Barnett Shale

Venue fight underway as Burleson residents sue Chesapeake Energy

Chesapeake Energy, which is fighting a lawsuit filed by Burleson property owners who claim the company illegally reneged on a lease agreement that would have benefited 408 households, wants to have the case heard in a Dallas federal court. But the property owners filed the lawsuit July 20 in the 18th State District Court in Cleburne and want venue to be there. Burleson is in far northern Johnson County.

Chesapeake contends the proposed class action lawsuit should be in federal court in part because the Class Action Fairness Act authorizes such jurisdiction for class actions with more than $5 million at stake. Chesapeake, represented by the prominent Fort Worth law firm of Kelly, Hart & Hallman, notes that the lawsuit seeks nearly nearly $6.7 million just for lease bonuses.

 Another well-known Fort Worth law firm, Whitaker, Chalk, Swindle & Sawyer, represents two named plaintiffs, Leslee Dawn Ahrend and Buster Ray Williams, and wants the lawsuit to be declared a class action that would include the hundreds of Burleson properties that would have benefited from a lease agreement reached in 2008 between representatives of Chesapeake and an alliance of homeowners .

Under the agreement, property owners would have received a lucrative lease bonus of $27,200 per acre and a 25.25 percent royalty, the lawsuit states. It contends that Chesapeake was guilty of breach of contract in aborting the agreement by refusing to sign lease agreements with individual property owners based on the terms of the agreement. The plaintiffs cite a letter, dated Oct. 16, 2008, that a senior landman representing Chesapeake sent to representatives of Burleson homeowners. The landman said that, as a result of the deep economic recession and plunging natural gas prices, Chesapeake was "withdrawing previous offers to lease your minerals." The ,lawsuit contends that Chesapeake this year has offered a lease bonus of only $1,000 an acre and a 25 percent royalty.

See story in Wednesday's Star-Telegram.

--Jack  Z. Smith   

Questions about big bonus for Chesapeake CEO

The New York times reports that a shareholder lawsuit is seeking information about a $75 million bonus paid to Chesapeake CEO Aubrey McClendon -- despite a big drop in the company's stock price.

http://www.nytimes.com/2009/03/29/business/29gret.html?_r=1&emc=eta1

Railroad Commission ruling forces unleased land owners into drilling unit

The Texas Railroad Commission has issued a ruling allowing more than two dozen east Fort Worth landowners who didn’t sign a mineral rights lease to be forcibly included in a drilling plan, a move that gives producers added leverage against leasing holdouts. It is the first time the commission, which regulates the oil and gas industry in the state, has used a 1965 law to take such action, called a force pooling, against small land owners. Experts said the ruling is particularly applicable in urban areas, where hundreds of small tracts often must be assembled, or pooled, into a drilling unit. Jacqueline Weaver, a University of Houston law professor who has written extensively on Texas oil and gas law, said the issues involved are important enough that they likely will have to be resolved by state courts. Historically, she said, the Mineral Interest Pooling Act has been used to protect small land owners from getting squeezed out of drilling units, rather than forced into one.

“It sets a precedent,” Weaver said of the August ruling. “Horizontal drilling is going gangbusters in the Barnett Shale, and other producers will have the same difficulties.” To see the Railroad Commission examiner's original ruling, the revised ruling and the final order, click here and then click on the third item from the bottom, titled "Application of Finley Resources, Inc. ..."

See the full report from the Friday Star-Telegram here.

-- Jim Fuquay

Lease slowdown hits home

Some of the biggest producers and most active leasing companies in the Barnett Shale brought their leasing activities to a screeching halt this week, disappointing unsigned property owners and perhaps changing the market price of signing bonuses in the play for good. Among the disappointed landowners is Rorie Cowden, whose Hidden Valley miniature golf course on 5.5 acres bordering Jacksboro Highway is part of a Lake Worth negotiating group that signed the richest reported lease in the county: a $30,000-an-acre offer from Chesapeake.

"I was waiting for them to send me my lease packet," Cowden said Thursday, but he got nervous when he heard producers were cutting back. When he walked into the Vance Godbey’s restaurant, where signings were under way, he was told that the new bonus figure was $5,000. The difference: $137,500. "I did not sign," he said. "I never thought it would hit like this. The bubble has burst."

See the Star-Telegram's full report here.

-- Jim Fuquay

Shale.TV a no-go

Shale.TV, Chesapeake Energy’s ambitious plan for an online news channel devoted to the natural gas business, is the latest victim of the sharp drop in energy prices and economic uncertainty. Chesapeake announced Monday “a decision to halt the development of Shale.TV” so that the company can “focus our time and resources on exploration and production activities.” Just last week the company had said the effort, announced in July and already delayed from a planned September start, would go online by the end of October. Shale.TV had hired longtime local news anchor Tracy Rowlett and former ABC-TV news producer Olive Talley to direct the project. The company has never disclosed what it planned to spend on Shale.TV, which planned a studio in the company’s local headquarters office in Chesapeake Plaza, formerly the Pier 1 Imports building on the western edge of downtown Fort Worth.

