Famous Buell well (Buell 8H) about to be shut down!!! Chesapeake doesn't own horizontal drilling rights!

Looks like Chesapeake's "best shale well ever" is actually owned by Kenneth Buell.

You can find all the relevant court documents (very hard to get your hands on - rural public records...) and analysis here:

And the Buell well will soon look like this.

p.s. the well is in Harrison County, Ohio.

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0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on July 10, 2012 at 4:31am

I think it gets overturned and Enron, err CHK continues to operate it.  I think that once the well gets put back into production (I believe you are right about it being shut in any day now) CHK sues Mr. Buell for damages, because CHK is a schoolyard bully and wants to make an example of people who mess with them.  Their PR department ought to be fired as it is.  I honestly have no hope that they'd do the right thing and work out an amicable agreement.

Permalink Reply by Buell Well on July 10, 2012 at 9:56am

They can't sue Buell for damages. They have no claim to state, as far as I know. What would they sue for? Of course, they tried to threaten the Sportsmen Club with damages and we know how that worked. I think Beetham should be credited with not allowing his clients to be bullied by naked threats. If you know the law and how to play your leverage you can stare down a company like CHK. Sometimes the bully gets exposed for having a glass jaw.

Permalink Reply by Dan on July 9, 2012 at 7:41pm

Joe did say that he owns his mineral rights, as do his neighbors, as do I.  This judgement has no application to us who own their minerals and surface.  Surface-use agreements of one form or another were included in our agreements, so there is nothing to dispute in our case.  The language you are talking about is only found in some deeds that severed the minerals from the surface.  It is only those surface-only owners who might benefit from this judgement if it stands up in appeal.

Permalink Reply by Buell Well on July 10, 2012 at 2:10am

So he did, my mistake. Certainly, no one would claim this deed language appears in 100% of CHK's Utica holdings (I have not). Severed estates are fairly common in counties like Harrison with a history of coal production, however, as is the mineral deed language shared by Buell, Jewett and at least 5 square miles of acreage in the vicinity of those two drill pads. There could be another explanation but this mistake of fact by CHK on the nature and scope of their drilling rights in and around their prized well certainly seems to have thrown sand in their gears. Some properties are not suitable for well pads. It may be a bandwith problem considering all the recent bad press. They may be having trouble deciding between the best of several bad options. And since Total is now involved as a JV partner, I'm assuming it makes the flow chart of decision making only less efficient.

Permalink Reply by craig on July 10, 2012 at 3:59am

As per above statement "McClendon has the option to take a personal 2.5% royalty interest in every well they drill."

That USED to be the case, however the program was eliminated when the proverbial chit hit the fan. 

Permalink Reply by Buell Well on July 10, 2012 at 4:35am

The Buell 8H was drilled before the agreement, and the deal grandfathers in any well drilled within a certain prospective time frame. For example, any well drilled from the Buell pad during 2013 would qualify under the program. In theory, McClendon would strike a deal where he assigns his personal royalty interest option to Buell, CHK pushes ahead with new drilling from the pad, drills several new wells, Buell exercises the option on each well in turn, CHK gets great new IP data (better than anything coming out of Carroll county), and everybody is happy. That would be the gist of it anyway. Don't know if McClendon would offer or if Buell would accept such a deal (the details would be important, I'm sure). But it wouldn't cost CHK a dime so I don't see why McClendon wouldn't offer. 

Permalink Reply by Paul Martinelli on July 10, 2012 at 3:32am

When all is said and done here.....a deal will be made for surface usage. There is too much at stake for both sides...CHK, landowners, and all of Harrison County for that matter. 

 

Looks like CHK didn't have all its ducks in a row on this one....and it will cost them more $$$ to do so.

Pay up, or move on.

 

What impact will/could this have on the proposed processing plant being built there?

 

 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on July 10, 2012 at 3:42am

It's not fair to assert that "CHK didn't have all its ducks in a row on this one" because they were taking leases and starting production based on what Ohio case law said.  It's like this: you're driving 35mph in a school zone that is marked 35mph.  You get pulled over and the officer tells you "yeah, it's posted as a 35, but it's a school zone and you should have known better.  I'm writing you a ticket based on what I think the speed limit should be.  We're changing the sign tomorrow, anyway."

Permalink Reply by Buell Well on July 10, 2012 at 4:40am

If it was a ticket worth billions of dollars you might pull over when seeing the conflicting signs and call your local traffic court attorney. Look, CHK's aggressive moves into these shale plays comes with rewards, yes, but also risks. We are seeing that with the declining price of natural gas which their bottom line is tied to due precisely to their shale gas drilling. Clearly, they have built a leading position in a very promising play. But some of the acreage may not be quite the steal they thought as they will have to negotiate a second time before acquiring the necessary horizontal drilling rights.

Permalink Reply by Buell Well on July 10, 2012 at 4:49am

In the end, CHK may have to invest more money in the play to acquire assets, which may reduce their ROI slightly, but it will still be robust enough to offer the company it's best shot (short of a significant rebound in natural gas prices) at medium to long term viability. If that increased investment is transferred to landowners like Buell and Sportsmen Club then I doubt anyone will cry for CHK. CHK certainly played hard ball when they had the leverage and informational advantage. Moreover, in certain cases a personal transfer of McClendon's royalty interest may be sufficient and spare the company any cash hit. At this point, I imagine Total would likely be willing to chip in too. They are certainly more cash rich than CHK but likely view this as CHK's mistake and thus not something they should have to pay for. I wouldn't be surprised if negotiations between CHK and Total are likely as robust as any negotiations going on between CHK and the plaintiffs.

Permalink Reply by Buell Well on July 10, 2012 at 4:55am

Harrison County will be alright no matter what happens. They are home to CHK's best well ever. It may not be CHK hitting it huge in Harrison County, but a different company may treat landowners better anyway. Like I said, if this is how they treat a 70 something year old whose land is home to their most prized well in their most prize play, other operators can't help but be an improvement from a landowner's perspective.

Permalink Reply by Buell Well on July 10, 2012 at 4:57am

What's more, a slower pace of development in Harrison County in the short term might allow people who signed back in 2008-2010 to sign new leases at significantly better terms, armed with the knowledge that Utica is CHK's best play and Harrison County is home to the best well CHK ever drilled.

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