Chesapeake, Encana rival plotted to suppress land prices: report

Chesapeake, Encana rival plotted to suppress land prices: report by Brian Grow, Joshua Schneyer and Janet Roberts, June 25, 2012, Reuters in Calgary Herald
‘BID ROTATION’ Attempts at price-fixing by rival corporations are typically difficult to prove in court. That’s because competitors rarely commit collusive agreements to writing. Top Chesapeake and Encana executives, however, spelled out their ideas in great detail, the emails show, from the beginning of June 2010 through that October. “This looks like a great start,” Encana’s Schopp replied June 7 to Chesapeake’s Jacobson’s proposal to divide bidding responsibilities. “A few suggestions that would maximize our effectiveness.” Among his recommendations was that the companies split owners into two groups; Chesapeake would handle negotiations with one and Encana with the other. That way, the two wouldn’t bid against one another. Also copied on the June 7 email from Schopp: Encana CEO Randy Eresman. About one week later, June 15 at 6:51 a.m., McClendon himself weighed in. He copied Encana’s U.S. president Wojahn and Eresman. Referring to one company that owned mineral leases on more than 30,000 Michigan acres, McClendon wrote that it “looks like Northstar wants us to bid against each other next week, let’s discuss who should handle that one – thanks.” NorthStar is an energy company based in Traverse City, Mich. The company declined to comment. Another note about NorthStar appeared in a June 16 Chesapeake summary of Michigan land deals. It said that McClendon “does not want to complete (sic) with Encana on this deal if CHK is interested.” “We call that bid rotation,” a violation of antitrust law in which participants in a transaction select who will be the winner in advance of bidding, said Herbert Hovenkamp, a law professor and antitrust expert at the University of Iowa. Later on June 16, Jacobson asked Schopp how soon he thought Encana could craft a formal deal to work together. … DIVIDING MICHIGAN Perhaps the most sophisticated plan the two companies forged was developing a bidding strategy for the auction of state land in Michigan on October 26, 2010. Bidding at the state’s May 2010 auction had been vigorous and contested. That helped the state raise a record $178 million from the sale of more than 118,000 acres, according to a review of state auction data by Reuters. At that auction, 83 percent of the more than 1,200 winning bids had competitive offers. Five months later, at the October auction, the bidding and the results proved remarkably different and far less lucrative. It raised just $9.7 million from the leasing of about 274,000 acres – more than twice the acreage sold in May but almost $170 million less in revenue. The average winning bid in October was $46, the Reuters analysis shows. In May, it had been $1,413. Most of the winning bids in October were for the minimum price set by the state: $13 per acre. One possible reason for the dreary auction results in October is that prices for natural gas had fallen significantly, about 20 percent. Another possible reason, according to documents reviewed by Reuters: Two of the largest buyers in October – Chesapeake and Encana – had been discussing how to avoid bidding against the other. On October 14 – a dozen days before the state auction – Kurt S. Froistad, a land executive with Encana, emailed Gary Dunlap, Chesapeake’s vice president of land. The subject line: “Michigan State Lease Sale.” … CHIEFS IN THE LOOP … On October 20, Wojahn sent McClendon an update: “From what I understand (Encana’s) John Schopp has been leading the charge on working with your team on arranging a bidding strategy. I have a meeting with John planned on Friday and a review with Randy Monday.” Randy is Randy Eresman, Encana’s CEO.