While the natural gas rush in the Marcellus Shale has slowed, claims on that gas continue to shift with Chesapeake Energy Corp. using its natural gas as collateral for borrowing.
The result is a mortgage filed earlier this year, and amended a few times, with the most recent at the end of June, in a staggering amount — up to $10 billion.
It’s likely the most zeros that have ever turned up on a document at the Wyoming County Recorder of Deeds office.
The mortgage also applies to Chesapeake mineral rights in Ohio, Louisiana, and Oklahoma. The massive document has pages listing every lease Chesapeake has in Wyoming County.
Amid collapsing prices of natural gas, the already highly leveraged Chesapeake has been selling assets and trying to build liquidity. Part of that has been accessing credit it needs to survive. Earlier this year, the company noted that creditors reaffirmed the company’s borrowing base, the value of collateralized assets of $4 billion, essentially a borrowing limit.
Chesapeake is trying to ease the minds of nervous creditors, worried about what they are owed while being asked to hand over more money to a shaky entity.
“Chesapeake is trying to tell their creditors ‘we are good for it, and we are going to take care of you,’” said Steven Saunders,
a Scranton energy attorney. “The creditors want to know what their interest is — that’s every single lease getting listed on the mortgage.”
It doesn’t mean much for the leaseholders, however.
Les Greevy, a Williamsport attorney active in the National Association of Royalty Owners, said he doubts the mortgage will significantly impact landowners.
“Chesapeake takes a lease from the landowner in exchange for the right to remove the resource and obligation to pay a royalty,” he said. “If Chesapeake mortgages their interest in property, that does not change the royalty or the relationship.”
Natural gas royalty owners have other real problems. The historically low price of natural gas hasn’t been generating royalties. Mr. Greevy said his last royalty check was 89 cents.
Chesapeake said in March it would not pay royalties for that month because the company lost money on the gas it drew from the earth.
Mr. Saunders expects some angst from landowners, who thought, even if they received a modest lease bonus, that royalties would be the big boon. Instead they’ve been getting pocket change.
“People will see their name on a $10 billion mortgage, shake their heads, and say ‘I won’t see a dime of it,’” he said.
A link above takes you to another more or less optimistic discussion.
Member Sage59 commented there and seemed to have made good sense (to me anyway).
What's your read on it ?
Say are you guys (you and Sage59) related ?
I think I've said before I am skeptical about near term prospects for NE Ohio wells. Actually, I grew up near Youngstown and therefore sincerely hope the situation improves. HillCorp seems to be the last man standing in the area. NE Ohio may have to wait until wells in the southern region play out. That may take a while as there are plenty of attractive drilling locations remaining.
The recent surge in natural gas prices is encouraging. NGL prices have also risen, if not so dramatically. Wish I were more confident the higher prices will be sustained. Also, the local NG basis price is far below Nymex or Henry Hub prices due to lack of takeaway capacity.
The best thing that could happen short term is announcements to proceed with the next two ethane crackers located along the Ohio River in Belmont County, OH and near Parkersburg, WVA respectively. Both are roughly the same size as the Shell Cracker in Monaca, PA. I'm cautiously optimistic both could proceed soon.
Second best thing is more pipelines departing the Utica/Marcellus heading West and/or South. Environmentalists seem to be the main impediment.
Thanks for your read and reminder Bluflame.
Pro NG and Oil, pro landowner / lessee legislation and pro NG and Oil leadership would also be welcomed and an assist to every one of us in this country of ours.
But, the truth be known, I've been a cynic for these and many other reasons for quite awhile now.