Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on April 11, 2020 at 9:56

Lots of speculation by media pundits but no official announcement from Chesapeake.

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Permalink Reply by Marie on April 11, 2020 at 10:00

If this is true, what does that mean for the landowners?

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Permalink Reply by Skip Peel - Mineral Consultant on April 11, 2020 at 10:07

The first thing that Chesapeake would do, if the company indeed filed bankruptcy, is ask the court to allow their continued payment of royalty to their mineral lessors.  The only thing of real value that Chesapeake has is its leases and non-payment would invalidate those agreements.  If the court accepts the company's bankruptcy plan, they would shed debt and be able to invalidate contracts for gathering, treating and transportation in order to get lower operating costs.  That depends to a large extent on the company's creditors.  If the court rejects the plan, it can force a liquidation of assets which means the leases would be acquired by other companies.  Either way the wells are still operated and the royalties still paid.  Mineral lessors would not be materially impacted and their leases would remain in force.

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Permalink Reply by Marie on April 11, 2020 at 10:22

What if the landowners decide that they do not agree on the absurd marketing, gathering and transportation costs? And wants To be released from Chesapeake due to being illogical in their practices. 

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Permalink Reply by Skip Peel - Mineral Consultant on April 11, 2020 at 10:33

I doubt that a bankruptcy court would rule on Chesapeake's marketing arrangement but might allow the company to shed some of their more burdensome gathering and treating contracts which would lower the company's costs and thus that of their mineral lessors.  I guess Chesapeake mineral lessors could hire their own attorneys and attempt to be part of the court's deliberations but the chances of that happening are slim and even if attempted I wouldn't think the objections would carry much weight in court.  Although an important point for mineral lessors, it would be an insignificant matter compared to the influence of the major creditors and stockholders in the court's view.

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Permalink Reply by Marie on April 11, 2020 at 12:14

I was advised that they were filing for bankruptcy within the next year! Cheating Ches has not been honest and forthcoming in the practices and that’s completely unfair to the landowners “in more ways than one.”

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Permalink Reply by Skip Peel - Mineral Consultant on April 11, 2020 at 12:39

Chesapeake's obituary has been written many times but this does look like the dead end with no way out.  As far as the company's Haynesville mineral lessors are concerned, I think the best outcome would be for Comstock to end up with the assets either through an acquisition pre-bankruptcy or through a court liquidation.  That would relieve lessors of the CEMI marketing charge at the very least.  The one thing we don't want to happen is see Chesapeake emerge from a bankruptcy preceding with its leases intact.

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Permalink Reply by Aaron Moak on April 11, 2020 at 13:10

Boo hoo

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Permalink Reply by Chad Ellis on April 11, 2020 at 13:19

Chesapeake’s gathering, treating, and transportation pipeline contracts are very burdensome(in the range of $0.35/ mmcf).  They are a vestige of the massive growth in the early days where takeaway capacity was more important than cost.  It will probably take bankruptcy to void these contracts.  That is the way the other major players have gotten out from under the legacy contracts.  It is my understanding that this is one of the main issues with Comstock taking them over.  Tbh, for the mineral owner I feel a bankruptcy is in their best interest.

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Permalink Reply by Marie on April 11, 2020 at 13:34

I really don’t care about Chesapeake’s bankruptcy! A life principle: “measure before you cut and not the other way around.” Chesapeake didn’t feel sorry one bit when they were cheating people out of their royalties by charging ridiculously high production cost. Hell I'm in the wrong business, I need to be in the business of gathering. How is it landowners inherit the property and what’s under the property rightfully only for someone to underhandedly through crooked measures, steal it or tell you it’s not worth much. Example: “that’s like me have a 1962 Ferrari GTO (if your a car collector you know this cars worth) you come to me with an offer that we both agree on. You call me after purchase of the car and tell me it’s my responsibility to pay for shipping of the car, putting gasoline in the car and I’m responsible for any maintenance.” Or we could have not come to some type of middle ground! Get the hell out of here! 

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Permalink Reply by Skip Peel - Mineral Consultant on April 11, 2020 at 13:51

Chesapeake was the primary cause of companies overpaying for Haynesville leases in the early years of the play.  With so much land leased under relatively short term leases, many being three year primary terms, a lot of wells had to be drilled on an expedited schedule to handle turning those initial wells to sales and holding the leases (HBP).  To do this companies, not just Chesapeake, built from scratch or expanded their existing gathering/treating systems.  When the price of gas dropped off a cliff and companies were struggling for financing, they sold those systems.  There was still hundreds of millions to spend to drill all the wells to hold all those leases over the coming years.  In order to get the max cash from those sales they entered into minimum volume commitments and guaranteed minimum revenues to the new operators.  Petrohawk did so so egregiously that a court later cancelled the sale and deemed it a mortgage agreement.  Long story short, companies got themselves in a bind by overly aggressive management gambles that did not work out and then tried to lessen the damage by making more bad decisions that disadvantaged their lessors.  I think BPX/BHP still has at least one gathering/treating contract in force that amounts to $1.20 per mcf.  Makes 35 cents look darned good doesn't it?  Another operator right next door to the BPX wells under that horrendous contract has a G&T of $0.20/mcf.

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Permalink Reply by Marie on April 11, 2020 at 13:59

Regardless to what the explanation may be, court rulings and unhappy landowners prove otherwise! 

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