How Chesapeake tried to unload "worthless" acreage

Tue Oct 2, 2012 7:05am EDT

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(Reuters) - Selling land leases is as much part of Chesapeake's land grab as acquiring them. Some are proving hard to unload.

On October 30, 2010, Chesapeake CEO Aubrey McClendon told Jeff Wojahn, a top executive of Encana Corp, that he was ready to sell Michigan leases held by Chesapeake - "at reasonable terms if you were interested." Wojahn replied that he wanted to "trade well information first," according to emails reviewed by Reuters.

Encana and Chesapeake declined to comment on the emails.

Chesapeake executives knew that their test well in Michigan had performed poorly. But the emails indicate that McClendon wanted to provide Encana just enough information about Chesapeake's well to keep the sale talks going, without showing the well's full - and disappointing - results.

"But isn't our possible gain that they could want to buy our (now worthless) leases?" McClendon wrote to three top Chesapeake officials on October 31, 2010. The words in parentheses - "now worthless" - were his. So was the suggestion to provide Encana barebones information.

"We need to know what is the data that we could release to Encana that makes us look like we have nothing to hide, yet won't show anything negative about the play?" he wrote in the same email.

Encana didn't bite, and Chesapeake is now marketing some 450,000 acres to other potential buyers.

Though McClendon once called the acreage "worthless," a prospectus for the sale touts it as containing "the strong possibility" of valuable oil and other liquids.

The sale was scheduled to close on August 31. So far, there have been no takers.

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

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