Michigan lawmakers call for action in Chesapeake-Encana probe

Tue Jul 24, 2012 7:03am EDT

A yellow Encana natural gas pipeline marker is seen along a road on state forest park land in Kalkaska, Michigan June 20, 2012. REUTERS/Rebecca Cook

A yellow Encana natural gas pipeline marker is seen along a road on state forest park land in Kalkaska, Michigan June 20, 2012.

Credit: Reuters/Rebecca Cook

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(Reuters) - Two Michigan state representatives have called on officials there to step up their investigations into possible collusion between Chesapeake Energy Corp and Encana Corp, following a Reuters report that the energy rivals plotted to avoid bidding against each other in Michigan land deals.

Encana, which opened an internal investigation led by its board of directors in late June, is scheduled to release second- quarter earnings Wednesday. Canada's largest natural gas company, Encana has said it will not comment further on the collusion report until its inquiry is completed. Chesapeake has declined to comment beyond saying that it never bid jointly with Encana.

The calls for more aggressive action in Michigan came last week in resolutions filed by two lawmakers, both Democrats.

In separate but identically worded resolutions, Rep. Dian Slavens and Rep. Charles Smiley urged state Attorney General Bill Schuette and the state's Department of Natural Resources to "work with the appropriate federal authorities and employ all available resources to investigate alleged price fixing and collusion among natural gas developers, and vigorously pursue damages to which the State of Michigan and impacted citizens are entitled."

Reuters reported on July 3 that the U.S. Department of Justice has opened a probe into possible collusion by the energy rivals, according to a person familiar with the matter.

Emails reviewed by Reuters show that top Chesapeake and Encana executives repeatedly discussed how to avoid bidding against each other in an October 2010 public land auction in Michigan and in prospective land deals involving at least nine private landowners in the state.

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 deputy 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; others were copied to Encana chief executive Randy Eresman.

The communications between the companies occurred at a time when Michigan's Collingwood shale formation was considered one of the most promising new oil and gas plays in the United States. Chesapeake and Encana were among the most aggressive bidders for land leases there.

Both Encana and Chesapeake, the second largest natural gas producer in the United States, said they had discussed forming a joint venture in Michigan in 2010 but ultimately decided against it.

In late June, the antitrust division of the Michigan attorney general's office and the state's Department of Natural Resources, which oversees state land auctions, said they had opened investigations into the information contained in the Reuters report.

Citing emails and analysis of possible collusion contained in the Reuters report, the lawmakers' resolutions said that "if these accusations are true, it would be a major betrayal of the public trust placed in these two companies." As a result, the resolutions said that "if these two companies have indeed broken the law by colluding to bring prices down, their commitment to following other Michigan laws, including environmental laws could be questioned."

(Reporting By Brian Grow and Joshua Schneyer; editing by Blake Morrison)

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