Chesapeake Energy Corp. CHK +2.41% is pushing Ohio landowners to accept revised lease contracts that would help the cash-strapped driller save money while holding on to its prized oil and gas fields.

The company's actions, documented in scores of property and court records, aren't the first time that Chesapeake has tried to change the terms of lease deals, or walked away from them. Since 2008, more than 100 lawsuits have been filed across the country by landowners, who claim the company breached contracts. In some cases, settlements have been reached, in other cases the litigation continues.

Ohio Department of Natural Resources

The company doesn't dispute that it has sought to renegotiate leases in Ohio. In cases in other states where Chesapeake has walked away from deals, it contends that it had the contractual right to do so.

Chesapeake, the country's second-largest natural-gas producer, has spent about $2 billion to lease the mineral rights to more than a million acres—about 5% of Ohio's land mass—in a bet that Ohio's Utica Shale fields will become a major oil producer. The leases contain deadlines by which the company must drill wells costing millions of dollars apiece or give up rights to the property.

Facing a cash crunch and mounting pressure from activist shareholders to trim spending, Chesapeake is seeking contract changes that would allow it to drill fewer wells while keeping the leases. It is generally required to drill at least one well on a specified group of properties known as a unit; it is trying to bundle leases into much bigger units, which will allow it to drill fewer wells but retain rights to more acreage

The bigger units mean that each landowner's stake of any oil or gas produced is smaller, but they could potentially share in production from more wells.

Chesapeake's agents tell landowners that they will be shut out of the oil and gas boom if they don't agree to the changes, according to landowners interviewed by The Wall Street Journal, which reviewed more than 100 property records in Ohio filed over the past year detailing the changes.

The company says the changes it seeks are minor and that most landowners have been amenable to them.

It says that many of the leases it acquired in Ohio were negotiated by other companies, some going back more than 20 years, and are ill-suited for the horizontal wells needed to extract oil and gas from shale rock; it acknowledges, however, that it stands to save money by combining leases into units that cover two square miles, at least twice the size of most existing units.

"Our objective is to employ the unit size that takes full advantage of breakthroughs in technology, and creates efficiencies in the use of capital," said Michael Kehs, a Chesapeake spokesman. Bigger units, he said, improve landowners' odds of sharing in a productive well.

Chesapeake carries significant clout in Ohio's rustbelt, where some landowners are eager to begin receiving royalties. More than 100 landowners in Carroll County alone have accepted the lease amendments so far this year, property records show.

"They've brought some industry to an area that's definitely needed it," said Byron Shankel, a farmer in Carroll County, southeast of Akron.

Others, though, are rankled.

"It kind of makes you mad," said Karen Hampton, who owns about 10 acres in Carroll County and refused to be part of a larger unit. She is one of eight landowners who last month sued Chesapeake to cancel their leases, alleging the company's agents, known as land men, warned them their property would become a "hole on the map" if they didn't agree to change their leases.

The company declined to comment on litigation. The company, in its legal response, said the plaintiffs failed to allege the specific circumstances in which the "hole on the map" comment was made, and that it was legally insufficient to support a charge of fraud. Chesapeake says in court filings that landowners are looking to cancel valid leases to pursue richer offers.

Chesapeake has recorded more than 3,000 leases in Carroll County since late 2010.

Joel Gingerich and his wife leased their 11 acres, which gave them a 7% stake in their original 160-acre unit. Their interest in the new 1,280-acre unit would be less than 1%.

"We all held out a little bit," he said, speaking of his neighbors. "In the end, I think most of us signed. They said if we don't sign, they'll just go around us, and we'll miss out altogether."

Chesapeake's flood-the-zone approach to leasing has helped the company capture coveted oil and gas fields across the country. But the strategy also saddled it with expensive drilling obligations: By the end of last year, Chesapeake had to drill to preserve the leases on more than half of the 15 million acres it controls, an area three times the size of New Jersey.

With the plunge in natural-gas prices, the amount of cash Chesapeake expects to generate from operations this year is less than half the amount it plans to spend on drilling and leasing. The shortfall has prompted the company to try to sell as much as $14 billion of its assets. It has slashed its annual land-leasing budget to $1.6 billion from $4.8 billion last year.

Amid the global financial crisis in the fall of 2008, Chesapeake tried to delay or walk away from lease deals to conserve cash. The moves triggered lawsuits in the Haynesville Shale in Louisiana and Texas.

A federal judge in Houston ruled last week that Chesapeake must honor a contract to buy leases from three Texas landowners for more than $100 million, a deal the company refused to close in 2008. Chesapeake says it will appeal. The company is also seeking to overturn a $22 million judgment over a 2008 deal on leases in east Texas.

Views: 9694

Reply to This

Replies to This Discussion

I guess that I'm not surprised.  Despite Ken and Steves' attempts to put a  positive spin on O&G company attitudes, they remain cut-throat organizations that have no concerns about tramping all over the landowners to get what they want.  Truly pitiful examples of good business ethics.

I was going to not post anymore but I can't resist after seeing Billy Bobs and others posts. Imagine my surprise when I got home from work, opened my mailbox and looked at this weeks issue of Farm and Dairy (Covers Ohio and parts of PA and WV) - "Carroll County farmer wins injunction against Chesapeake". And what was the basis for the injunction? "The Starkeys stated in the original lawsuit that Chesapeake has been threatening them with large daily monetary fines if they did not sign an amendment and ratification to increase the size of the unit size to 1280 acres".

