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Permalink Reply by Skip Peel - Mineral Consultant on April 11, 2020 at 14:05

The one court ruling was an outlier.  Other system sales that were not quite so outlandish were allowed to stand.  Hopefully the realignment of Haynesville assets will result in updated G&T contractual agreements that reflect what the lowest cost existing contracts  call for.  That would fix the second Chesapeake action that disadvantages their mineral lessors.  The explanation is important as a cautionary tale and established case law for other O&G operators that might be tempted to try the same sham sale.

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Permalink Reply by Chad Ellis on April 11, 2020 at 15:35

Ha!  I’ve seen, and may have been in negotiations on some of those deals in the past.  In those days, the price of gas was so high that no one cared about the transportation/treating costs.  The gathering contracts were structured in favor of recouping the pipeline construction costs (which were high!).  As a result of the operating companies getting a restructured transportation agreement through bankruptcy, a lot of the pipeline companies went bankrupt.  After all of the turmoil, it led to a more competitive environment for both.  That’s why Chesapeake (and their mineral owners) may be better served to go through the bankruptcy process.

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Permalink Reply by Skip Peel - Mineral Consultant on April 12, 2020 at 3:45

In my opinion the best turn of events for Chesapeake mineral lessors is to cease to be Chesapeake mineral lessors regardless of how that comes about.

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Permalink Reply by Marie on April 12, 2020 at 3:51

Just curious, does Chesapeake need to pay the lessors before the lessors remove themselves from any dealings with Chesapeake?

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Permalink Reply by Skip Peel - Mineral Consultant on April 12, 2020 at 3:57

If there is a divestiture, regardless of how that happens, CHK would pay all their royalty obligations up to a certain end month.  The company acquiring the CHK wells would then pick up royalty payments for the subsequent months.  There can be some lag in the change over as has been experienced by other mineral lessors effected by changes in operator the last few years but the time is relatively short, a few months.  Getting current on payments would happen post sale, so not before. 

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Permalink Reply by Marie on April 12, 2020 at 4:12

Shouldn’t the lessors receive backpay for all the gas, oil, dirt, grass, trees, ants, etc.....that Chesapeake has taken? All landowners heard from land men who swooped in under the cover of night was: “ right now upfront payments of a certain amount and royalties of a certain amount will be distributed well before landowners knew the true value.” Once the news broke, that’s when shit hit the fan! Tell that to the 13,000 landowners who pursued Chesapeake for the very issue we speak of. 

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Permalink Reply by Skip Peel - Mineral Consultant on April 12, 2020 at 4:29

Your lease covers the gas but not the oil (none was produced, the Haynesville Shale is dry gas), dirt, grass, etc.  Landmen told mineral owners what they were instructed to tell them and it is erroneous to think that most landmen were privy to details about what management knew.  Louisiana courts haven't made it easy for mineral lessors to take CHK to court. They have made it virtually impossible for mineral lessors to qualify for class status.

CHK and others got in such a land rush that they utilized a bunch of inexperienced "baby landmen" who were pushed hard and given only cursory instruction.  I know an owner of a local land company that turned down a lucrative contract to lease for CHK for this very reason.  He wasn't about to ride herd on a 135 man lease group made up of inexperienced landmen. I detest what CHK did in their Haynesville leasing program but I know that the blame lies with Aubrey McClendon, his "C" suite managers and especially Henry Hood, Chesapeake's senior vice president of land and legal.  CHK pushed the boundaries on leasing and post production deductions far beyond what was traditional....and ethical.

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Permalink Reply by Marie on April 12, 2020 at 4:32

Either you’re a cheerleader, employee, or absolutely refuse to see the wrong Chesapeake has done, but that’s okay! 

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Permalink Reply by Skip Peel - Mineral Consultant on April 12, 2020 at 4:41

Nope.  I've been one of their biggest critics going back to 2008 on GHS.  I understand your anger but explaining how things happened and who was ultimately responsible isn't cheerleading. I have been a proponent of suing CHK for unleased mineral owners.  We won the first round and are now litigating class actions against CHK and other companies that violated the same state regulations regarding post production deductions.  I am an independent landman and have never taken a lease in my career.  I work for mineral owners, not the industry.

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Permalink Reply by Steve P on April 12, 2020 at 7:11

I'm a land and mineral owner in DeSoto and Sabine Parishes.  I've had my issues with CHK over the years.  My lease with CHK had the "no costs" deduction addendum, so I've not had to deal with the issues you are complaining of.  My problems with them have mainly derived from their mad dash to get things in place back in 2009 - 2011, when many mistakes were made in allotting ownership within units, survey plat mistakes, etc.  Nuts and bolts stuff for royalty owner management.

Skip mentioned it, and now Marie has mentioned it, so a reasonable discussion could be had over "the true value" of our minerals.  As Skip mentioned, CHK drove up the bonus payments back in those early years, and those who collected any bonus in excess of $10,000/acre, IMO, received far more than what your rights were worth.  There were many who received $15K or higher as bonuses.  Time has shown that, even if the price of gas had stayed above $3, the operators overpaid for the rights they obtained.  

Since my largest and best located holdings are held by CHK, and only one well drilled per unit, my fervent hope is that another operator ends up with that lease.

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Permalink Reply by Skip Peel - Mineral Consultant on April 12, 2020 at 7:38

The true value of minerals is what a willing seller and a willing buyer can agree to.  I've run across mineral owners that think the bonus paid has some relevance on value of their minerals, it doesn't.  That being said those entertaining a sale need to do some homework and know the details of their minerals, prospects for future wells, remaining reserves and how to access all that information.  It's not hard.  We discuss how to often here on GHS.  There is even a SONRIS Help Group page.  And it is pronounced "Sunrise", not sohnriss.  :-)

Permalink Reply by Skip Peel - Mineral Consultant on April 15, 2020 at 10:27

The stock split was to keep from being de-listed.  Immediately after the 1 for 200 split I think the stock was at $26 per share.  Now it is $16.  Soon to be $1?

Chesapeake Energy’s Reverse Stock Split Won’t Solve Its Debt Problem

By   Avi Salzman   April 15, 2020 3:00 pm ET 

At the end of 2019, the company was carrying $9.5 billion in net debt.

Chesapeake Energy executed a 200-for-1 reverse stock split late Tuesday, reducing its share count and propping up its stock price. The change may save the company from having its shares delisted, but it won’t change the company’s debt problems. Investors with more than 200 shares will get one share for every 200. Anyone with fewer than 200 shares will receive cash for their shares.

The stock had fallen to 13 cents on Monday, and was at risk of being delisted. A delisting would have triggered a $1 billion preferred-stock offering, Credit Suisse analyst William Featherston noted. So the reverse split was a smart move. But Chesapeake’s debt position remains precarious and, clearly, investors aren’t convinced that the split will change its fortunes. Shares dropped 36% Wednesday afternoon to $16.80 as the S&P 500 lost 1.7%.

Featherston’s price target on the stock is $1.

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