Chesapeake Energy Corporation (NYSE:CHK) is in trouble once again this morning after Reuters reported that the firm worked with Encana Corporation (TSE:ECA) to keep land prices artificially low. The two firms decided not to bid against each other and drive prices up according to emails between top executives in 2010.
The emails concerned the sale of oil and gas fields in Michigan in the same year. Conspiring to keep land prices low by agreeing not to bid each other up is certainly a mark of collusion and might be treated harshly should the case make it to a court room. Anti trust legislation is clear on the legality of such behaviour.
Exclusive: York Capital to wind down European funds, spin out Asian funds
York Capital Management has decided to focus on longer-duration assets like private equity, private debt and collateralized loan obligations. The firm also plans to wind down its European hedge funds and spin out its Asian fund. Q3 2020 hedge fund letters, conferences and more York announces structural and operational changes York Chairman and CEO Jamie Read More
Chesapeake Energy Corporation (NYSE:CHK) has been involved in a great deal of legal dispute in the past year as a secret hedge fund was revealed to be under the management of the firm’s CEO Aubrey McClendon, and the firm wallows in burdensome debt of its own making.
Despite those separate worries allegations of price fixing in land purchases is likely to be the largest threat to the firm’s stability in some time. Since the reintroduction of Carl Icahn into the running of the company shares have been trading at levels not seen for quite some time.
It appeared that the firm might be able to turn itself around and pay off the debt it owed through asset sales. Today’s news casts the survival into doubt. If proceeding are undertaken based on the finding of the Reuter’s journalists the firm could be shaken from top to bottom.
Chesapeake has been dealing with rock bottom gas prices for months and the situation is not getting better at any acceptable rate. Without an adequate source of income, and possibly facing a huge legal battle on these allegations, the company has more challenging times ahead.
The firm’s have responded to the Reuters investigation. Both have been consistent in the assertion that they were looking to work on a joint venture in the region. If that is proven it could establish that the companies had an area of mutual interest. It would have to be shown that the emails were specifically addressing the joint venture however.
Despite the defence mounted by the companies, anti trust lawyers surveyed by Reuters seemed confident that the action of the companies were unethical and illegal. Darren Bush, who once worked in the Department of Justice’s Antitrust Division, said that the emails did not introduce any other benefit to the venture other than a drop in the price of land.
Reuters has been instrumental in bringing forward news of the types of dealings that have been going on at Chesapeake. Many investors have been betrayed by the firm’s unusual financial dealings, some of which are being actively investigated by regulators.
If a full investigation is launched into the collusion allegations it might take a long time to come to fruition, but it might slow down the firm’s current restructuring plans. Chesapeake’s shares were down 5.48% to 17.59 at time of writing. Encana was down 3.44% to 19.67.