Chesapeake, Encana Plead Not Guilty in Michigan Case

Chesapeake Energy Corp. and the U.S. unit of Encana Corp. (ECA), rivals in developing American oil and gas resources, pleaded not guilty to conspiring to avoid competing for leases in Michigan.

Company representatives entered the pleas today before a state court judge in Cheboygan, Michigan. Encana is Canada’s biggest natural-gas producer. Chesapeake is the second-largest gas producer in the U.S.

Michigan Attorney General Bill Schuette said March 5 that the companies violated state antitrust laws by agreeing in which counties each would bid before a May 2010 auction for exploration rights. Each company faces a charge of conspiring to restrain trade, punishable by a fine of as much as $1 million, and an attempted-conspiracy count that carries a $1,000 penalty.

Chesapeake, which spent $400 million on exploration of Michigan’s Collingwood shale formation, has since withdrawn from the state. Calgary-based Encana has invested $230 million in Michigan in the past five years, Doug Hock, a company spokesman, said today.

Schuette said the alleged agreement may have been a key factor in the decline of lease prices from $1,510 an acre at the May 2010 sale to less than $40 an acre five months later. The companies cite results of internal investigations in 2012 in maintaining they didn’t violate Michigan law.

‘Written Evidence’

“When all of the evidence is viewed by the courts, we believe the conclusion will be clear that Encana did not breach any antitrust laws,” Hock said in an e-mailed statement confirming the company’s plea. “Written evidence received from third parties since the completion of the board investigation clearly shows that Encana and Chesapeake remained fiercely competitive the entire time the two companies were active in purchasing leases in the state of Michigan.”

Gordon Pennoyer, a spokesman for Chesapeake, said today the state’s action has no merit and that the Oklahoma City-based company also pleaded not guilty.

Judge Maria Barton at the state court in Cheboygan, on the northern edge of Michigan’s lower peninsula, scheduled a May 5 hearing where the companies can challenge whether prosecutors had probable cause to bring the charges.

The internal investigations of Michigan bidding practices were prompted by a 2012 Reuters report citing e-mails among executives from both companies, including then-Chesapeake Chief Executive Officer Aubrey McClendon and an Encana vice president.

In one exchange, McClendon said his company needed to “smoke a peace pipe” with Encana to avoid a bidding war, Reuters said, without saying where it obtained the e-mails.

Schuette cited the Reuters investigation in announcing the charges.

The cases are People v. Chesapeake Energy Corp. (CHK), 14-0140-F4, and People v. Encana Oil & Gas USA Inc., 14-0141-F4, 89th District Court, Cheboygan County, Michigan (Cheboygan).

To contact the reporter on this story: Andrew Harris in federal court in Chicago at aharris16@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Stephen Farr, Andrew Dunn

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