Received a phone call from a Chesapeake Rep yesterday concerning our lease. We have a unitization clause that only allows us to be in a drilling with the max size of 640 acres. Chesapeake would like for us to ratify our lease to allow the maximum size to be 1280 acres. Any input on the pro's and con's of allowing the ratication? Any info would be helpful, thanks.

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i have the same issue,they are desperately wanting me to change to 1280

I have the same issue and have been thinking about it for months.  As for me, I will agree to the 1280 unit.  I have come to this conclusion for several reasons.

1.  For Chk, it is just good business sense.  Expenses for one pad vs two or more = pad cost, extra pipiline costs,extra equipment mobilization costs, and extra DAILY costs for the next 20-30 years with regard to daily well maintenance and security.

2. For landowners, we have all witnessed that CHK here in Carroll county is seemingly trying to drill the max wells for each 1280 acre pad  This can be verified by looking at the multiple wells permitted for many/most of the current well pads.

And, as it appears to me, they are NOT just setting up big drilling units to tie up acerage.  I am sure they might do that some times, but it doesn''t look like they are doing it in Carroll county at this time.  This ALSO MAKES GOOD BUSINESS SENSE for the inverse of reasons given in 1. above.

3. For CHK and the Landowner, given CHK's current short term and medium term debt obligations/problems, it makes sense to generate as much cash flow as quickly as possible.  Here, again, one large pad with six or eight wells will enable quicker cash flow for all of the reasons given above.

Just my thoughts. 

 

Are they asking that your lease be amended?  I would strongly recommend that you speak to an attorney to look over the lease ratification.  Be wary of 'ratification' as you may be waiving your future rights.  I am not an attorney but have talked to with some regarding similar situation.  Just words of caution.

Thank you Rose. Yes, per the phone call, they want to ONLY ratify the portion concerning the unit size. Have not received the papers in the mail yet with the details but wanted to put out some feelers to see if anyone has encountered this as well. Will definitely put a lot of time and thought into our decision as well as counsling. 

Chk is only modifying the unitization paragraph of the lease.  It does not affect any other part of the lease everyone has been living with for the past 30-50 years.  See an attorney if it makes you feel comfortable but for every attorney you find that informs you to not sign there is an attorney that will inform you to sign. Also, it appears that chk is drilling at least 4 wells per pad now.  I think they got a lot of blowback by us landowners when they were only drilling 1 or 2 wells.  As stated above cash flow is needed and it is cheaper to drill with the rig on the pad than to move it around and come back to drill later although it will occur.

You really need to talk to a good oil & gas attorney.  My attorney told me to warn my neighbors of this tactic.

He says what normally happens is the larger the unit the less % your property's royalty will be.  Almost like

cutting your piece of pie in half.  It doesn't always mean all your acreage will be put in the unit, either. 

Your % of the royalty will be the same.  There is a dilution of royalties after 1200 acres or so.  At 1280 ac it wouldn't be noticeable. You can run the numbers yourself.  Even if you don't sign it doesn't guarantee that all of ones acreage will be in the unit.  If that is the case some of your acreage could be in another well.  

At 640ac you receive royalties from 3 well. At 1280 you receive royalties from 6 wells.  12.5% of 640 = 12.5% of 1280ac that's in the leases dated as far back as you go. If your land is 10% of a 640ac unit then your land will be 5% of a 1280 unit.  Royalties will be the same.  Look at it from a $ setting.  10% of $64.00 is $6.40.  5% of 128.00 is $6.40.   This is a simple generalization. OF course production amounts can be different from one half to the other and can either increase or decrease royalties.  If the bottom 640 of a well produces the average of 3.5mcf and the top half produces an average of 4mcf then royalties would increase.  On the other hand, if the average in the bottom 640 is 3.5mcf and the top is 2mcf then royalties would decrease, this is presuming that you have acreage in the bottom 640 and signed to a 1280.

1280ac unit is less of an environmental impact as Larry stated above.

I have a federal lawsuit pending on behalf of several landowners who were in the same situation as you are.  You should seek counsel before signing any amendment, ratification or other document that will alter the terms of your lease.  I'm not saying they are trying to trick you, but sometimes the ratification is not exactly what you think it is.

Without compromising the pending lawsuit can you tell us what the basics are?  If not I understand.  I'm curious.

Ratifications and Amendments are a central issue.  Specifically, what the contracted landmen were instructed to tell landowners why they needed the changes. 

Federal judge in Akron last month just told the attorneys representing one group of landowners that they had better come up with better information or they would lose.  Just an FYI.  I'm for anything that will get us more money. 

Jim.... are you referring to the lawsuit regarding the Anschutz leases with a provision whch allows the lessors to shop their leases during the primary term? I for one own two of those leases and was told by an attorney close to the judge that the case is very weak. Or, are you referring to a different suit?

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