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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Permalink Reply by Buell Well on July 9, 2012 at 2:32pm

You mean Total doesn't have a representative monitoring this site for latest developments?  Darn, I thought this was a direct line to their CEO. What a waste this thread has been! It's not as if anyone on GoMarcellus would be interested in the Buell well, just those busybodies on earnings calls who press McClendon on the Buell well so he can gush about how important it is to CHK. Maybe I am piling on a little considering how much bloom has come off their rose lately. But I am only replying to your questions.

Permalink Reply by Buell Well on July 9, 2012 at 2:50pm

"Mr. Buell" has a nice ring to it, actually. Especially when CHK would like to drill something like half a dozen wells from Mr. Buell's property, went ahead with drilling the Buell 8H even after Mr. Buell turned down the low-ball surface use agreement they offered, are now calling it their best "shale well ever" even though they know they've been trespassing on Mr. Buell's property, and by your reckoning six wells would "only" create $120 million in profits, which means Buell should be in line for....what? $10 million? $40 million? I dunno, you tell me. According to 100 years of Ohio case law, Mr. Buell controls the on/off switch on the whole operation. So, does he own the well? He certainly has the hammer to shut it down. Sounds like he owns CHK itself, especially considering how many other landowners in Ohio may be able to stand on the shoulders of the path that Mr. Buell and his local counsel are blazing. Sorry if I understated things! It's not just the Buell well that's in jeopardy but CHK's ability to rip-off landowners like Buell all over Ohio. Looks like landowners and property rights may get some respect in this Utica shale development, after all.

Permalink Reply by Buell Well on July 9, 2012 at 2:57pm

Has CHK requested a stay? If not and they believe it's a legitimate path forward (wouldn't put too much stock in their legal theories at this point) then they should file ASAP. The well could be shut down any day now. The well surely won't survive the summer considering the straightforward nature of Buell joining the case and the stipulation that Buell and Jewett have identical relevant deed language.

Permalink Reply by Joe Bezel on July 9, 2012 at 3:45pm

I've enjoyed the lively discussion on this thread.  Thanks for sharing the research on this subject.  I'm a property owner about 1.5 miles away from the Jewett Sportsmans club pad.  I as well as several of my neighbors owned their surface and mineral rights and leased them around 2 years ago.  Our deeds did not contain the language found in the sportsmans club and Kenneth Buell deeds.  Presumably (hopefully) we are in the same 'sweet spot' the Buell well is in.  However, there has been zero activity in an area that is likely as rich as the Buell well and has no issues associated with it.  What gives?  Also, I notice that the Jewett Sportsmans Club has gotten some criticism about making their stand against CHK.  I know many of the members, and they are all good people.  They took unreclaimed stripmined land that looked like a moonscape and over the last 50 years made it look like a park.  They hold turkey shoots and field trials.  They teach youth hunting safety courses and hold fundraisers for cancer victims.  They aren't looking for a payday, they just want to be left alone to continue doing what they do.  I would like nothing more for this issue to be settled so drilling and production can get moving, but not at the cost of landowners getting run over by energy companies.

Permalink Reply by Buell Well on July 9, 2012 at 4:49pm

That's a good question. I cannot answer that though. I am guessing CHK simply doesnt have the bandwith to deal with all their various PR problems and this real substantive ownership problem was put on the backburner for a while. This is a difficult thing for CHK to strategize because they almost lose no matter how you slice it and these companies (CHK in particular) hates to lose it seems. Funny thing is, McClendon has the option to take a personal 2.5% royalty interest in every well they drill. He could transfer his personal royalty interest in the 6 wells CHK could drill from the pad on Buell's property, indeed McClendon could have done that from the beginning. Sounds bizarre but only because McClendon personal royalty option is somewhat unusual. Still, it wouldn't cost the company a dime, McClendon would still be a billionaire, and you'd probably make the landowner feel like he's not getting screwed anymore. Everyone would get what they deserve. But obviously that makes it out of the question.

A word of caution: even if the same language is not in your deed the language might have been included in a prior deed. If that were the case, you would likely have the same rights as Buell and Sportsmen Club to demand a surface use agreement before serious horizontal drilling take place from your land. (the mineral conveyance relevant to the Sportsmen Club dates from the 1950s; the Sportsmen Club bought the property some time later). You sound knowledgeable though, like someone who has made the wise investment of having an attorney research the chain of title. If so, hopefully you at least own your mineral rights.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on July 9, 2012 at 4:56pm

In your opinion what happens when this decision is reversed?

Permalink Reply by Buell Well on July 9, 2012 at 4:57pm

The decision wont be reversed.

