Chesapeake Energy Emails May Reveal Collusion with Encana
Conversation Led to Michigan Land Price Drop
Chesapeake Energy (NYSE: CHK) is under scrutiny for possible collusion with Encana Corp. (NYSE: ECA) to suppress Michigan land prices in 2010.
An exclusive report by Reuters cites emails between the two companies about activity in the region, information which may have played a hand in Chesapeake's timing in leasing in the region.
According to the emails, Chesapeake CEO Aubrey McClendon seemed to react to information from Encana's U.S. president Jeff Wojahn when he revealed his company's plans to halt leasing in Michigan's Collingwood shale.
The day of receiving this information and in the days that followed, McClendon issued instructions to delay or alter at least ten leasing deals in the region.
The two natural gas companies are major rivals, with Encana leading the industry in Canada and Chesapeake near the top in the U.S.
And they are under legal scrutiny for bid-rigging, price-fixing, and market allocations, which are illegal under the Sherman Antitrust Act.
There is no law against the sharing of information among competitors. But if the companies are found guilty of any Antitrust offenses, they could receive fines of up to $100 million per offense, according to Reuters.
Our analysts have traveled the world over, dedicated to finding the best and most profitable investments in the global energy markets. All you have to do to join our Energy and Capital investment community is sign up for the daily newsletter below.
“It's highly suspect,” said Maurice Stucke, a former antitrust attorney with the Department of Justice. Said Harry First, another former Justice Department antitrust attorney: “Asking your competitor whether they are going to stop leasing in, or exit, the Michigan market is an offer to collude.”
And that appears to be exactly what McClendon did. The emails showed that McClendon, upon finding rumors of Encana's lease end on a website, contacted Wojahn.
When Wojahn responded that the company did plan to end the lease but not the stake in Collingwood, McClendon reacted.
In an email to his Michigan agents:
“With Encana pulling away we should be able to be very aggressive in extending some extension dates risk losing the deals, agree?”
It is suspected that this willingness to extend deadlines was a result of the knowledge that Encana was no longer a threat.
Not long after, Michigan land prices began to fall.
The Justice Department is currently investigating the conversation between the rival companies and their links to the actions in Michigan.
McClendon has also been under criticism recently after using company stakes as collateral for personal loans.
Chesapeake was up 2.09% on Wednesday to $19.08.
Energy Demand will Increase 58% Over the Next 25 Years
After getting your report, you’ll begin receiving the Energy and Capital e-Letter, delivered to your inbox daily.