Canada's Encana clears itself of collusion charges
Canada’s largest natural gas producer Encana has cleared itself in an internal investigation over allegations that it colluded with Chesapeake Energy in US land purchases, but still faces a potentially costly federal anti-trust investigation over the matter
Calgary-based Encana concluded that its employees did no wrong in relation to a series of land purchases in Michigan’s Collingwood shale play in 2010. The company has been accused by the US of conspiring with Oklahoma City-based Chesapeake Energy to keep land prices artificially low by avoiding competitive bidding for the same leases.
The company has received a subpoena from the Antitrust Division of the US Department of Justice, along with a civil investigatory demand from the Michigan Attorney General. The company said it would continue to fully cooperate with the investigations of both agencies.
Encana authorized its chairman, David O'Brien, in June to oversee an investigation into the allegations. The company said it retained external legal counsel in both the US and Canada to assist in the internal investigation, which it said was conducted independent of management.
Although the company has said that it found no evidence that supported the allegations, it has yet to release a formal report or disclose how it arrived at the findings.
"We have taken this matter very seriously and over the past 11 weeks have conducted a very rigorous investigation", says O'Brien. "We want to reiterate that Encana remains committed to acting ethically and in compliance with laws in all that we do."
Allegations of wrongdoing go to the highest levels at both companies. Chesapeake’s chief executive Aubrey McClendon and Encana’s US vice-president Jeff Wojahn are accused of exchanging emails in which they coordinated bidding plans to avoid driving up land prices, according to Reuters,
Collingwood is seen as an extension of the Utica shale, which is attracting considerable industry interest in Ohio. The US Geological Survey said that shale play held estimated reserves of 11 trillion cubic feet of gas and 1.2 billion barrels of oil. A mineral-rights auction in May 2010 raised $178 million for Michigan’s coffers, more than the state earned from 81 years of land sales combined.
Encana is the second-largest gas producer in North America, after ExxonMobil and the fourth-largest in the US after Chesapeake, Devon Energy and Apache. Unlike Encana, Chesapeake has made no formal statement on the matter, and was already the subject of a Securities Exchange Commission (SEC) investigation into its corporate governance practices.
Chesapeake has pulled back its activities in Michigan since the alleged collusion took place, but Encana has accelerated development on its 430,000 net acreage position with plans to drill five new horizontal wells through 2013.
Encana shares surged on North American stock markets following the announcement, to $22.67 a share on the New York Stock Exchange as of 7 September, but financial analysts cautioned that the company’s legal ordeal is far from over.
“While the self declared innocence of the board can be viewed as a slight positive, this does not have any impact on the external investigation currently being conducted” said Canadian Imperial Bank of Commerce analyst Andrew Potter.