Chesapeake Energy confirms federal inquiry of Michigan land deals
The federal government has opened an antitrust investigation of Chesapeake Energy Corp. over land and lease deals in Michigan, the Oklahoma City company confirmed Thursday.
In regulatory filings, Chesapeake said it received a subpoena from a field office of the U.S. Department of Justice's antitrust division. Federal prosecutors in the Western District of Michigan have opened a federal grand jury inquiry into the purchase and lease of oil and gas rights.
Chesapeake also said several state government agencies have asked for documents in connection with oil and gas leases. It did not provide additional details.
“Chesapeake intends to provide information in response to these investigations, and its board of directors is conducting an internal review of the matter,” Chesapeake said in the filing.
The disclosure follows reports by Reuters in June that detailed possible collusion on land deals in Michigan with Canadian natural gas giant Encana Corp. The news agency published emails showing Chesapeake CEO Aubrey McClendon directed employees to work with Encana to reduce the cost of land acquisitions in Michigan's Collingwood play in 2010.
Chesapeake said it explored a possible joint venture with Encana to secure leases in Michigan. The joint venture never materialized.
Chesapeake officials did not respond to requests for comment.
Jake Dollarhide, CEO of Tulsa-based Longbow Asset Management Co., said news of the federal grand jury investigation comes after several weeks of relative calm for Chesapeake shareholders. The company's stock closed at $20.31 on Thursday, up 41 cents. The regulatory filing came after markets closed.
“It's just another distraction,” said Dollarhide, whose firm holds Chesapeake stock and corporate bonds. “Chesapeake stock had come so far and so fast with the new chairman and the new board. They had miraculously distanced themselves from the nasty headlines that were hanging around in the spring that drove the stock down to $13 a share.”
Dollarhide said it's still too early to say whether the investigation will amount to much or if it will be just a black eye for Chesapeake.
“The best-case scenario is they'll have to pay some fines, but as we know, Chesapeake doesn't have deep pockets at this point,” Dollarhide said. “In this regulatory environment, the government is going to pay very close attention if there are anti-competitive means being employed to harm interests of landowners.”
Following the Reuters report, Encana said in June its board opened an investigation into the land deals in Michigan.
An Encana spokesman declined to comment Thursday on Chesapeake's filing and whether the Canadian company had been contacted by U.S. officials.
CONTRIBUTING: Business writer Don Mecoy