Chesapeake last week said it was scaling back its leasing efforts in the Barnett Shale in response to lower natural gas prices, which have fallen more than 50 percent since their peak in early July. The Oklahoma City-based company, along with many other gas producers, also previously announced cuts in its drilling budget. On Friday, Chairman Aubrey McClendon was forced to sell most of his shares in the company to margin calls, which are lenders’ demands that he repay loans he took out to buy company stock. McClendon had purchased more than $200 million worth of Chesapeake stock this year.

-- Jim Fuquay

McClendon: Barnett rigs will decline

Chesapeake Energy Chairman Aubrey McClendon told financial analysts Tuesday that the company drilling level Barnett Shale likely has peaked and will slowly decline over the next decade as the company steps up drilling in newer plays, such as the Haynesville in Louisiana. Chesapeake on Monday it will scale back its spending on drilling and development because of the sharp drop in natural gas prices since early July. Chesapeake, one of the busiest producers in the Barnett Shale, said it is budgeting $3.2 billion less on drilling through the end of 2010. It will cut its number of active drilling rigs from 157 currently to about 140 by year’s end and remain at that level the next two years. Additionally, the Oklahoma City-based company said it has curtailed some production in its Mid-Continent region, which includes the Texas Panhandle and Oklahoma, but not the Barnett Shale. Chesapeake said it shut-in about 100 million cubic feet a day of natural gas production, or about 4 percent of production. As a result of the lower capital spending, the company said it expects to direct about $1.9 billion of that money to debt reduction.

-- Jim Fuquay

Dale offers $25,000/acre to River Oaks group

River Oaks Area Gas Leasing Group, which says it represents about 160 properties covering 70 acres, reports an offer from Dale Resources, on behalf of Chesapeake Energy, of $25,000 a year, 25 percent royalty and three-year term. Organizer Steve Holland reports that the organization is considering the offer and is "working on a lease agreement that would reflect these terms." The group has members in River Oaks, Westworth Village, Samson Park and  the 76114 zip code area of Fort Worth. The area has previously been heavily leased, Holland says, but the group has steadily grown its membership. For more information, contact Holland at steve.holland@charter.net. For our previous coverage of this group, click here.

-- Jim Fuquay

A new type of gas for cars?

The Wall Street Journal reports today about a ballot proposition in California that would provide incentives for cars to run on compressed natural gas. Two of the backers have local ties: T. Boone Pickens and Chesapeake Energy, which is a big player in the Barnett Shale gas play here in Fort Worth.

Read the whole story here: WSJ_California_gas.htm

-- Mike

$30,000 bonus for Lake Worth groups, $25,000 in Ridglea Hills

A group of neighborhoods covering about 650 acres just east of Lake Worth is negotiating a mineral rights lease with Chesapeake Energy that includes a $30,000-an-acre signing bonus, the highest known bonus paid in the Barnett Shale. It would top the previous record of $27,200 won from Chesapeake in May by a Burleson group. The Lake Worth area landowners, whose property is in both the city of Lake Worth and also the city of Fort Worth, and Chesapeake have agreed on the financial terms and are working on environmental considerations, negotiators said.

About 1,200 property owners in Boat Club Estates, Highland Lake Estates, Jinkens Heights, Crestview, Crestridge, Triangle Estates and Lakeview Estates neighborhoods are involved in the lease. The land is roughly bounded by Lake Worth on the west, Azle Avenue on the south, Boat Club Road on the east and Basswood Road on the north. Jerry Welch, a negotiator for Boat Club Estates, said the group didn’t set out to set a record, but a last-minute bid by XTO Energy pushed the process to a head. The lease also carries a 25.25 percent royalty.

Chesapeake over the weekend also won the endorsement of the Ridglea Hills Neighborhood Association for a mineral rights lease that pays a bonus of $25,000 per acre and a 25 percent royalty. The neighborhood includes about 1,600 property owners and 640 acres, said Bob Bashein, president of the neighborhood association’s executive committee. “It’s been nine months of drudgery. The first letter from Chesapeake last October was for $5,000 and five years. We negotiated that to $25,000” and a three-year term, Bashein said Tuesday. No signing dates have been set. XTO also was in the running for the lease. Ridglea Hills is bordered on the north by Camp Bowie Boulevard, on the south by West Vickery, on the east by Westridge Avenue and on the west by Texas 183.

-- Jim Fuquay

Mr. Gas wants ... more gas

Aubrey McClendon, dubbed Mr._Gas_ by Fortune Magazine, testified to a Congressional committee Wednesday.

No surprise, he called for more production of natural gas. He also said the government should equip its fleets of vehicles to run on compressed natural gas, and provide incentives for gasoline stations to sell CNG to consumers. Homeowners who have natural gas connections at their houses might even be able to refuel their CNG vehicles in their garages, he said.

Read it here:

AKM_US_Congress_Testimony_FINAL.doc

-- Mike