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Permalink Reply by 2pwt9ru4672sq on July 24, 2012 at 5:32am

Difficult times might lie ahead:

Analysis: Chesapeake retreat ends American energy land grab

July 10, 2012|Edward McAllister | Reuters

NEW YORK (Reuters) - About six years ago, an army of agents hired by energy companies started desperately courting landowners across the United States whose farms and ranches happened to sit atop some of the richest oil and gas deposits in the world. And so began one of the biggest land grabs in recent memory.

Those days are over.

U.S. energy titan Chesapeake Energy is quickly cutting back on an aggressive land-leasing program that in recent years has made it one of America's largest leaseholders, putting an end to half a decade of frenzied energy wildcatting.

Beset by growing governance and financial problems, and a sharp slump in natural gas prices, the No. 2 U.S. gas driller is reducing by half the ranks of its agents, known in the industry as landmen.

With little evidence that its competitors are taking on the role of leading industry lease-buyer, Chesapeake's new found frugality is expected to usher in a more sedate period of U.S. land buying, and a sizeable cultural shift for an industry that has been acquiring new acreage at almost any cost.

A surge in drilling into rich shale-gas seams from Pennsylvania to Texas has pushed natural gas prices to 10-year lows, forcing producers, including Chesapeake, to cut output and put the brakes on new wells.

Drilling simply to hold on to leases represents about half of U.S. natural gas output, analysts say, which has helped keep production at record highs despite plummeting prices. Leases held by energy companies tend to last about three years, but will typically remain valid indefinitely if an energy company drills wells and produces fuel on the leased acreage.

It should be fairly easy for drillers to re-hire agents and secure more land when prices recover, according to landmen sources, and production is not expected to be affected immediately. But a lull in leasing could briefly affect production longer term, given that it takes up to six months to secure large tracts of land.

"Chesapeake has always been a bellwether for where the next big play is. It would come, lease large blocks and send a signal to the market," said Adam Bedard, senior director at Bentek Energy in Colorado. "Without them, the pace of land acquisition might slow."

In a move to mollify disgruntled shareholders, Chesapeake plans to reduce its use of contracted landmen from 1,300 now to 650 by the end of the year, said Chief Executive Aubrey McClendon, who was stripped of his chairmanship last month after Reuters reported a series of governance missteps.

The reduction, which is expected to help reduce towering debt levels, marks an 80 percent decrease from its peak of 3,400 landmen, McClendon said.

 

CULL BEGINS

The cull has begun. Over the past month, 225 contracted landmen were cut from Chesapeake jobs, said one Ohio-based landman, who, like most in the close-knit industry, would only speak off the record.

"Chesapeake's activity level in the Appalachian region is minimal now. It has devastated the (landman) industry," the source said. "The Chesapeake debacle is one thing, but the rest of the industry shortfall is because a lot of the projects are intertwined with Chesapeake," he added.

The Oklahoma-based company has become one of the largest leaseholders in the United States, amassing more than 15 million acres of land for drilling or an area about the size of West Virginia.

One mid-sized U.S. brokerage that does lease work for Chesapeake has experienced a 15 percent to 20 percent fall in business over the last 90 days due to a slowdown not just in Chesapeake activity but across the board, a manager for operations at its eastern division told Reuters. About 15 percent of that company's business comes from Chesapeake, he said.

"We are getting to the point where companies are becoming more cautious - that is what we are seeing," he said, asking that he not be named.

Other major producers, including Encana Corp, Royal Dutch Shell and Chevron, said they are not planning to materially change their strategy of land acquisition or staffing numbers, suggesting a gap might be left as Chesapeake, long the pioneer in drill leasing, retreats.

"We have not reduced our land staff nor have we made any changes in the way we conduct land operations," said a spokesman for Encana, one of Chesapeake's main land-leasing rivals. Encana employs an in-house staff of about 170 workers in its land department. Shell also said it was "not planning any major staffing level changes in our land function for leasing activity."

