new CHK cheating?.....hedging your gas

not sure of the validity of this..........but those TX laywers say it is so.........the following is from a GoHaynesville discussion;

"I sat in on the telecon tonight, 1/21/2015.  Here's what is new:

Aside from the cheating on gathering fees that we all know about, McDonald has found another "more  brash and brazen" cheat.  I'll try to explain it, but I doubt I'll get it right.  It has something to do with how CHK hedged their gas in futures trading.  You have to have physical gas behind whatever futures you trade -- you cannot trade naked futures.  And CHK apparently used all of the gas coming out of the ground (theirs plus ours) as collateral in their futures trading.  Apparently this is really wrong, and McDonald say the royalty owners should be compensated for the risk taken when CHK used our gas as their collateral.  

He estimated that the total amount of cheating comes to, at least, $2/Mcfe.

To date, they've filed almost 100 lawsuits, all in TX.  They file their first OK lawsuits tomorrow.  They have 1000 clients in LA and 1000 in PA.  Lawsuits are being grouped by drilling unit.  They are expecting 40,000 clients by the end of 2015.

Litigation is progressing well.  They have done over 10 depositions of current and former CHK employees, and have 25 more scheduled before the end of February.  They have tons of documents, emails, and letters that have been gathered in discovery.

Note to people in PA:  There are 2 class proceedings currently in PA.  The courts will soon eliminate one.  CHK has made an offer of $11M to settle the one called the "market enhancement clause lease."  This is a pathetic settlement.  McDonald encourages all people in PA to opt out of this suit and join him.

That's it.  Henry here....  I will add that I have a relative in this suit.  I noticed that the suit has been ammended to Include Total (the French oil company, and a partner of CHK) as a defendant.

I will try to listen in every few weeks and update you all with anything new."

http://www.gohaynesvilleshale.com/forum/topics/county-royalty-owner...

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Replies to This Discussion

Permalink Reply by skittles on January 22, 2015 at 2:40am

Thankyou for the info.

Permalink Reply by Frank Walker on January 22, 2015 at 2:54am

That's truly disturbing stuff.  The depth of the deception, depravity, and dishonesty goes beyond what most landowners can conceive.  It's what we get for being fundamentally honest, while dealing unknowingly with thieving scum who are pure evil.

Permalink Reply by Dexter Green on January 22, 2015 at 6:10am

Using forward contracts to hedge your price position is the norm.  The collateral needed for such a hedge is almost always an equivalent amount of actual production available, or something relatively close to it.  But when CHK sells gas from your well to the next company in line that is the price used to calculate royalty payments.  If landowners want the upside of a company's hedge positions then they should buy stock in the company.  Your royalties are based on how much they are making on the physical commodity sold from the wells on your property.  Of all the questionable things CHK has done this one seems like a tempest in a teapot.

Permalink Reply by Paul Martinelli on January 22, 2015 at 6:40am

Sounds like ENRON all over again

Permalink Reply by Dexter Green on January 22, 2015 at 7:13am

Funny you should mention that.  I sold my CHK stock some time ago at $32.  I told my broker that CHK was basically Enron with a better PR department.  Their VPPs and non-GAAP accounting was pretty ugly and most shareholders were woefully unaware (read those 10 Q forms, people).  Since McClendon is no longer in charge they've become a much more disciplined company.  But there was a time there that I wondered if they'd survive.

Permalink Reply by Paul Martinelli on January 22, 2015 at 8:41am

Sadly....I worked for Enron, it was a party!

Permalink Reply by Dexter Green on January 22, 2015 at 9:54am

Oh man.  Sorry to hear that.

Permalink Reply by Alan Bowers on January 23, 2015 at 3:40pm

Paul, Did you ever get to meet any of the Accountants from Arthur Andersen? 

Any idea if any of those guys went to work for PriceWaterhouseCoopers?

Latest estimate I could find puts CHK staff at 10,800 employees.  Wasn't able to determine if that included their subsidiaries or not.

Permalink Reply by Paul Martinelli on January 23, 2015 at 4:24pm

No Idea....

I worked in IT......in Dublin Ohio....I recall  folks from PWC and AA being there.

Permalink Reply by David Allen Lilly on January 24, 2015 at 2:14am

I built a ton of custom homes up your way. Muirfield and Tartan Fields among others. I graduated from Hilliards in 1986.

Dublin is money.

Permalink Reply by frank speaker on January 22, 2015 at 9:18am

I don't see how you can make such a categorical statement given that different lessors have negotiated different terms of pricing. If the lessor's oil must be delivered on a certain date to fulfill a contract at a certain price then that is the price received for the oil, not what the next person received on the contract they sold their oil for.

Permalink Reply by patrick on February 12, 2015 at 3:59pm

amen

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