A Michigan land owner who alleges he was jilted by two of North America’s largest energy companies says e-mails made public Monday by Reuters prove that the two companies colluded to kill deals that could have earned him more than $54-million.
Walter Zaremba, who is locked in litigation with Encana Corp., Canada’s largest natural gas producer, said he has long suspected that Encana and Chesapeake Energy Corp. had been working together, which would be a possible violation of state and federal antitrust laws.
Encana and Chesapeake, the second-largest natural gas producer in the United States, withdrew offers for Mr. Zaremba’s land in quick succession in 2010. That came after they had engaged in a bidding war for his property in the weeks prior, according to the documents reviewed by Reuters.
E-mails and other documents show that executives of the two companies discussed detailed plans for preventing Mr. Zaremba from getting the price he wanted for about 20,000 acres of land where both sought to drill for gas and oil.
“If they refrained from bidding that’s problematic,” said Harry First, a former lawyer for New York’s Attorney-General and at the Department of Justice. “If the two major buyers are saying ‘Let’s agree that one of us stays out of the bidding and we’ll split this up later,’ then the benefit doesn’t go to the sellers.”
Another legal analyst questioned Mr. Zaremba’s contention that talks between Encana and Chesapeake cost him millions. Logan Robinson, a law professor at University of Detroit Mercy, said Mr. Zaremba’s claim that he lost out because both companies withdrew their offers could be “iffy” because nothing prevented Mr. Zaremba from seeking a different buyer for his leases.
On Monday, Reuters disclosed e-mails that showed a broader strategy by Encana and Chesapeake – two of North America’s largest energy companies and fierce rivals – to suppress land prices in Michigan, a region with what was once considered to have one of the most promising shale plays in the United States, the Collingwood formation.
The internal e-mails show that embattled Chesapeake Energy chief executive officer Aubrey McClendon was at the forefront of the discussions – talks that former Department of Justice lawyers say could violate federal and state antitrust laws. The e-mails, which span from June through October, 2010, also show that Chesapeake and Encana’s U.S. subsidiary, Encana USA, discussed how to divide bidding responsibilities in Michigan ahead of a state land auction.
Such a strategy would have cost the state millions of dollars by stanching competitive bidding between two of the largest land lessor here.
One internal Chesapeake document indicated that Mr. McClendon backed away from a joint-bidding strategy just before an October, 2010, auction. Still, a Reuters analysis of the auction found that neither company acquired land in the same counties as the other. In most cases, neither company faced any competition for the land it subsequently leased.
In a response to questions from Reuters last week, Chesapeake acknowledged talks between the companies to pursue a joint venture in Michigan but said it never reached any agreements. Encana vowed to launch an internal investigation but said it “cannot specifically address the questions posed at this time.” Neither would specifically address the Mr. Zaremba matter.
But in a letter sent to Mr. Zaremba in August, 2010, and reviewed by Reuters, Encana’s legal counsel wrote: “Encana was not co-operating with Chesapeake, or any other entity, in any manner in connection with the negotiations with the Zaremba entities.”
Law professor Mr. Robinson, a former general counsel for automotive industry giants including Delphi and Chrysler Corp.’s international division, said Encana’s claim technically may be correct.
“Maybe they talked about cooperating,” Mr. Robinson said of Encana and Chesapeake, “but didn’t do it.” Even so, he called the e-mail exchanges between the two companies “a general counsel’s nightmare.”
The e-mails reviewed by Reuters do show that the two companies discussed how to handle negotiations with at least nine private land owners – and the details about how to handle Mr. Zaremba’s situation are the most specific. The other eight private land owners declined to comment, directly or through their attorneys, or did not respond to requests for comment.
‘WORK SOMETHING OUT’
Mr. Zaremba, 76, is a land owner whose business interests range from farming to land speculation. He sells harvesters and earth-moving equipment at his dealership near Gaylord, and he owns a large farm where he raises cattle, corn, oats and other cash crops.
Since the early 1990s, when a wildcat well drilled on his farm became a gas-gusher, Mr. Zaremba has acquired mineral leases nearby. Michigan has a long history of low-intensity shale gas drilling down to depths of 2,000 feet, but Mr. Zaremba has held a prospector’s hunch that shale at much greater depths could hold large, extractable oil and gas reserves.