Encana Pays Michigan $5 Million in Energy Lease Probe

Encana Corp. (ECA), Canada’s biggest natural gas producer, agreed to pay Michigan $5 million and not to contest a charge it attempted to collude with Chesapeake Energy Corp. (CHK) to rig a 2010 oil and gas lease auction.

Michigan Attorney General Bill Schuette filed criminal charges against the companies in March, accusing them of violating state antitrust laws. Chesapeake is contesting the allegations at a hearing that started today in Cheboygan, on the northern edge of Michigan’s lower peninsula.

Encana and Chesapeake were accused by Schuette of divvying up the counties in which each would seek resource exploration rights before a May 2010 auction, driving bid prices down from $1,510 per acre for that auction to $40 in October, Schuette said in announcing the charges.

Both companies initially disputed the state’s claims they attempted to restrain trade and conspired to do so, the latter crime punishable by a fine of as much as $1 million. Calgary-based Encana agreed to plead no contest to the attempt allegation, Schuette said.

Its $5 million payment resolves a civil lawsuit by Schuette’s office unveiled today.

The U.S. Justice Department last week said it was closing its investigation into the possibility of anticompetitive practices by Chesapeake and Encana involving the purchase or leasing of oil and gas development rights in Michigan.

‘Good Result’

“Allegations of bid-rigging are taken seriously, and today’s settlement with Encana is a good result for taxpayers,” the attorney general said in a statement announcing the accord.

Michigan agreed to an 11-month delay in punishing Encana for the market manipulation attempt, the attorney general said. It will be dropped then if the company pays the civil settlement and comports with other terms of its agreements with the state.

The more serious conspiracy charge has been dismissed, according to the attorney general.

“This changes nothing for Chesapeake,” the Oklahoma City-based company said in a separate statement today. “The Michigan state action has no merit and we are vigorously contesting it.”

Chesapeake, the second-biggest U.S. natural gas producer, maintains it had no agreement with Encana regarding Michigan oil and gas lease bidding.

While Chesapeake has withdrawn from the state, Encana said today it has invested more than $230 million there. The accord avoids “the need for costly and protracted litigation,” it said in a statement.

The criminal cases are People v. Chesapeake Energy Corp., 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 Fred Strasser

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