Replies to This Discussion

Permalink Reply by Henry on November 5, 2011 at 13:13

wrf,

The problem is that litigation is expensive.  Most land owners don't own enough acreage to make litigation a viable option.  Do they have any other options to get a fair? 

(BTW -- your explanation of the process of selling gas was enlightening.  Thanks.)

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Permalink Reply by w.r. frank on November 6, 2011 at 2:56

Normally, it would be a class action suit on behalf of all landowners similarly situated. However, a LA case effectively precludes a class action because of the required prior notice to the lessee of the LA Mineral Code. So each landowner must go it alone.

However, you might get all the CHK lessors in a unit or two units to give the required Mineral Code notice and then file a class action for that group of lessors. Spreading the cost of litigation over 800 to 1200 acres sure beats spreading it over 100 acres.

Or you might exert political pressure for legislation to preclude the action by CHK. Presumably, in NW LA there are more royalty owners than CHK lobbyists/employees. There is no question that CHK is willfully deducting post-production expenses even when the lease prohibits such deductions. Isn't there a LA Royalty Owners Association.

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Permalink Reply by Skip Peel - Mineral Consultant on November 6, 2011 at 3:00

Yes, there is a royalty owners association.  Sponsored by CHK.  And other O&G companies.

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Permalink Reply by Henry on November 6, 2011 at 3:59

You are right -- spreading the expense out over many landowners will work.  It takes organization, but it has worked before in going after CHK on other things.

The most telling evidence of CHK's aggressive use of deductions (that I can find) is in my database of gas prices.  I have a few respondents who get checks from CHK and PXP for the same well, same gas, same lease.  CHK typically pays 50 cents or more less than PXP.

Here's my dumb question:  Does there ever come a point at which this over-deduction activity crosses the line from a civil complaint to a criminal complaint?  If any operator knowingly violates a lease and does it a gazillion times against many landowners, does that become a scam, in the legal sense?  Is there ever a point where the district attorney would step in?  (I realize it would never happen in Louisiana, but in Michigan, the district attorney started to investigate CHK's leasing activities.)

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Permalink Reply by w.r. frank on November 6, 2011 at 4:22

I presume District Attorneys are elected in LA. There is an Unfair and Deceptive Trade Practices Act in LA under which CHK could be prosecuted with potential TREBLE damages. If the LA Royalty Owners Association would put together some irate/screwed LA voters/royalty owners/contributors, you might get some action!

Permalink Reply by w.r. frank on November 6, 2011 at 4:27

Get ready all royalty owners who get PXP checks. I did not receive an October royalty from PXP. When I called the hot line, I was informed that PXP had "discovered" that it "erroneously failed to deduct gathering and treating expenses" so I would not receive PXP royalty until these expenses were made up by PXP.

This after a year of getting 60¢ to 70¢ more per mcf from PXP than CHK. Same wells, same months.

Permalink Reply by DrWAVeSport Cd1 on November 6, 2011 at 9:28

Henry,

FYI,  Interesting CHK 3rd Quarter 2011 Conference call...

Print it out, and look at the end.  Mr. Chesapeake conveniently gets himself and his CFO "Out of Dodge" per questions on the way Cap Ex charges are "separated" out in the 2011 3rd Qtr. Reports, NEVER having been done before...  And, questions by J.P. Morgan Chase's Joseph Allman, per Why "drilling and completion costs" are NOW being separated out into PDs and PUDs and what the (CHK's) purpose was for "changing the name of the category from drilling and completion costs, which seems to be more comprehensive to 'proved well costs?'"  (In the 3rd Financial Quarter) ????  CHK's Dell'Osso's Reply:  "Well, the purpose for changing the name is just to try to be accurate with the way that we're having to report this now..."  (Smelling the SEC here???)

And, most interesting:  Morgan Chase's Mr. Allman asks:  "So in terms of CapEx for 2011, it appears that you didn't change your drilling and completion CapEx from the $6 billion to $6.5 billion, but year-to-date, I think you spend about $5.2 billion." (closer to $5.3 billion) "That implies in the fourth quarter, you're going to spend $0.8 billion to $1.3 billion.  So is that reasonable?" (Smelling the SEC here????) 

CHK's Dell'Osso's Reply:  That's where we are today.  Yes, that's where we are today, inclusive of the $875 million that's in there for the..."   McClendon adds:  "Yes..."  Dell'Osso:  "Our range for the year is $6 billion to $6.5 billion, and that range is still relevant."

J.P. Morgan Chase's Allman asks: "So I think in the third quarter, you spent about $1.95 billion, and the prior two quarters, about $1.6 billion and $1.7 billion.  So what's going to bring the number down so much in the fourth quarter?"  And, thus the master maneuvering begins...

