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A yellow Encana natural gas pipeline marker is seen along a road on state forest park land in Kalkaska, Mich., June 20, 2012. (REBECCA COOK/REUTERS)
A yellow Encana natural gas pipeline marker is seen along a road on state forest park land in Kalkaska, Mich., June 20, 2012. (REBECCA COOK/REUTERS)

A land owner caught between energy giants Add to ...

Over the years, Mr. Zaremba retained the “deep” mineral leases to some 20,000 acres of land, even as he sold their shallow drilling rights. The rights – with no depth limits on drilling – are concentrated in Antrim and Charlevoix counties, where Chesapeake and Encana were buying in 2010.

Chesapeake was so impressed by Mr. Zaremba’s holdings that it labeled his leases “A+,” and, at one point in June, the company budgeted to spend thousands per acre to buy them.

After years of accumulating acreage, Mr. Zaremba believed he was finally on the verge of a major payday. He hoped for an upfront cash bonus worth more than $50-million, and to share a portion of royalties from future oil and gas production with the farmers – many of them his neighbours – whose lands might be drilled.

Initially, it looked like he might get the price that he sought. In early June, Encana and Chesapeake were bidding against the other aggressively for Mr. Zaremba’s land.

But the strategy may have shifted on June 16, 2010. That’s when Chesapeake CEO Mr. McClendon suggested to his deputy, Doug Jacobson, that there was an alternative to the escalating bids between Chesapeake and Encana for the Zaremba land.

“Doug: tine (sic) to smoke a peace pipe with ECA on this one if we are bidding each other up,” Mr. McClendon wrote in an e-mail regarding the Zaremba land. ECA is the stock abbreviation for Encana.

Mr. Jacobson replied, “Agree we need to work something out with ECA.”

Mr. Jacobson said he had already e-mailed an Encana vice-president, John Schopp “to discuss how they want to handle the entities we are both working to avoid us bidding each other up in the interim. I’ll update as soon as I can pin him down.”

During the next nine days, internal Chesapeake documents refer to Mr. Zaremba’s property. One June 24 report summarizing Chesapeake’s land deals in Michigan said Mr. Jacobson’s unit was “to confirm either Encana not bidding on it or that we are not supposed to.”

The next day, June 25, the same document notes that the two companies were still working on a plan “so we don’t continue to push price up.”

In late June, with similar offers from both companies, Mr. Zaremba signed a “non-binding” letter of intent to lease his acreage to Encana for more than $54-million. Encana wired Mr. Zaremba $2-million in so-called earnest money to secure the deal.

Two weeks later, however, that deal inexplicably fell apart, Mr. Zaremba said. On July 15, 2010 Encana told Mr. Zaremba it had failed to obtain a go-ahead from its Calgary-based board of directors. Mr. Zaremba said Encana had told him such approval would be a formality.

Then, Mr. Zaremba said, an Encana land broker told him something that struck him as odd: Mr. Zaremba, the broker said, should see whether Chesapeake’s offer was still on the table. Mr. Zaremba said he did just that. When the Mr. Zarembas contacted Chesapeake a day later, he said, the company told him it was “withdrawing” its offer to buy his leases.

‘NOT A COINCIDENCE’

Mr. Zaremba said he suspects that Encana and Chesapeake agreed to leave him in limbo to push prices lower before leasing more land at much lower prices. He said that whenever his representatives talked to agents handling deals for Encana or Chesapeake, the agents seemed to have direct knowledge of Mr. Zaremba’s dealings with the other company.

On July 21, 2010, Mr. Zaremba’s lawyers in Michigan sent Encana a letter: “We suspect that it was not a coincidence that once your termination letter of July 15 was delivered to the Zarembas, your main competitor’s binding agreement (to purchase Zaremba’s mineral leases) also was withdrawn,” it said of Chesapeake.

Encana’s formal response came in a letter to Mr. Zaremba and his lawyers on Aug. 3, 2010. In it, Encana’s counsel, Erika Enger, wrote that “your letter seems to insinuate that Encana and its “main competitor” were somehow in collusion Encana was not cooperating with Chesapeake, or any other entity, in any manner in connection with the negotiations with the Zaremba entities.”

Today, Mr. Zaremba is seeking at least $60-million in damages from Encana, and accuses the company of fraud and conspiracy. In a lawsuit filed in federal court in Michigan this month, Mr. Zaremba alleges that “in order to avoid a continued bidding war with Chesapeake, Encana attempted to lock in the Zarembas (and other landowners), then cancel the deals, divide up the market with its competitors (including Chesapeake), so that it could make later offers to the Zarembas (and other landowners) for mere pennies on the dollar.”

Encana is suing the Zaremba family to return most of the $2-million the company gave them in “earnest money” pursuant to the land deal that was later cancelled. In its lawsuit, the company said that the letter of intent it signed with Mr. Zaremba stated that “neither party shall have any liability” if it failed to consummate the land transaction for any reason.

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