MI Lawmakers Call For Investigation Into Chesapeake Energy & EncanaVW Staff
In separate resolutions, two Michigan state representatives have recently asked officials to take their Chesapeake Energy Corporation (NYSE:CHK) and EnCana Corporation (NYSE:ECA) reviews for potential collusion up a notch. The two companies allegedly came together, rather than bidding against one another for land deals in Michigan, reported Reuters.
Two Democrat lawmakers, Rep. Dian Slavens and Rep. Charles Smiley, asked state Attorney General Bill Schuette and the state's Department of Natural Resources in last week's filings to “work with the appropriate federal authorities and employ all available resources to investigate alleged price fixing and collusion among natural gas developers, and vigorously pursue damages to which the State of Michigan and impacted citizens are entitled,” according to Reuters.
In June, these two offices opened investigations into the allegations. From the recent resolutions by the lawmakers, they wrote, “if these accusations are true, it would be a major betrayal of the public trust placed in these two companies” and “if these two companies have indeed broken the law by colluding to bring prices down, their commitment to following other Michigan laws, including environmental laws could be questioned.”
Encana is also conducting its own internal review of the allegations, which had been opened by its board of directors at the end of June. The company has said it will not comment on the investigation until it's complete. It will report its second-quarter earnings on Wednesday.
Chesapeake Energy Corporation (NYSE:CHK) has not made any comments, other than that it did not conduct joint bids with Encana.
The state and internal Encana review aren't the only open ones reviewing the matter: On July 3, Reuters reported that U.S. Department of Justice has also launched a review into potential collusion by the two energy companies.
So where do the allegations come from? It stems from a review of emails between Chesapeake and Encana executives that discussed ways for the two to not bid against one another, for an October 2010 Michigan public land auction and possible land deals that included private landowners from the state.
According to Reuters, Chesapeake Chief Executive Officer Aubrey McClendon said to a deputy in a June 16, 2010 email, that it was time “to smoke a peace pipe” with Encana “if we are bidding each other up.”
The deputy allegedly responded that he had been in touch with 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 had said, “Thanks.”
Emails also included ones between McClendon and Encana USA President, Jeff Wojahn; Encana chief executive Randy Eresman had also been copied on some.
What was the carrot dangling in front of the two that supposedly drove them together for a potential collusion? It was the coveted Collingwood shale formation in Michigan; it has been seen as having a lot of potential for oil and gas plays. The two companies aggressively bid for land leases.
They have said they discussed a possible Michigan joint venture in 2010, but decided not to do so, reported Reuters.
Here at ValueWalk, we've been keeping a close eye on Cheasapeake. In the last four months, there's been a rash of negative reports on the company. We put together a recent a timeline and after today's story, it will have another entry.
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