Encana investigating claims of collusion with rival, Calgary energy company accused of land sale scheme with Chesapeake Energy

Encana investigating claims of collusion with rival, Calgary energy company accused of land sale scheme with Chesapeake Energy by Dina O’Meara, June 25, 2012, Calgary Herald with files from Reuters, Canadian Press
Encana Corp. could face increased opposition from land owners following reports the Calgary energy company plotted with Chesapeake Energy to keep land prices at a Michigan gas play low. Allegations Encana Corp. conspired with a rival U.S. natural gas producer to keep land prices low in a promising Michigan shale gas play could have damaging repercussions on the Calgary-based energy company, say analysts. The Canadian natural gas giant said Monday it launched an investigation after a media report indicated its U.S. operations colluded with Chesapeake Energy Corp. in agreeing not to “bid up” land in the Collingwood, Michigan region. “In accordance with Encana’s policies, an investigation of this matter was immediately initiated,” says Encana chair David O’Brien, Monday afternoon in a release. “Encana therefore will not provide any further information at this time.” The incidents revealed in e-mails exchanged by employees of the two companies indicate the rivals repeatedly discussed how to avoid bidding against each other in a public land auction in Michigan two years ago and in at least nine prospective deals with private land owners here, according to Reuters. Encana and Chesapeake, the second larges natural gas producer in the United States, face stiff anti-competition fines should the e-mails prove to be evidence of collusion, but already must deal with a blow to their reputation which could affect access to land, said observers. “Whether it’s true or not this is only going to hurt Encana’s reputation, and it’s going to hurt with its key stakeholders,” said Loren Falkenberg, professor of business ethics at the University of Calgary. “You’ve already got angry landowners … this isn’t going to help (Encana), it’s going to really hurt them.” Encana has been embroiled in allegation natural gas operations in a tiny community in Wyoming led to contamination of groundwater, and must contend with growing opposition to fracturing as one of the largest producers of the resource in North America. … “This creates another level of uncertainty for investors,” said Phillip Skolnick, with Canaccord Genuity, from New York. “The thing is we are in a risk-off market, the last thing you want to be exposed to is any legal uncertainty. That’s why it did underperform.” … In one e-mail, dated June 16, 2010, chief executive Aubrey McClendon told a Chesapeake deputy 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.” That exchange — and at least a dozen other e-mails reviewed by Reuters — could provide evidence that the two companies violated federal and state laws by seeking to keep land prices down, antitrust lawyers said. “The famous phrase is a ‘smoking gun.’ That’s a smoking H-bomb,” said Harry First, a former antitrust lawyer for the Department of Justice. “When the talk is explicitly about getting together to avoid bidding each other up, it’s a red flag for collusion, bid-rigging, market allocation.” … Encana said last week it would spend an additional $600 million this year to produce natural gas liquids, which more closely track oil prices than dry natural gas prices. Encana shares closed down nearly eight per cent on Thursday when it made that announcement.

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