 

Typical sleazy Chesapeake behavior.  What a bunch of second-rate cheeseball pretenders they are.  They may be heroes inside OK, but nobody in the Marcellus has any respect for them whatsoever.  Talk about a "must to avoid";  that would be Cheese-O-Peak.  Leasing to them is like leasing to slime.

I wasn't going to post anymore on this particular thread either, and I will likely regret having done so now, however, why is it you judge all O&G companies, their attitudes, their tactics, etc, by Chesapeake standards.  Why do you impute their tactics to every single company that happens to have ENERGY in their name.  I can assure you that Chesapeake is somewhat of a leader in many categories, wells drilled, gas reserves, deliverability, pissing off landowners, using questionable practices.  Don't throw out the baby with the bath water. 

Pam; have you tried working together with your neighbors?  Are all the neighbors being asked to agree to the same extension agreement? If so, if everyone works together that may give you more leverage to deal with CHK. If every one stands firm CHK would have to be more landowner friendly.

This is one reason why landowners should stay in communications with each other even after a lease is signed. Even after the first well is drilled landowners should try to meet occasionally to share info and be ready to respond should something like this come up.

I live 3 hours from my property but I did call my neighbor last night who owns 38 acres next to me and he hasn't been approached at all. But then again he leased when they first started leasing so Im sure his lease is chesapeake friendly if you know what I mean. I have the friendsville lease where things are much more spelled out.

Ask him to talk to neighbors, see if anyone else is having the same issues. Look them up yourself and make a few phone calls. Maybe send out postcards. Try to get everyone in the area to meet somewhere. Working together will get you some control.

Start a whole new discussion here for all CHK landowners in Ohio. Maybe start a whole new website. Get as many people as possible all working together.

Going to 1280 is not the end of the world.  Each person will decide if they want to do this or not.  By going to 1280 production is doubled due to 6 legs being drilled instead of 3.  Any OGC can drill 2 640 units back to back using the same pad thus cost of prep is not a factor for a second pad.  A leg drilled into 2 640 units will hold the same amount of land as a 1280 and takes roughly 4 weeks longer than drilling 1 leg.

Out west there are companies drilling 11,000 ft legs in units.  Chesapeake, Rex, Enervest have not drilled any wells larger than 1000 acres in Carroll yet.  500' spacing between legs in a well will put the width of a unit at 3,000' and a leg drilled 7,000' makes a unit 482 acres. By drilling one leg in each sector of a 1280 that makes a unit 964 acres, thus leaving a 236 acre buffer.

Below the Utica formation other shale and/or sandstone could be produced in the future bringing more royalties. To be able to drill deeper, future modifications may be needed depending on technology and a host of other factors.

I know people that hate Chesapeake and people that love Chesapeake.  Family farms have survived due to their leasing money and some are ticked off because they signed for less money and a host of other complaints. Some valid some not so much. Ken and a few others seem to have an even keel and mineral owners should not paint everyone with the same brush.  There are good land men and bad land men just as there are good doctors and bad doctors, ethical farmers and unethical farmers.  Just an fyi, not all of the land men are from Texas and Oklahoma.  Quite a few Ohio land men were hired by Chesapeake.

Jim; its true that they could drill two legs off of one pad and hold two 640 acre units. But if everyone agrees to 1280 acre units they could hold the same acreage with just one well and everyone would get half the royalties for who knows how long.

Plus people have posted on other discussions on GMS that they have seen where a company will place a pad in the center of two 1280 acre units and hold 2560 acres with just two wells. And since CHK is so cash short and has huge acreage to hold I wouldn't be surprised if this is what they intend to do.

I agree Jim but if the change states 1280 then the 2560 would not matter.  I doubt that they would do as you suggest because then they would need to build more pads when they returned.  I don't think that chk is one of the companies that can drill 11,000'.  Of course I could be wrong.  Just because that is not the way they are working now doesn't mean it won't change tomorrow.

I think this is more of a concern for those that are newly leased and not for land owners that are HBP.  Most of the HBP leases are 160ac and need to be amended for horizontal drilling.

Here is a math problem http://shale.sites.post-gazette.com/index.php/news/archives/24593-c...

"Through a listing on the website of Meagher Energy Advisors, Chesapeake has put more than 337,000 acres across 19 eastern Ohio counties up for sale -- about one-fourth of the company's total Utica holdings."

"The Utica Shale acreage up for sale could easily have a price tag in the billions of dollars. Chesapeake has about $13 billion in debt and has said it wants to lower that amount to $9.5 billion." a difference of $3.5 Billion

 So they are saying the Ohio Utica leases 337,000 acres are worth $10,385 per acre in a depressed sale?

  I think the exact statement "Chesapeake has about $13 billion in debt and has said it wants to lower that amount to $9.5 billion." has been copied and pasted over and over for the last 3 months.  What about the other assets that have already sold or are being sold?

  http://www.4-traders.com/CHESAPEAKE-ENERGY-CORPORA-12055/news/Chesa...

RSS

© 2024   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service