THE GLUT

Landmen in the field reckon companies are now well-placed to increase leasing again when they need to, but it could take up to six months between a decision to lease the land and the drilling, potentially creating a lull in activity, sources said.

While a fall in leasing will affect the landmen, it is unlikely to affect gas output for quite some time given the amount of land already leased and the hundreds of wells drilled that have yet to begin producing

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Permalink Reply by Henry Edwards on July 24, 2012 at 5:42am

I saw that article-Until we have a coherent long term energy policy-I believe you are correct. There will be a lot of disappointed mineral rights owners

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Permalink Reply by Billy Park Whyde on July 24, 2012 at 6:06am

  If you haven't looked lately NG prices have went up almost a dollar in the last month or so. I expect gas to rise as the temperatures drop as well.

  The land grab might take a interesting twist. Instead of gross acres I expect to see higher prices paid to lease in areas where a productive zone in the oil window takes place. My opinon

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Permalink Reply by SBRW on July 24, 2012 at 7:17am

Here in western pa/Butler County Shell backed out before the leases even started.  Just say there are a bunch of non paid land owners that signed only for Shell to back out.

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Permalink Reply by michael J. McCloskey on July 26, 2012 at 6:46am

I would like to talk to any of those people.

There is a way to see if it was the lack of a clear title or other reasons.

Other reasons include reverse cherry picking.

 

Here to help!

 

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Permalink Reply by 2pwt9ru4672sq on July 24, 2012 at 8:06am

Billy,

I would dearly love to see NG prices continue to rise and as you stated, when the temps start dropping, I expect the same.

I also concur with your assessment that one of the twists might be that acreage prices in the more well defined/de-risked areas could rise and less prospective areas might not see any offers at all.

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Permalink Reply by 2pwt9ru4672sq on July 24, 2012 at 7:59am

Donna,

Although Boone stated that they had 80 landmen working for Antero, he didn't say that they were "leasing" (although it would be logical to assume that some percentage of that number were engaged in leasing activities).  It is, however, possible that all 80 of them were running title on parcels that Antero has already leased, but not paid.  I suggest you ask Boone that question.  I haven't spoken to him in probably 8 years when I saw him pop up on this site.  He is an old industry acquaintance of mine. 

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Permalink Reply by 2pwt9ru4672sq on July 24, 2012 at 9:42am

Not sure what the link is supposed to pull up...it says "sorry, page not available".

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Permalink Reply by JK on July 24, 2012 at 1:16pm

Henry,

I got this straight from the chk horse's mouth, yesterday:

chk is going to let all Mon county non-drilled leases expire.

There are no rigs here and rigs have moved to PA and Northern WV looking for oil.

So the folks who leased and hopefully got bonus payments, well, that's all you're going to get until you lease again with sombody else. chk is being paid .87mfc by Hope-Dominion who is getting $9.  Even worse news is in a few months Hope-Dominion is going to install regulators on ALL wells so the psi does not go over 300. Get ready for your royalties to go down big time.  It seems so illegal to be able to control us like this. 

There is a 135 mile 20" pipeline coming through here which is the only good news.

We are so screwed here in Mon County.

Those of us who are 'lease held by production' will be stuck for a very long time. They are making sure the wells do not run dry by putting time clocks on the wells. The guy told me if they let the wells run like normal then wells would be dry and done in no time. I wish they would. I am tired of being controlled.. 

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Permalink Reply by Billy Park Whyde on July 24, 2012 at 1:21pm

"There are no rigs here and rigs have moved to PA and Northern WV looking for oil." The oil is supposed to be in the central eastern edge of eastern Ohio and we are not seeing a big movement yet!

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Permalink Reply by Jack Straw on July 24, 2012 at 3:44pm

RE: "I got this straight from the chk horse's mouth"

 

In dealing with CHK .... are you sure that you have got the right end of the horse?  ;-)

 

JS

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Permalink Reply by JK on July 26, 2012 at 11:50am

Either one is the same Jack..

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