AEP royalties are a disaster
I have another post on division order acres not matching my lease or county record problems with AEP. I told them I would not sign division order till it was straightened out. Guess what? got a royalty check that still has the wrong decimal (shorting my acres) and a laundry list of deductions. I have a no deduction clause in the addendums. No transportaion, no gathering cost, no market enhancement costs and I think several other items, but they just took out what they wanted. They assured me in prior communications, they knew of my no deduction clause and it would be taken care of and not to worry about it. I'm worrying now. I can see my attorney getting rich already. Also the royalty check is for Aug. The wells went into production back in June??? What happened to all of that production.???? To add insult to injury they did not deduct any state or federal taxes, (just ohio g/o severence tax) even though they have my W-9's and LLC employer ID numbers on file. Waiting on attorney to call me back. All we were expecting this week was a copy of survey report, not a royalty check. (since no division orders were signed)?? Looks like another chesapeak. I'll be speaking to others on this pad this week when I'm on vacation and I'll keep updating. Curious to see if their acres, decimals are correct and what they paid in deductions. Can't believe what a mess this all is. Thought it was a nice windfall, but it's becoming a real pain in the butt...........
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Permalink Reply by The Hiker on
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Might want to consult the attorney before cashing that check..... It seems I've read plenty here and elsewhere about the implied acceptance of a transaction by the cashing of the check. Slippery character. 1/2 page article on him losing $3B and then rising from the ashes in our area in today's WSJ.
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Permalink Reply by Philip Brutz on
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Energy prices are tumbling amid burgeoning supplies from booming U.S. shale fields. The drop mirrors a similar plunge six years ago, one that caught investors and executives by surprise.
Few had as much to lose as Aubrey McClendon .
***
One Sunday morning in May 2008, Mr. McClendon drove to an Oklahoma City restaurant to meet Art Swanson, a small-time energy operator and high-school acquaintance.
Crude prices were surging close to $120 a barrel and natural gas rose to about $12 per thousand cubic feet. Shares of the company Mr. McClendon helmed, Chesapeake EnergyCorp. , were soaring. The company was expanding gas production from shale, a dense rock long ignored by larger rivals but a source of energy that was quickly emerging as the industry’s next big thing.
Once, Mr. McClendon was seen as a self-promoting salesman who borrowed and spent too much to grow his company. Now he was the new face of American energy, as well as a multibillionaire.
As he chatted with Mr. Swanson over pancakes, Mr. McClendon didn’t seem as cocksure as usual. “You know what my big fear is?” Mr. McClendon said as he leaned in. “We could break the gas market.”
Chesapeake was discovering so much natural gas that the new supply, along with gas from others, could overwhelm demand and lower prices, jeopardizing Mr. McClendon’s empire.
“Aub, why not just pay off everything and go to cash?” Mr. Swanson asked, suggesting that if Mr. McClendon paid off his debts by selling some shares and energy holdings he would walk away rich.
Mr. McClendon gave Mr. Swanson a dismissive look. “He looked at me like…I just don’t get it,” Mr. Swanson recalls.
Mr. McClendon was boxed in. He had spent years as an advocate of U.S. shale drilling. Bailing out now, with Chesapeake shares soaring, risked sending a message that extraordinary amounts of gas couldn’t be extracted, after all.
***
About a month later, Marc Rowland, Chesapeake’s chief financial officer, knocked on Mr. McClendon door to deliver urgent advice. “You should sell some stock,” he said.
For several years, Mr. McClendon had used Chesapeake stock as collateral to borrow more than $500 million from Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and other banks, using the money to buy Chesapeake shares, real estate and other assets.
Sell stock in case something went wrong, said Mr. Rowland, who had pared his own holdings. Mr. Rowland urged caution, even though he didn’t have specific concerns. “You never know” when something bad could happen, he argued.
Mr. McClendon waved him off with a smile. You’re being “too conservative,” he said.
In early July, Mr. McClendon’s 33 million Chesapeake shares were worth $2.3 billion, from an initial investment of just $50,000 two decades earlier. Mr. McClendon was worth more than $3 billion. There was no turning back.
***
Energy prices slipped in July 2008. By month’s end, Chesapeake was trading for $47 a share, down from $64 a month earlier. Mr. McClendon decided to get a bit of protection, an umbrella on a cloudy day. He called banks that recently had underwritten the sale of Chesapeake shares and asked to hedge some of his stock, or enter into a derivative transaction to protect some of his holdings from losses.