Permalink Reply by Buell Well on July 9, 2012 at 5:06pm

Nobody reading CHK's brief takes it seriously. Its argument rests on irrelevant law from other states. Will a Ohio judge (any Ohio judge) ignore 100 years of OHIO law in favor of case law from Texas or Oklahoma? We already know the answer to that. Perhaps CHK would prefer the case be decided on Venezuelan law. That way, both the landowner and the private company would get screwed. Hugo Chavez could write the opinion himself! CHK cannot ask for the property right protections of Ohio law on one hand but demand judges ignore the property rights protections afforded landowners. CHK only wants CHK to win, which I get because they only look out for #1, but they only make things worse for themselves by being so unreasonable.

Permalink Reply by Dan on July 9, 2012 at 8:04pm

BW, the concept of "100 years of case law"  seems far-reaching to me.  Back in the 1950's at the time that the language of "through and under" was being inserted into some deeds that severed the minerals from the surface, no one was contemplating and trying to allow for horizontal drilling of gas wells.  There is still plenty of room for differing interpretations by judicial scholars up the appeals chain, although I don't pretend to know which way it will go.

 

I realize that someone in Kenneth Buell's position now wishes that he had acquired the mineral rights along with the surface when he bought his property, but at the time, since the land had already been stripped of coal, it seemed like no big deal.  The reality is that he knew or should have known that he wasn't getting the mineral rights when he bought his land.  This is a free country with private property and mineral rights, and in this case, he owned the surface, and someone else owned the minerals.  The gas and oil under Kenneth Buell's property does not belong to him (dormant mineral act appeals notwithstanding), and he is not entitled to any royalties.  He does own the surface, and is entitled to reasonable compensation for damages to his surface.  If the Jewett-Sportsmans Club ruling stands, then he now has much more leverage for the surface-damage negotiations, but the ruling doesn't all of a sudden make him owner even partially of any of the minerals below his property.

 

To me it seems reasonable that the added leverage that this ruling might give to surface-only owners in their damage negotiations is substantial, but I would think that the final number would be much lower than BW's $10-20M.  If a non-ruling-enhanced damage settlement with a surface owner is typically up to $40,000, I would say that this ruling could up the ante to offering the surface owner something like $750,000 to $1M, which seems fair for someone who doesn't own their minerals.

Permalink Reply by Buell Well on July 10, 2012 at 2:03am

Maybe you can help us put this picture together. Where is your land located?

Fact is, under Wiseman v. Potts, which CHK won down in Morgan County, Buell DOES own his mineral rights and Buell's attorneys point that out in the Motions filed May 4th (a whole 'nother thread by itself...). Putting that aside for a moment, what is reasonable is decided by what private parties are willing to mutually assent to. Buell did not assent to CHK's low ball offers before they drilled - why would he now after McClendon sang "best well in company history" from the mountaintop? I doubt Buell monitors corporate earnings calls, but I'm fairly certain his league team does.

If CHK plans on banking $20 million profit per well drilled and Buell's land is apparently the ideal place to drill the top six wells in company history, then logic and practicality dictates that some fraction of $120 million is what it's worth to CHK to obtain the necessary drilling rights to make their operations from the pad economical (horizontal rights allowing for mile long laterals). What is the top % cut they are willing to give Buell? And that's just the numbers from one well pad in Archer Twp.

Problem for CHK, it's not just a question about Archer Township. Since severed estates are fairly common in counties like Harrison and since the mineral deed language shared by CHK and the North American Coal Company over at least 5 square miles of Archer Township is also fairly common, this clouds their ability to operate economically all over Ohio until they negotiate settlements with a whole host of landowners across a number of counties.

As a result, it throws doubt not simply on CHK's ability to drill serious wells with serious laterals, but also its suitability as a JV partner. Total cannot be excited that their willingness to take the leap with CHK has been repaid with protracted litigation (assuming they see it worthwhile to pursue a "win") and egg on their face. Total looks a little foolish right now, like they fell for the pitch of a used car salesman who did not even have the authority to let you drive the car off the lot. CHK is largely dependent on Utica drilling to move way from it's 85 % dry gas mix over the next 12-24 months. Yet CHK needs JV's like the one with Total to finance much of that same drilling. Who is stepping up to be the next Total? What kind of discount will CHK have to offer to entice a JV partner and how many tens or hundreds of million is that discount worth?

Add that number to $120 million profits from the reserves that could be produced from Buell's property, apply some % cut that CHK should be willing to part with, and that's the kind of leverage Buell has on CHK now.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on July 10, 2012 at 2:50am

So you have no opinion then?

Permalink Reply by Buell Well on July 10, 2012 at 4:22am

I told you my opinion, assuming for sake of argument the Jewett/Buell decision is appealed in the first place. If you are asking me to answer a hypothetical that has a very small chance of coming about IMO - (a) it's appealed and (b) an appellate court tosses Ohio law in favor of law from another jurisdiction in a way that robs Jewett/Buell of leverage - then it may depend on factors that go beyond Archer Twp., even beyond eastern Ohio and are very hard to predict at this point. For example, CHK as we know it may not exist 12 months from now. Do you have an opinion on what would happen in your hypothetical scenario?

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