Chesapeake Agrees to $30M Royalty Settlement for PA Landowners

Chesapeake Energy is holding out an olive branch to Pennsylvania landowners–the offer of settling a years-old class action lawsuit for $30 million–as reparations for shafting PA landowners out of royalties. But–and it’s a big but–Chesapeake is also snatching the olive branch away unless/until the PA Attorney General’s office resolves its separate lawsuit against Chesapeake for the same thing. No deal with the AG? No final settlement. Chesapeake’s lawyer calls it “global peace”–which we find amusing. The lawyer said “we need global peace,” meaning both lawsuits must be settled. His comment reminds us of the recent song blaring on the radio over the holidays called, “My Grown-Up Christmas List.” Yeah, don’t we all want “global peace.” Chesapeake’s proffered deal will give the average PA leaseholder (some 14,000 of them) a one-time $2,140 payment–adjusted up or down for the size of their acreage. Frankly, it’s chump change. The big concession by Chesapeake in the proposed deal is that it gives landowners the right to clarify the terms of their leases: “Every Chesapeake lessor will get to pick how their royalties are paid going forward.” Landowners can choose to continue letting Chesapeake market the gas outside of the region (theoretically for a higher price) but requiring the landowner to share in post-production expenses with Chessy as has been the case, OR landowners can rework the lease so there are no post-production expenses deducted. In the second case royalties will be based on the local price of gas in that landowner’s area (typically in the basement). It’s a tough decision. So, landowners got shafted in the past, but the past is the past. Going forward, let’s not get shafted any more. That’s what this proposed deal seems to boil down to. Oh, and throw in a few grand as the cherry on top. The billion dollar question is whether or not the AG’s office will go for it. The AG’s office is signaling it may settle, IF Chesapeake picks a number higher than $30 million as a settlement number…
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Eclipse Closes on Deal for JV Partner in OH Utica

1/3/18 Update: We received a cordial call from Eclipse Resources’ vice president Douglas Kris to alert us that our original headline and interpretation below misses the mark. We are happy to issue this correction. MDN’s interpretation of Eclipse’s JV news can be summed up in two points: (1) Eclipse got less than originally announced for this deal, and (2) the deal took longer than announced to get done. Both points need clarifying. Doug said on the first point, the original announcement quoted a range for the investment by Sequel, with the high end being $325 million. Due to the complicated structure of the deal, this first part of the deal which just happened (for $285 million) is less than the high end, but well within the originally quote range. AND the deal is not completely done, yet. By the time it is done, the total deal may be $325 million. As for the second point we made about a delay in the deal, Doug said the deal actually was done by September as originally forecast, but got held up by a delay with the Securities and Exchange Commission. A big “thank you” to Doug for alerting us. We like to make sure the information you read on MDN is correct! – Jim Willis, Editor

Original Post: It costs a lot of money to drill new shale wells in the Marcellus and Utica. Depending on the layer and how deep it is, Marcellus wells cost in the neighborhood of $7 million each to drill. Utica wells cost several million dollars more because the Utica layer is deeper–nearly twice as deep as the Marcellus. The latest trend, pioneered by Eclipse Resources, is drilling really long laterals (the horizontal part of the well), which also increases the cost per well. Long lateral wells are called “super laterals”–typically defined as being a lateral longer than 15,000 feet (nearly 3 miles!). Eclipse is the reigning champ of drilling super laterals, having drilled the three longest onshore horizontal wells in the WORLD, each of them 3.5 miles or longer. Eclipse wants to keep drilling super laterals and needs money to do it. Last August during a conference call with stock analysts to discuss second quarter 2017 results, Eclipse CEO Ben Hulburt revealed the company has brokered a new deal with Sequel Energy Group LLC, an affiliate of GSO Capital Partners (see Eclipse Res. 2Q17: $325M JV to Keep Drilling, Wants More Acreage). The deal with Sequel is a joint venture (JV) in which Sequel ponies up $325 million in return for partial ownership of the wells drilled (and a requisite share of the profits). The deal was supposed to be signed, sealed and delivered by last September. That didn’t happen. Two days after Christmas Eclipsed announced the deal has finally closed–but the final amount is $285 million, not the previously announced $325 million. That’s $40 million less than the originally announced deal…
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CNX Resources Clipped $433.5K for Groundwater Violations in SWPA

