* Northstar Energy claims firms rigged bids in Michigan
* 2010 email shows McClendon "pushing to save us both some
* DOJ, Michigan Attorney General investigations ongoing
* Chesapeake, Encana boards find no antitrust violations
By Brian Grow and Joshua Schneyer
Feb 25 A major Michigan landowner is suing
Chesapeake Energy Corp and Encana Corp,
alleging that the two energy giants colluded to rig bids for oil
and gas rights in 2010.
Northstar Energy, which owns nearly 10,000 acres in
Michigan's Utica-Collingwood oil and gas shale formation, filed
the lawsuit against Chesapeake and Canadian firm Encana in
Michigan federal court Friday.
The suit follows a series of Reuters investigations last
year which triggered civil and criminal probes of Chesapeake,
the second-largest U.S. producer of natural gas. In June,
Reuters reported that Chesapeake and Encana, Canada's largest
gas producer, worked to suppress land prices in Michigan three
years ago. ()
Reuters quoted from internal Chesapeake emails that show top
executives of the two companies traded proposals to divide
bidding responsibilities for nine private landowners and
counties in Michigan.
Northstar was one of the private landowners discussed.
In its lawsuit, Northstar claims Chesapeake and Encana
agreed to avoid bidding against each other for oil and gas
rights on Northstar's acreage. The companies "formed an
anti-competitive agreement and shared competitive and
proprietary information" in violation of U.S. federal antitrust
law and Michigan statutes, according to the lawsuit.
Northstar's lawsuit seeks treble damages, or triple the
amount the plaintiffs say they lost out on due to the alleged
Attorneys for Northstar declined to comment. Chesapeake
declined to comment. Encana said its own probe, completed last
September, concluded that the firm hadn't engaged in collusion
during land leasing in Michigan in 2010.
"We intend to vigorously defend any lawsuit which may be
brought against Encana with respect to these matters," Encana
spokesman Jay Averill said in a statement, declining further
comment on pending litigation.
In earlier statements, Chesapeake and Encana have
acknowledged holding talks about forming a joint venture in
Michigan, but said no agreement was reached.
Last week, Chesapeake's board of directors said an internal
review found the company did not violate antitrust laws.
The companies' boards didn't say how they reached their
conclusions. The U.S. Department of Justice and the attorney
general in Michigan continue to investigate whether the firms
violated antitrust laws in Michigan, and issued them subpoenas
"The importance of independent - rather than internal -
investigations cannot be emphasized enough in a case involving
antitrust bid-rigging allegations," a spokeswoman for Michigan
Attorney General Bill Schuette said in a statement last week.
"Our thorough, independent investigation into these serious
allegations will continue."
Some antitrust law experts said new emails and documents
obtained by Northstar could spell trouble for Chesapeake and
"There is one world where you do not want to be an antitrust
defendant," said Darren Bush, a former Justice Department
antitrust attorney and professor of antitrust law at the
University of Houston. "That is where there are really damning
documents suggesting you engaged in restraint of trade. This is
the world that Chesapeake and Encana find themselves in right
In 2010, one of the most frenzied land booms in Michigan
history began after Encana drilled a promising test well in the
state's Collingwood shale. Chesapeake and Encana were the
largest bidders for leases in the play.
Privately, the firms discussed forming a type of joint
venture in Michigan known as an "Area of Mutual Interest." An
AMI is a legal partnership that oil and gas companies, including
competitors, sometimes use to share the costs of developing
particular areas. The AMI never went forward, they said.
Last year, Reuters reported that top executives at the firms
discussed working together to prevent "acreage prices from
continuing to push up," according to a June 15, 2010 email from
a top Chesapeake executive to a senior Encana official.
The same day, Chesapeake Chief Executive Aubrey McClendon
added another landowner - Northstar - to the proposed division
of bidding responsibilities. The mention of Northstar came in an
email from McClendon to Encana officials, including former
Encana Chief Executive Randy Eresman and Encana USA President
Jeff Wojahn, Reuters found.
"Also, with regard to B) below, looks like Northstar wants
us to bid against each other next week, let's decide who should
handle that one - thanks," McClendon wrote.
McClendon will step down as chief executive of Chesapeake on
April 1, the company announced in January. Encana's Eresman
retired unexpectedly on Jan. 11; he agreed to stay on in an
advisory role until Feb. 28. Both companies said the departures
of their CEOs were unrelated to the ongoing antitrust
The Northstar lawsuit sheds new light on the communications
between the top executives of the rival energy firms.
In a previously undisclosed email exchange obtained by
Northstar, Chesapeake's McClendon forwarded the draft proposals
to divide up the Michigan counties and landowners to Eresman and
Wojahn on June 15, 2010. He wrote, "Fyi, pushing to save us both
some money, Aubrey."
Eresman responded a few hours later. "Agreed. The sooner the
better. Thanks for continuing to move this forward. Randy."
Northstar alleges that Encana pulled out of bidding for its
Michigan acreage a week after Chesapeake and Encana exchanged
As a result, the lawsuit claims, Chesapeake was the only
bidder for Northstar's acreage, enabling it to obtain a lease
agreement for $2,250 per acre - or 25 percent less than what
Northstar claims was the market rate at the time.
Chesapeake later backed out of that agreement, the lawsuit
alleges, after Encana informed McClendon that it was halting new
leasing in the state. Ultimately, Chesapeake agreed to acquire
only 750 acres from Northstar, the lawsuit says.
In December, Reuters reported that other emails and
documents exchanged by Chesapeake and Encana suggest the talks
may have been more extensive and detailed than previously known.
In a June 17, 2010 email from John Schopp, a vice president
at Encana, to Doug Jacobson, Chesapeake's executive vice
president of acquisitions and divestitures, Schopp noted why he
thought teaming with Chesapeake would benefit both firms. "I
certainly feel that combining forces will be helpful to prevent
further inflation," he wrote. "After a time we might benefit
from some deflation as well. Your thoughts?"