Chesapeake faces trial on bid-rigging in Michigan lease sale

Thu Jul 10, 2014 6:03pm EDT

Chesapeake Energy Corporation's 50 acre campus is seen in Oklahoma City, Oklahoma, on April 17, 2012.    REUTERS/Steve Sisney

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

Credit: Reuters/Steve Sisney

(Reuters) - A judge in Michigan has ruled that Oklahoma-based Chesapeake Energy Corp must face a criminal trial on a charge of bid-rigging with competitor Encana Corp at a 2010 state land lease auction, citing evidence of a conspiracy between the companies that drove state lease prices down sharply.

The ruling, issued on Wednesday by Judge Maria Barton of Michigan’s Cheboygan County District Court, dismissed two other criminal charges brought against Chesapeake by the office of Michigan’s Attorney General. The other charges alleged that the company struck a deal with Encana to avoid competing for land leases from private landowners in Michigan, and had attempted antitrust violations against those landowners.

“The direct and circumstantial evidence established that the parties did in fact strike an agreement to bid-rig the State sale,” Barton’s ruling says.

It cites evidence including an email sent by Encana USA Chief Executive Officer Jeff Wojahn to a landman bidding on Encana’s behalf on the morning of the October, 2010 auction. The email makes reference to a lease area on offer, stating that “This is a Chesapeake area and we will not be bidding.” Michigan's criminal investigation began in 2012 after a Reuters report found that top executives from Chesapeake and Encana discussed dividing up bidding responsibilities involving nine private landowners and nine counties in the state. Chesapeake and Encana were the biggest leasers of land during a short-lived leasing boom in the state's Collingwood Shale oil and gas play that year. “We appreciate that the court carefully reviewed the evidence and dismissed two of the three counts. We will continue to contest the remaining count which we also believe has no merit,” said Chesapeake spokesman Gordon Pennoyer.

If found guilty of bid-rigging, Chesapeake could face a fine of up to $1 million. The state would also seek restitution for damages caused as a result of the criminal conduct, said a spokeswoman for Michigan Attorney General Bill Schuette.

"Bid-rigging will not be tolerated in the Great Lakes State," Schuette said in a statement on Thursday. "We are confident in our case, and will be prepared for trial."

Schuette plans to appeal the charges that Judge Barton dismissed, his office said.

Evidence presented at a recent hearing did not support a trial on the two other charges involving private landowners, Barton's ruling said.

“Although there is ample discussion by both Encana and the Defendant to attempt to bid-rig the individual landowners, the evidence is lacking as to an actual conspiracy,” she wrote. In May, Encana pleaded no contest to a misdemeanor charge that it attempted to commit antitrust violations in Michigan with Chesapeake, and agreed to pay $5 million in a civil settlement that could clear the company of criminal charges.

The Chesapeake trial is slated to be heard in the 53rd Judicial Circuit Court in Rogers City, Michigan. No trial date has been set. Case No. 14-0140-FY filed in Michigan's 89th District Court - People of the State of Michigan v Chesapeake Energy Corporation. Also still pending are fraud and racketeering charges that Michigan separately brought against Chesapeake last month for allegedly cancelling hundreds of 2010 land leases with private landowners on false pretenses.

Chesapeake has called those charges without merit and pledged to fight them.

(Reporting By Joshua Schneyer in New York and Brian Grow in Atlanta; Editing by Franklin Paul, Bernard Orr)