WHEELING - As the company awaits permission to drill near Wheeling Park High School, Chesapeake Energy officials deny they conspired to suppress land values in Michigan while leasing acreage during a natural gas rush there in 2010.
Published reports of Chesapeake's alleged price fixing in Michigan are the latest in a series of troubles confronting the Upper Ohio Valley's largest active gas driller. Chief Executive Officer and former chairman Aubrey McClendon has come under fire recently for taking a 2.5 percent stake in company operations in Brooke, Ohio, Marshall and Wetzel counties.
According to reports, Canada-based Encana Corp. joined with Chesapeake to divide counties in Michigan so that neither company would bid against the other. Company information states Encana is "a leading North American energy producer that is focused on growing its strong portfolio of diverse resource plays producing natural gas, oil and natural gas liquids."
Chesapeake Energy denies that it conspired with a Canadian company to suppress land values during a natural gas rush in Michigan.
In an email message dated June 16, 2010, McClendon reportedly told a Chesapeake employee it was time "to smoke a peace pipe" with Encana "if we are bidding each other up." The Chesapeake employee responded, reports state, that he contacted Encana "to discuss how they want to handle the entities we are both working to avoid us bidding each other up in the interim."
McClendon forfeited the company's chairmanship last week to Archie W. Dunham, former chairman of global oil giant ConocoPhillips, while agreeing to stop taking personal interest on the drilling operations by mid-2014. In addition to its West Virginia operations, Chesapeake holds the most Utica Shale acreage in Ohio.
The company is looking to sell 337,481 acres worth of leases in northeast Ohio to help shed about $10 billion in debt. Along with the Ohio acreage, Chesapeake is also looking to sell leased land in Colorado and Wyoming, and reportedly wants to sell roughly 450,000 acres of its holdings in northern Michigan.
Encana controls 430,000 acres of land in Michigan's Collingwood and Utica Shale regions. It moved into the state in 2008, assembling its initial 250,000-acre position there for an average price of $250 per acre, reports state.
In light of the reports, David O'Brien, Encana's chairman, said "an investigation of this matter was immediately initiated."
"Encana therefore will not provide any further information at this time," he added.
Chesapeake and other companies have paid Upper Ohio Valley mineral owners anywhere from $5 per acre to at least $5,000 per acre. The company also took over many $5 per acre lease agreements from Range Resources in West Virginia's Northern Panhandle. Chesapeake officials rushed to drill wells on this land so the company could hold the acreage for this price before the leases expired, which would have required the company to pay more higher prices to the mineral owners.
As for the Michigan land, Chesapeake spokesman Jim Gipson said the company spent about $400 million there to acquire leases. He said there were discussions with Encana about "forming an 'area of mutual interest' joint venture" in Michigan. But he said "no such agreement was reached between the parties. ... Nor did Encana and Chesapeake make any joint bids."
Through all of this controversy, Chesapeake's stock price has taken a beating. New York Stock Exchange records show Chesapeake's stock has dropped from $34.39 per share on July 18 to $17.05 on Tuesday.
In May 2008, Chesapeake's stock price per share soared to $54.77 but plummeted to $15.81 in just eight months, records show. The company also reported a $71 million loss to stockholders for the first three months of this year.
Meanwhile, Chesapeake officials are still waiting to learn when the West Virginia Department of Environmental Protection will issue the permit to drill a well about 1,300 feet away from Wheeling Park High School and the "Patriot Field" baseball facility. The planned well will be drilled on land leased to Chesapeake by the Parks System Trust Fund of Wheeling, an organization supervised by members of the Wheeling Park Commission.
Commission attorney James Gardill said these two bodies are officially separate. The commission is tasked with overseeing the operations at Oglebay Resort and Wheeling Park.
Park Commission President and Chief Executive Officer J. Douglas Dalby said the drilling issues must be resolved by the school, Chesapeake and the Ohio County Emergency Management Agency.
Both West Virginia DEP spokesman Thomas Aluise and Chesapeake spokeswoman Jacque Bland confirmed the department is still reviewing the permit application.