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Chesapeake, Encana sued in civil antitrust action

By Brian Grow and Joshua Schneyer

(Reuters) - A major Michigan landowner is suing Chesapeake Energy Corp and Encana Corp, alleging that the two energy giants colluded to rig bids for oil and gas rights in 2010.

Northstar Energy, which owns nearly 10,000 acres in Michigan's Utica-Collingwood oil and gas shale formation, filed the lawsuit against Chesapeake and Canadian firm Encana in Michigan federal court Friday.

The suit follows a series of Reuters investigations last year which triggered civil and criminal probes of Chesapeake, the second-largest U.S. producer of natural gas. In June, Reuters reported that Chesapeake and Encana, Canada's largest gas producer, worked to suppress land prices in Michigan three years ago. ( http://link.reuters.com/wab98s )

Reuters quoted from internal Chesapeake emails that show top executives of the two companies traded proposals to divide bidding responsibilities for nine private landowners and counties in Michigan.

Northstar was one of the private landowners discussed.

In its lawsuit, Northstar claims Chesapeake and Encana agreed to avoid bidding against each other for oil and gas rights on Northstar's acreage. The companies "formed an anti-competitive agreement and shared competitive and proprietary information" in violation of U.S. federal antitrust law and Michigan statutes, according to the lawsuit.

Northstar's lawsuit seeks treble damages, or triple the amount the plaintiffs say they lost out on due to the alleged collusion.

Attorneys for Northstar declined to comment. Chesapeake declined to comment. Encana said its own probe, completed last September, concluded that the firm hadn't engaged in collusion during land leasing in Michigan in 2010.

"We intend to vigorously defend any lawsuit which may be brought against Encana with respect to these matters," Encana spokesman Jay Averill said in a statement, declining further comment on pending litigation.

In earlier statements, Chesapeake and Encana have acknowledged holding talks about forming a joint venture in Michigan, but said no agreement was reached.

Last week, Chesapeake's board of directors said an internal review found the company did not violate antitrust laws.

The companies' boards didn't say how they reached their conclusions. The U.S. Department of Justice and the attorney general in Michigan continue to investigate whether the firms violated antitrust laws in Michigan, and issued them subpoenas last June.

"The importance of independent - rather than internal - investigations cannot be emphasized enough in a case involving antitrust bid-rigging allegations," a spokeswoman for Michigan Attorney General Bill Schuette said in a statement last week. "Our thorough, independent investigation into these serious allegations will continue."

Some antitrust law experts said new emails and documents obtained by Northstar could spell trouble for Chesapeake and Encana.

"There is one world where you do not want to be an antitrust defendant," said Darren Bush, a former Justice Department antitrust attorney and professor of antitrust law at the University of Houston. "That is where there are really damning documents suggesting you engaged in restraint of trade. This is the world that Chesapeake and Encana find themselves in right now."

In 2010, one of the most frenzied land booms in Michigan history began after Encana drilled a promising test well in the state's Collingwood shale. Chesapeake and Encana were the largest bidders for leases in the play.

Privately, the firms discussed forming a type of joint venture in Michigan known as an "Area of Mutual Interest." An AMI is a legal partnership that oil and gas companies, including competitors, sometimes use to share the costs of developing particular areas. The AMI never went forward, they said.

Last year, Reuters reported that top executives at the firms discussed working together to prevent "acreage prices from continuing to push up," according to a June 15, 2010 email from a top Chesapeake executive to a senior Encana official.

The same day, Chesapeake Chief Executive Aubrey McClendon added another landowner - Northstar - to the proposed division of bidding responsibilities. The mention of Northstar came in an email from McClendon to Encana officials, including former Encana Chief Executive Randy Eresman and Encana USA President Jeff Wojahn, Reuters found.

"Also, with regard to B) below, looks like Northstar wants us to bid against each other next week, let's decide who should handle that one - thanks," McClendon wrote.

McClendon will step down as chief executive of Chesapeake on April 1, the company announced in January. Encana's Eresman retired unexpectedly on January 11; he agreed to stay on in an advisory role until February 28. Both companies said the departures of their CEOs were unrelated to the ongoing antitrust investigations.

The Northstar lawsuit sheds new light on the communications between the top executives of the rival energy firms.

In a previously undisclosed email exchange obtained by Northstar, Chesapeake's McClendon forwarded the draft proposals to divide up the Michigan counties and landowners to Eresman and Wojahn on June 15, 2010. He wrote, "Fyi, pushing to save us both some money, Aubrey."

Eresman responded a few hours later. "Agreed. The sooner the better. Thanks for continuing to move this forward. Randy."

Northstar alleges that Encana pulled out of bidding for its Michigan acreage a week after Chesapeake and Encana exchanged the emails.

As a result, the lawsuit claims, Chesapeake was the only bidder for Northstar's acreage, enabling it to obtain a lease agreement for $2,250 per acre - or 25 percent less than what Northstar claims was the market rate at the time.

Chesapeake later backed out of that agreement, the lawsuit alleges, after Encana informed McClendon that it was halting new leasing in the state. Ultimately, Chesapeake agreed to acquire only 750 acres from Northstar, the lawsuit says.

In December, Reuters reported that other emails and documents exchanged by Chesapeake and Encana suggest the talks may have been more extensive and detailed than previously known.

In a June 17, 2010 email from John Schopp, a vice president at Encana, to Doug Jacobson, Chesapeake's executive vice president of acquisitions and divestitures, Schopp noted why he thought teaming with Chesapeake would benefit both firms. "I certainly feel that combining forces will be helpful to prevent further inflation," he wrote. "After a time we might benefit from some deflation as well. Your thoughts?"

(Additional reporting by Scott Haggett in Calgary; Editing by Blake Morrison and Claudia Parsons)

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