Chesapeake Says E-Mails Contradict Michigan Charges

Chesapeake Energy Corp., the second-biggest U.S. natural-gas producer, said Michigan is cherry picking the company’s internal e-mails to suggest its former chief executive officer invited Canadian rival Encana Corp. to join in dividing the state’s oil and gas lease bids.

The competitors in March were charged by the state with conspiring to divvy up the counties in which each would seek resource exploration rights before a May 2010 auction, driving bid prices down to $40 per acre from $1,510.

Michigan’s lawyers cited Chesapeake e-mails that included suggestions the two companies “throw in 50/50” on the bids. In a filing yesterday in state court in Cheboygan, the company cited other portions of some of the same e-mails to show the former CEO, Aubrey McClendon, was open to competition.

McClendon told his staff in a June 25, 2010, message that he was determined to “compete and win” on the leases and that Encana “won’t share,” according to the filing. The e-mail exchanges cited show no deal was ever reached with Encana, Chesapeake said.

Michigan 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 The company, which has since withdrawn from exploration in Michigan, faces a top fine of $1 million on each of the two criminal conspiracy counts it faces.

‘Select Group’

“The only evidence the state can point to is a select group of documents in the case, but the documents taken as a whole make abundantly clear that no agreement was reached,” Chesapeake’s lawyers said in the filing. “Theories and speculation are not evidence.”

Michigan’s own expert witness has said the higher bid price was an anomaly rather than the norm, according to the filing.

Joy Yearout, a spokeswoman for state Attorney General Bill Schuette, declined to comment on yesterday’s filing.

The state, in a filing in support of the case this month, cited a May 4, 2010, e-mail from McClendon to an Encana executive in which he asked, “Should we throw in 50/50” on Michigan “rather than bash each other’s brains out on lease buying.”

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.

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).

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