Fuel Fix reported this week that there has been an uptick in natural gas prices the past few weeks- 20% to be exact. But companies involved in Shale drilling aren’t out of the woods yet, as prices are still down 18% compared to this time last year. We mentioned the legal struggles and reporting issues that Chesapeake Energy has been facing a few weeks ago. More recent reports say they are currently trying to plug a $14 billion cash flow deficit. According to Reuters, “as Chesapeake fights to regain its footing, it is looking to execute the last stage in its land strategy: filling out its vast holdings, and then developing or selling them. Where Chesapeake doesn’t intend to drill, it intends to sell, according to company presentations.”
This should involve careful tracking of which wells appear to have future productivity, which appears to be dry, and the lease terms for each property. Thus far, however, Chesapeake seems to be fairly cavalier about the possibility of violating land owner rights. Starting in late 2010, they acquired a large number of leases in across the US. When wells started to come up dry, Chesapeake just walked away from deals, prompting lawsuits en masse. Reuters stated that “in the last three months, judges in Louisiana and Texas have awarded nearly $120 million to two land owners – Peak Energy and Preston Exploration – after finding Chesapeake breached contracts by walking away from signed deals. Scores of similar cases in Michigan and Texas have been settled this year.”
According to other commentators, Chesapeake was also in the news last month when it “settled a long-running claim brought by Dallas/Fort Worth International Airport for underpayment of royalties due on Chesapeake wells drilled under the airport. Chesapeake agreed to pay $5 million in back royalties.”
Clearly, Chesapeake is making land leasing an important part of their strategy, with $31.2 million dollars spent in the last 15 years to acquire drilling rights on unproven U.S. land. But they have not paired that with matching emphasis on compliance. Our clients hold exciting competitive leases and treat them as the valuable investments they are by leveraging their information assets to protect themselves from the types of issues Chesapeake is seeing.