Encana clears itself of collusion in Michigan
ATLANTA/CALGARY, Alberta (Reuters) - Encana Corp (ECA.TO) said on Wednesday an internal investigation has determined that it did not collude with Chesapeake Energy Corp (CHK.N) to lower the price of land acquisitions in Michigan two years ago.
The company's board of directors, which led the investigation launched on June 25 with the assistance of outside attorneys, did not provide a report on the scope of the inquiry, nor explain how it reached its conclusion.
"We can't offer more detail than what we've released as the issue is still under investigation by the Antitrust Division of the Department of Justice and the Michigan Attorney General," Encana spokesman Jay Averill said in an email.
Following requests from reporters, Encana disclosed that its board investigation had been assisted by attorneys from U.S. law firms Paul, Weiss, Rifkind, Wharton & Garrison, Gibson, Dunn & Crutcher, and Canadian law firm Blake Cassels & Graydon. The law firms have each represented Encana in other corporate matters, the company said.
Encana, Canada's largest natural gas producer, also confirmed it was served with a subpoena from the Antitrust Division of the U.S. Department of Justice and a civil investigatory demand from the Michigan Attorney General related to the allegations of collusion.
It said it will fully cooperate with the two agencies.
In June, Reuters reported that Encana plotted with rival Chesapeake Energy Corp to suppress land prices in Michigan two years ago.
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. Chesapeake and Encana were among the largest bidders for land leases there.
In response to the report, both Chesapeake, the second largest producer of natural gas in the United States, and Encana said they had discussed forming a joint venture in Michigan in 2010, but ultimately decided against it.
Most of the emails reviewed by Reuters were between top Chesapeake and Encana executives such as a June 15, 2010 email between Douglas Jacobson, Chesapeake's executive vice president for acquisitions and divestitures, and John Schopp, a vice president for Encana USA.
In that email, Jacobson said he wanted to discuss the companies' proposed joint-venture and "the implications of the impact of our competition on acreage prices and whether or not the sooner we do this the better shot we have of keeping acreage prices from continuing to push up."
Four months later, Chesapeake Chief Executive Officer Aubrey McClendon and Encana USA President Jeff Wojahn discussed a "cooperative approach to state leasing," according to an October 17, 2010 email from McClendon.
The executives' subordinates traded proposals to divide up nine Michigan counties for bidding purposes ahead of a state land auction in October 2010. On October 20, six days before the auction, Encana's Wojahn wrote in an email to McClendon: "From what I understand John Schopp has been leading the charge on working with your team on arranging a bid strategy."
A Reuters analysis showed land prices at the October state land auction were markedly lower than an earlier auction in May 2010 and neither Chesapeake nor Encana acquired acreage in the same counties as the rival company. But the companies did not follow the exact split of counties proposed in their email exchanges.
In another email, Chesapeake's 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."
In July, Reuters reported that the U.S. Department of Justice had opened a probe into Chesapeake and Encana's land acquisitions. Chesapeake then disclosed last month that it had received a subpoena from the Justice Department on June 29 as part of a grand jury investigation. The company also said it had received requests for documentation from "state governmental agencies" as part of other investigations of its land acquisitions.
Encana's internal investigation was headed by David O'Brien, the chairman of Encana's board of directors.
"We have taken this matter very seriously and over the past eleven weeks have conducted a very rigorous investigation," O'Brien said in a statement.
Encana shares fell 21 Canadian cents to close at C$21.36 on the Toronto Stock Exchange on Wednesday.