The banks, which had the right to approve such a move, refused, worried about the impact of any hedging by Mr. McClendon on Chesapeake’s shares.
As Chesapeake fell to $22 in early October, the value of McClendon’s collateral—the shares Mr. McClendon had pledged to three banks—dropped.
Alarm bells rang at the banks. Late on Oct. 8, a Goldman Sachs executive reached Mr. McClendon in his Oklahoma City office, relaying disturbing news: The Chesapeake shares he had pledged no longer held enough value to back the approximately $300 million he had borrowed. Come up with more collateral or we’re going to sell your shares to satisfy your debts, he told Mr. McClendon.
The executive had to do something fast. If Goldman sold his stock, Chesapeake shares likely would sink further and he would suffer an embarrassment few executives had ever endured.
Mr. McClendon didn’t have enough cash to boost his collateral. He had another idea. He dialed Jon Winkelried , then Goldman Sachs’s co-president, and made an urgent case why Goldman shouldn’t close his trades. Hedge funds were teaming up to short Chesapeake to profit as the stock tumbled, Mr. McClendon insisted. Shares were sure to rebound. Just give me a few more days, he asked.
“Y’all are just killing me,” Mr. McClendon told Mr. Winkelried.
Mr. Winkelried sounded sympathetic, agreeing to speak to his colleagues about a reprieve.
An hour or so later, Mr. Winkelried called with a decision—the bank wouldn’t help. Goldman already was selling Mr. McClendon’s shares, as were other lenders. “Those are the rules,” he told Mr. McClendon. “I’m sorry, Aubrey.”
Mr. McClendon hung up, rose from his desk and made his way down the hall into Mr. Rowland’s office. Mr. Rowland looked up and was shocked. His boss was pale.
“They just sold my stock,” Mr. McClendon confessed. “The banks…I’m in trouble.”
In one week, the 49-year old Mr. McClendon had to sell more than 31 million shares, or 94% of his Chesapeake stake, by then worth less than $600 million. Few Americans ever had lost so much so quickly.
A Goldman Sachs spokesman, Mr. Swanson and Mr. McClendon declined to comment.
Weeks later, Mr. McClendon snapped out of his funk, boosting Chesapeake’s holdings in promising shale formations.
The plan didn’t fully work—Mr. McClendon eventually was pushed out at Chesapeake. But a year ago, after setting out on his own, Mr. McClendon managed to lock up some of the nation’s most promising acreage. He was on his way to reclaiming his position atop the energy world.
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com
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Permalink Reply by nc man on
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Hi Phil,
Thanks for the very interesting, to say the least, article about Mr. McClendon.
Update------ All is well with my lease. Now we wait for some movement in the drilling scene!
Thanks for all your help and suggestions. Took two attorneys (one worthless) but the results were worth it.
nc man
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Permalink Reply by Philip Brutz on
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Who where the two attorneys?
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Thanks,Evan! The group from Columbus are GREAT!! Highly recommend!
Sorry it took so long for us to get back to you! You were a great help.
nc man
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Permalink Reply by WATCHER on
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Already know not to cash the check. Will be sending it back with legal papers.
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Permalink Reply by Clinton44 on
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Brian,
Several things ...
By AEP are you refering to Anadarko?
Not good that they are not honoring your no deductions clauses that does warent contacting your attorney.
However the check you received in August is probably for June's production check the production date on your remittance slip. Royalties are usually paid a month or two after production depending on how many joint venture partners are involved in the well.
They do not need division orders signed to issue royalty checks. We received royalties before signing any division orders.
No gas company is going to deduct state and federal income taxes they are not your employer. It is your job or your accoutants job to place the royalty income in the proper place on your income tax returns and pay the tax on it, or to file and pay quarterly estimated payments. Like it or not the gas companies only duty to the tax man is to report to them how much they paid you in royalties.
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Permalink Reply by Dexter Green on -
AEP is American Energy Partners. Anadarko would be APC.
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Permalink Reply by WATCHER on
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American Energy Partners (utica) not anadarko. They sent the w-9's and said they had to with hold the state and federal taxes. I did not ask them to, they told me they had to?? so why they didn't I don't know. Clearly states dates of 8/2014 production.
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Permalink Reply by Clinton44 on
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Ah ok, thanks for the clarification on the AEP.
As far as the W-9 I always thought that form was a request for your tax payer identification number so that they could report to the IRS how much they paid you. Not a guarentee that they would withold and pay applicable taxes on your behalf.
So then you are saying they jipped you out of June and Julys production??
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