May 5 (Reuters) - Michigan state prosecutors plan to call a former Encana Corp. executive to testify on behalf of the state, at a multi-day hearing in their criminal antitrust case against oil and gas companies Chesapeake Energy Corp. and Encana Corp. that begins Monday.
Kurt Froistad, a former land acquisition specialist at Canadian energy giant Encana's U.S. unit until August 2011, was involved in decisions about how to lease land in Michigan during a prospective oil and gas boom there in 2010.
He exchanged emails with a counterpart at Chesapeake about dividing up bidding responsibilities between the two companies in nine Michigan counties ahead of an October 2010 state land auction, according to documents previously reported by Reuters.
In March, Michigan's attorney general, Bill Schuette, alleged Oklahoma City-based Chesapeake, the second-largest natural gas producer in the United States, and Encana, based in Calgary, colluded to keep oil and gas lease prices artificially low in Michigan during an oil and gas rush in its Collingwood Shale region in 2010.
The companies were charged with one count each of antitrust violations "relating to a contract or conspiracy in restraint of commerce," and one count each of attempted antitrust violations.
At Monday's probable cause hearing in Michigan district court in Cheboygan, state prosecutors will present evidence supporting the charges. If the court finds sufficient probable cause, the case will move to trial.
Chesapeake and Encana both plead not guilty in March and said they would fight the claims. The boards of both companies previously conducted internal investigations and said they found no collusion. The companies have acknowledged holding talks about forming a joint venture in Michigan during 2010, but said no agreement was ever reached.
Michigan's criminal investigation began in 2012 after a Reuters report found that top executives from Chesapeake and Encana discussed dividing up bidding responsibilities involving nine private landowners and nine counties in the state. Chesapeake and Encana were the biggest leasers of land during Michigan's short-lived leasing boom in 2010.
Michigan's Attorney General is pursuing a criminal trial against the companies even as the U.S. Department of Justice has concluded its own probe into whether Chesapeake and Encana colluded in Michigan, without bringing any charges against the firms.
On April 30, the companies said they had received closure letters from the Department of Justice ending its investigation of possible antitrust violations related to their land-leasing activities in Michigan.
The Justice Department's probe is not completely closed, however.
On May 1, Gina Talamona, a spokesperson for the Justice Department's antitrust division said in an emailed statement to Reuters that "while part of the Antitrust Division's investigation into the possibility of anticompetitive practices in the purchase and lease of oil and gas properties in Michigan has closed, other aspects of the investigation remain open."
She clarified that the "other aspects" of Justice's investigation relate to oil and gas leasing activities in states other than Michigan. She did not respond to requests for comment on whether Chesapeake or Encana remain subjects of the investigation, nor which states are involved.
A Chesapeake spokesman declined to comment. Jay Averill, an Encana spokesman said, "We can't provide comment because we are not aware of any ongoing investigation at this time."
In Michigan, the state's antitrust charges against Chesapeake and Encana came nearly two years after Reuters reported on a series of email exchanges between top executives of the companies about land leasing in the state. No current or former executives at either company have been charged by the state.
In one email, dated June 16, 2010, former Chesapeake chief executive Aubrey K. McClendon told a Chesapeake deputy that it was time "to smoke a peace pipe" with Encana "if we are bidding each other up." The Chesapeake vice president responded that he had 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."
In addition to former Encana executive Froistad, Michigan state prosecutors plan to call at least nine other witnesses, according to a list provided by the attorney general's office. They include state officials, antitrust experts, and representatives of private Michigan landowners who sought to lease their acreage for oil and gas production during 2010.
One aspect of Michigan prosecutor's antitrust claims relate to an alleged bidding strategy that Chesapeake and Encana executives - with the involvement of Froistad --- developed ahead of an auction of state land on October 26, 2010.
Bidding at the state's May 2010 auction had been vigorous and contested. That helped the state raise a record $178 million from the sale of more than 118,000 acres, according to a review of state auction data by Reuters. At that auction, 83 percent of the more than 1,200 winning bids had competitive offers.
Five months later, at the October auction, the bidding and the results proved remarkably different and far less lucrative. It raised just $9.7 million from the leasing of about 274,000 acres - more than twice the acreage sold in May but almost $170 million less in revenue.
Froistad now works as Vice President of Land for Forge Energy LLC in San Antonio, Texas. He said he was "unable to talk" when contacted on Sunday.
The probable cause hearing in the Michigan antitrust case is expected to last through Thursday, May 8. (Reporting by Brian Grow in CHEBOYGAN; Editing by Michael Williams and Ed Davies)