Chesapeake's drilling plan smacked down
Posted Thursday, Oct. 20, 2011
The Railroad Commission has shown some spine.
That's not "Bin Laden killed" news or "Dow breaks 15,000" news, but it's noteworthy. The commission is the state's key regulator of the oil and gas industry.
Last week, on Chesapeake Energy's request to "force pool" some residential properties for drilling in the Glen Garden neighborhood of southeast Fort Worth, commissioners Barry Smitherman and David Porter politely but decidedly beat up on the big local company and its attorneys for belligerent behavior.
The case has been around for almost 18 months. I wrote about it in July after a commission meeting in which Chesapeake attorney Glenn Johnson said "people in the Tarrant County area don't understand oil and gas" and "we're trying to give [Glen Garden property owners] some money."
Johnson wrote a response in which he said my criticism was unfair. He said that without the forced pooling, Chesapeake would still drill the well and drain the gas underneath the neighborhood, but that some mineral owners would not share the revenue.
The commission rejected Chesapeake's request, saying the company failed to make a "fair and reasonable offer" to those owners as required by the Mineral Interest Pooling Act.
This was the three commissioners' second formal hearing on the case, and they had already received two rounds of written comments from their hearing examiners and Chesapeake attorneys.
Porter quickly said he was ready to deny Chesapeake's request.
Commission Chairwoman Elizabeth Ames Jones favored the company's approach for both technical and philosophical reasons.
One of the arguments that Chesapeake's offer was not fair and reasonable was that it asked property owners who had not signed mineral leases to take a "working interest" in the well, under which they would share in the profits but would pay twice their share of the well's costs. It gave them 14 days in which to decide, and they were told they would be given a written copy of the agreement after they said they wanted to go that route.
Under questioning from Jones, hearing examiner James Doherty said, "To me, it just seems unfair on its face to expect somebody to commit to enter into an agreement that they've never been given the opportunity to see."
Jones said she wanted to protect "unsophisticated mineral owners" but also to avoid interfering with "the power of the people to make their own decision and to have business and commerce between two parties."
Smitherman, an attorney and former chairman of the Public Utility Commission, was like a lawyer ready for trial. It was at his request during a July 26 hearing that the commission had sent the Glen Garden pooling case back to hearing examiners for more information about Chesapeake's lease and working interest offers.
He pointed to the transcript of a Sept. 2 examiners' hearing in which he said Johnson, Chesapeake's attorney, called that line of inquiry "neither relevant nor material."
Big mistake.
"Frankly, I find that troubling," Smitherman said. He said that some of Chesapeake's arguments were "bordering on disrespectful," and that the company offered a "dog ate my homework excuse" for not providing copies of lease offers.
"I'm trying to find out if these nonsigning property owners are just being difficult or was the lease offer made to them a lowball offer," he said.
He was controlled but fuming: "If one of us thinks that knowing a little bit more about the terms of a lease offer is relevant or material, I would like that to be respected."
His frustration drove his decision: "I thought this was an opportunity for Chesapeake and their attorneys to give me a little bit more information that I could have used in making a more informed decision."
Since that didn't work, he said, he joined Porter in making the vote 2-1 to deny the company's pooling application.
The commission moved to a case in which Chesapeake asked for a "Rule 37 exception" that would give it more flexibility in drilling on 182 acres in Crowley.
"In the nine months I've been here," Porter said, "this may be the poorest fact case I've seen on a Rule 37 request."
It wasn't Chesapeake's day. The commission unanimously denied that request.
Mike Norman is editorial director of the Star-Telegram / Arlington and Northeast Tarrant County.
Read more: http://www.star-telegram.com/2011/10/20/3460294/chesapeakes-drillin...
Tags: Barnett Shale, Chesapeak, Force Pooling, Rule 37 Exception
Views: 1733
Replies to This Discussion
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Permalink Reply by Les Bamburg on -
Jffree, this is an interesting case and highlights some of the key issues in Texas. If Chesapeake would have followed the Louisiana example and proposed a one times cost for payout they may have received more support from the Commission.
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Permalink Reply by jffree1 on
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I found it refreshing that our new (appointed) commissioner appears to be taking his job very seriously and is actually looking out for mineral owners. Rule 37 is over-used and abused and the Mineral Interest Pooling Act, in my humble opinion, was not intended to be used by industry as it has been recently. If mineral owners have to meet its criteria... it is only right and fair that industry should, too.
Chesapeake... just needs to stop treating mineral owners like minor nuisances, to be run over at will, and start treating them like real partners. 2X pay-out... is exorbitant, most especially, in a play as well defined as the Barnett.
I must admit that I had a good laugh at CHK's expense.
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Permalink Reply by essay on -
"Chesapeake... just needs to stop treating mineral owners like minor nuisances, to be run over at will, and start treating them like real partners."
well said couldn't agree more.
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Permalink Reply by Dry Hole on
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jffree,
I give your thoughts a STANDING OVATION ---- Big O&G have gotten used to making the rules as they go (regardless of contract, lease language or RRC Rules)---- not playing by them
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Permalink Reply by Les Bamburg on
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DH, not all companies follow Chesapeake's path.
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Permalink Reply by DrWAVeSport Cd1 on
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jiffree,
This is good news for mineral owners across the board. IMO, it is a step toward a more "equitable" AND fairplay attempt that is missing in the world of mineral "leasing." If memory serves me correctly, Aren't Chesapeake Energy and most of the Other O&G lessors getting an overwhelming slice of the pie at 75%, and most often, an 80%+ of leased minerals??? And, aren't the mineral owners providing this huge piece of pie...ALL ACROSS THIS COUNTRY???
Mineral Owners/Land Owners/Voters pay a high price for the "minute" portion of these "billion/trillion" dollar shale finds...and as shown in your discussion, for this "minute" money opportunity, they are "backhanded" a good one from their "Chesapeake" like providers of "pennies" on the dollar.
Threats, intimidation, "gorging" cap ex charges and at least one Corporate lawyer/lier per 640 acre section...in, "there were liers in an ambush against him," are seemingly the standard m.o. in the greed to get more, to go faster, and to gouge out the eyes of anyone or any "commission" or "community" that demand any kind of accountability from their Shale Producers.
Good discussion. Maybe the TRRC is showing the possible beginnings of a..."spine?" How late to a party can one be?
Thanks for the info,
DrWAVeSport Cd1 10/26/2011
BTW,
"...We've got to have a meaningful dialogue about is something really unfair. Because I suspect if I asked Mr. McClendon if it would be OK if we changed the law of West Virginia the way he wants it - $250 is all any royalty owner will ever get in the future if his company steals from him - would it be all right if we changed all the laws on larceny so that if you tap into HIS gas lines, the only punishment you get is a $250 fine. I don't think he'd like that very well..." INTERVIEWS: Aubrey McClendon and Scott Segal - State Journal - STATEJOURNAL.com
http://statejournal.com/story.cfm?func=viewstory&storyid=20402
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