIPE'

Both Chesapeake and Encana, Canada's largest natural gas company, said they had discussed forming a joint venture in Michigan in 2010, but ultimately decided against it.

In one email, Chesapeake Chief Executive Officer Aubrey McClendon told one of his deputies on June 16, 2010, that it was time "to smoke a peace pipe" with Encana "if we are bidding each other up."

The Chesapeake vice president responded that he had contacted Encana "to discuss how they want to handle the entities we are both working to avoid us bidding each other up in the interim." McClendon replied: "Thanks."

Some of the emails were between McClendon and Encana USA President Jeff Wojahn.

Encana has pledged quick action, opening an internal investigation led by David O'Brien, chairman of the company's board of directors.

News of the discussions between Encana and Chesapeake, the second-largest natural gas producer in the United States, comes at a time when McClendon is already under fire.

The company's board stripped him of his chairmanship after Reuters reported that he took out more than $1.3 billion in personal loans from a firm that also finances Chesapeake. The Internal Revenue Service and the U.S. Securities and Exchange Commission have launched inquiries into Chesapeake.

(Additional reporting by Joshua Schneyer; Editing by Martin Howell and Lisa Von Ahn)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (3)
CountryPride wrote:
The Department of “Justice” is on the case. They have lost all credibility in the eyes of the American people until the criminal Eric Holder is fired or thrown in jail!

Jul 02, 2012 9:49pm EDT  --  Report as abuse
libertadormg wrote:
Reuters has merely exposed the tip of the proverbial iceberg. Oil and gas leasing has historically been and continues to be Wild West lassez faire economics on steroids. Collusion is widespread and routinely done as matter of fact business practice barely concealed by AMI agreements. Aubrey McClendon famously bragged at his Tulsa investor conference in 2010 “I don’t like to buy acreage for fair price.”

Jul 02, 2012 10:13pm EDT  --  Report as abuse
tdlane wrote:
I have no comment.

Jul 02, 2012 12:36am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

How to get out of debt

Financial adviser Eric Brotman offers strategies for cutting debt from student loans and elder care -- and how to avoid money woes in the first place.  Video