If you have time,  the "scurring around, semi-stupid" responses from the TOP PAID/TOP BRASS/TOP TWO financial CHK Gurus is disturbing and smells.  The "flow ups and flow downs" and "flow intos and flow outofs" and "spike ups" talk is a dizzying mess to say the least.  And, I quote CHK's Dell'Osso's response to Mr. Allman's concise, simple question: "Okay. So let me clarify.  So this $6 billion to $6.5 billion, are you saying that this is the money you're spending on drilling PUDs?"

Mr. Dell'Osso's response:  "No.  Not necessarily, no.  The money, that could be--those could be--in fact, those are not PUDs.  If they were PUDs, they would be in the dollars spent on proved reserves.  So generally, we don't often drill.  Well, I shouldn't say often.  We do, of course, drill PUDs, but if a significant portion of the wells that we drill are on non-proven locations because we're out trying to hold leaseholds in early stages in our plays, and these wells that exist in a probable or possiible category on an internal reserve report..."  (Are you kidding me, LOL)...and it goes on:  "Once they are drilled, they become proved developed producing wells, and then an offset to them is called a PUD.  And, we typically won't come back and drill that PUD if it's already being held by leasehold for some period of time.  Of course, there's a 5-year rule on PUDs.  And so generally, these are dollars that are being spent on wells that are not yet proven and that have not yet been flow tested.  This is something that you'll see successful efforts companies have to report on a regular basis.  It's different for us as a full-cost company because generally, all our dollars spent on 'drilling and completion' will be put into your 'pool,' assuming that you're going to know whether or not it went to productive well in the relatively near future.  What we've seen over the last year is that there's a significant delay on a fair amount of our properties where you don't get to make that determination because you don't have the infrastructure in place..."  (I call B.S. here)

Again, not deterred, Mr. Allman asks, "But you're changing the way you're doing this with this third quarter release versus what you did before, right?"

Mr. Dell'Osso:  "Correct.  Because the number became material, and we needed to spike it up separately."  (What??? Confused?  Me too!)

It goes on, with more obfuscation from Mr. Dell'Osso and Mr. McClendon...  And finally, Mr. Dell'Osso wants to answer Mr. Allman's question "later," on a "follow-up,"  off-line.

It's too funny.  I haven't heard a Corporate Conference call this full of "hedges" in a long time.

Cudos to J.P. Morgan Chase's Mr. Joe Allman...He was not deterred, he Knows what is going on, and kept to his discussion points.  From which CHK's McClendon and Dell'Osso kept trying to twist and turn and manipulate Mr. Allman away from.  And, the end is, I say, Priceless!  LOL

The BIG CHK CEO and CFO...have to "Goooooooo."  And, I quote Mr. McClendon,"  Joe, we are in Boston, and we've to to run and see some investors on this Chesapeake royalty trust deal.  So I'm sorry to ask you to take it offline.  But..."  (me Laughing Out Loud) 

(And, they say these guys deserve the MEGA BIG Bucks?????) LOL

CHK Stockholders:   RUN! RUN! RUN! Away.

Opining on more CHK accounting aka  the "Hollywood Accounting" method. Again, IMHO only.

http://seekingalpha.com/article/305430-chesapeake-energy-s-ceo-disc...

Apology for my poor convoluted presentation here.  Still worn out from LSU's win last night...

 

Permalink Reply by Mike Bradstreet on May 2, 2013 at 7:58

Without a doubt, CRIMINAL, stealing money from royality owners, AND if CHK continues to get away with this scam, you can bet the other operators are watching and will join in the fun!!

Permalink Reply by Henry on November 6, 2011 at 8:25

Another way to pay for it might be on a contingency basis.  If a group of landowners with 1000 acres all contributed 1% of their royalty, an attorney might take this.  Getting 24% cost-free payments sounds better than 25% with huge deductions.

Also, it would be very hard to keep a large group of landowners unified, if they are bleeding money on a monthly basis for fees. 

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Permalink Reply by Jo Ann Carter on May 2, 2013 at 8:22

The volume of gas removed from the well is measured at the wellhead. That is where I am suppose to be paid. I do not care if they have to carry it to Egypt to sell it. The gross volume is measured at the wellhead. Am I wrong?

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Permalink Reply by Mike Bradstreet on May 2, 2013 at 11:05

you are exactly right, any more involvment on your part would make you a partner, and assume all the libialities that go with it.

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Permalink Reply by The_Baron on November 4, 2011 at 3:01

Welcome to the CHK club Gale

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