Exclusive: Chesapeake drops energy leases in fracking-shy New York, Frantic fracking sends US natural gas prices into freefall

Does Chesapeake Energy Sell Gas To Itself? by Marie Cusick, August 6, 2013, State Impact Pennsylvania
Chesapeake was invited to the hearing, but no one from the company attended. Other landowners’ attorneys have voiced similar concerns about Chesapeake’s wholly owned subsidiary, Chesapeake Energy Marketing Inc. (CEMI). “We certainly think it’s a questionable arrangement,” says Scranton-area attorney Doug Clark, “We’re not seeing that with other companies we’re dealing with.” Clark and several other attorneys have filed class action arbitration against Chesapeake over the royalty payment issue. Chesapeake has repeatedly refused to comment on widespread allegations it underpays royalties*.

Exclusive: Chesapeake drops energy leases in fracking-shy New York by Edward McAllister, August 6, 2013, Reuters
NEW YORK (Reuters) – Chesapeake Energy has given up a two-year legal fight to retain thousands of acres of natural gas drilling leases in New York state, landowner and legal sources told Reuters. Landowners in Broome and Tioga counties, who had leased acreage to Chesapeake over the past decade, had battled the pioneering oil driller in court to prevent it from extending the leases under their original terms, many of which were agreed to long before a boom in hydraulic fracturing swept the United States. But Chesapeake is now ready to walk away from the leases, according to a letter some landowners received two weeks ago from their attorney at Levene Gouldin & Thompson, potentially allowing the landowners to renegotiate new deals with other drillers at a higher rate, if New York state eventually ends a five-year fracking ban. The decision, expected to be finalized next week, is a sign of energy firms’ growing frustration over operating in the Empire State, where most drilling is on hold, and also an indication of how Chesapeake is reining in spending after years of aggressive acreage buying left it with towering debt. “Chesapeake contacted us and offered to withdraw Chesapeake’s appeal and provide complete release of the leases,” attorneys from Levene Gouldin & Thompson said in a letter to one of their clients, a landowner. The letter dated July 26 was read over the phone to Reuters. “Obviously, this is excellent news as it constitutes an end to the litigation,” the lawyers wrote to their client.

Chesapeake had sought to extend the leases, many of which were signed in 2000, on existing terms, arguing that the fracking ban had allowed it to do so. Extending the leases meant it would avoid renegotiations, which would likely have raised the cost of the acreage. Scott Kurkoski, a partner at Levene Gouldin & Thompson, who represents a group of landowners against Chesapeake, confirmed that he was in talks with the company, though he declined to comment further. Chesapeake Energy declined to comment for this story. … The Oklahoma City-based company had been appealing a decision by a federal court in New York state which ruled in November that Chesapeake could not use a state ban on hydraulic fracturing, known as fracking, as a reason to declare force majeure and hold on to leases beyond their expiry without offering landowners better terms.

It is unclear how much land is involved in the decision, but one source said it would involve more than 10,000 acres. That is a small portion of the 2.5 million acres the company holds in natural gas shale plays across the United States, according to company filings, but is a meaningful sum for New York where Chesapeake is one of the biggest leaseholders. “We have not yet been released of the leases, but it is pending,” said John Hricik, who owns 200 acres in Broome County in southern New York and who recently received a note from Levene Gouldin & Thompson saying that the lease could be terminated as early as this week. Chesapeake was one of the first energy companies to enter New York on a major scale, securing leases from hundreds of landowners, some for as little as $3 an acre, since 2000. It generally offered a 12.5 percent royalty payment from oil or gas produced on the land, a number of landowners said.

The company, like many other firms attracted to the Marcellus shale, looked set to commence fracking in New York until a 2008 moratorium was imposed while an environmental study was conducted to determine the impacts of the controversial gas extraction technique. That ban remains in place while Governor Andrew Cuomo considers the health impacts of fracking…. Meanwhile, Chesapeake declared force majeure because it was unable to use fracking, and wanted to extend its old leases. But the existing leases paid far less than the thousands of dollars per acre that some landowners were receiving over the border in Pennsylvania where energy drilling has boomed since 2007. Chesapeake’s force majeure argument was denied by the U.S. District Court for the Northern District of New York, a New York District Court, a decision that Chesapeake had appealed, until now.

With litigation continuing, it is unclear when, if ever, fracking will be allowed in New York. It has been a graveyard for energy company hopes in recent years. [Emphasis added]

Frantic fracking sends US natural gas prices into freefall by Gregory Meyer, August 6, 2013, ft.com
When Cabot Oil & Gas held an investor conference call last month, the driller was at pains to soothe concerns about the Marcellus Shale, a vast rock formation underpinning the Appalachian mountains of the US northeast that contains huge gas reserves.

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