Chesapeake E-Mail Cited by Michigan in Lease-Bidding Case

Chesapeake Energy Corp.’s former chief executive officer invited Encana Corp. to join in dividing Michigan oil and gas lease bidding opportunities in 2010 “rather than bash each other’s brains out,” according to an e-mail cited by the state in a court filing.

Chesapeake and Encana were accused by the state 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.

Michigan has charged Oklahoma City-based Chesapeake with conspiring to restrain trade, in violation of the state’s antitrust laws. The company, which has since withdrawn from exploration in Michigan, faces a top fine of $1 million on each of the two conspiracy counts it faces.

Chesapeake has denied the allegations. The state, in yesterday’s filing, summarized the arguments and evidence it produced for a court hearing this month.

In the May 4, 2010, e-mail to an Encana executive, former Chesapeake CEO Aubrey McClendon asked, “Should we throw in 50/50” on Michigan “rather than bash each other’s brains out on lease buying,” according to the state’s filing.

In a later note, the CEO allegedly said the companies could save “billions of dollars in lease competition.” McClendon left the company last year after a shareholder revolt.

The office of Michigan Attorney General Bill Schuette provided Bloomberg News with a copy of the filing, which couldn’t be immediately confirmed in court records.

Chesapeake Deadline

Chesapeake has until May 23 to file its summary of arguments and evidence with state Judge Maria Barton in Cheboygan, according to the attorney general’s office.

Gordon Pennoyer, a Chesapeake spokesman, declined to comment on yesterday’s filing.

Chesapeake, in a May 1 court filing, said Michigan antitrust laws don’t apply to oil and gas rights agreements regarding “the unitized development or operation of properties.” The company also denies any unlawful agreement was ever entered into with Encana.

Calgary-based Encana, Canada’s biggest natural gas producer, agreed this month to pay Michigan $5 million to settle a civil lawsuit and to not contest a charge that it attempted to collude with Chesapeake to rig a 2010 oil and gas lease auction.

The case is Michigan v. Chesapeake Energy Corp., 14-0140-FY, 89th Judicial Court, Cheboygan County, Michigan (Cheboygan).