The Pennsylvania Dept. of Environmental Protection (DEP) has fined CNX Resources (formerly CONSOL Energy/CNX Gas) $433,500 for violations at four shale well sites in Greene County, PA. The violations, which happened in 2015/2016, include failure to control and dispose of wastewater properly and failure to prevent erosion. Some of the flowback/wastewater ended up in a small stream called Jacobs Run. We always find the language of these announcements by the DEP somewhat strange: “CNX Gas Company, LLC (CNX) has agreed to two civil penalties totaling $433,500 for violations at well sites in Greene County.” Really? The company getting fined has to “agree” to accept the fine? Apparently we don’t fully understand how regulatory agencies work in PA. What if CNX didn’t agree to the fine? Would the DEP come back with a lower amount, “Will you accept this fine instead?” But we digress. CNX themselves noticed the problems and self-reported the violations. After doing so, they fired two of the service companies they were using. The unnamed service companies were obviously guilty of cutting corners that resulted in improper disposal of wastewater. Interesting factoid: Half of all the wells CNX has drilled in PA are located in Greene County…
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Marcellus Wells to be Drilled at Pittsburgh’s Oldest Working Steel Mill

Pittsburgh’s oldest still operating steel mill, U.S. Steel Corp.’s Edgar Thomson steel mill, may soon be home to more than just a foundry. A privately owned oil and gas company headquartered in New Mexico–Merrion Oil & Gas Corp.–has signed a lease with U.S. Steel to drill a series of six (possibly more) shale wells on the Edgar Thomson Works property in Allegheny County. The plan is to drill one Marcellus well to begin with, and after testing, expand that with five more Marcellus wells. However, Merrion is not ruling out deeper wells to tap the Utica. Even though the location for the wells is as industrial as industrial gets–with noisy steel making (and the air pollution that goes along with it), antis are complaining that drilling a few shale wells will turn their lives into a dung heap. Nothing new about their reaction. What is new is Merrion. This is their first entry into the Marcellus/Utica region. Until now, Merrion has concentrated on other regions. According to one biased news outlet, Merrion has “no experience drilling into deep, tight, shale formations like the Marcellus.” Whether or not that’s true, we don’t know (we tend to doubt it). What we do know is that Merrion is a privately owned, family company started in 1960 by a former petroleum engineer. Merrion is not some upstart company that doesn’t know anything about the oil and gas business–quite the opposite. Merrion has already had preliminary meetings with the PA Dept. of Environmental Protection about their plans. An official permit request should be coming any time over the next three months…
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H&H Files Request to Drill Murrysville’s First Marcellus Wells

Huntley & Huntley (H&H), a shale driller headquartered in Monroeville (Allegheny County), PA plans to drill Marcellus Shale wells in neighboring Murrysville (Westmoreland County), PA. H&H has filed for state permits for the Titan Well Pad project. This is will be the first Marcellus wells to be drilled in Murrysville. On May 3, 2017, Murrysville Town Council passed a new drilling ordinance that requires a 750 foot setback from the edge of the well pad–not from the bore hole (see Murrysville, PA Drilling Ordinance – Anatomy of a Compromise). The ordinance is quite restrictive, but apparently acceptable to the industry. Even though H&H has filed for permits, don’t expect to see drilling any time soon. Murrysville’s chief administrator estimates it will take the state “six to nine months” before they issue permits, and then H&H will have to go before town council with a request…
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PA’s Largest NatGas-Fired Elec Plant Near Scranton Nears Startup

It’s been a long road, but we’re finally close to startup for the first phase of what will be Pennsylvania’s largest gas-fired electric generating plant near Scranton, PA. The Invenergy plant, dubbed the Lackawanna Energy Center (located in the community of Jessup), will produce 1,480 megawatts of electricity when it’s fully built and running. Construction crews are hard at work in frigid temperatures, working to complete the first of three combined-cycle generator units. The work is 80% done on the first unit and on track to be completed by February. The plant is certainly having an impact on locals–both good and bad. On the bad side, we previously reported that antis in the Jessup community exacted their revenge on local political leaders for approving the plant by removing them from office (see Scranton Antis Get Political Revenge for Gas-Fired Power Plant). Hey, it’s a hard knock life. On the positive side, when MDN editor Jim Willis was visiting family in the area over the Christmas holiday, he heard family members talking about the “huge” plant going up. And they’re happy about it! As we reported in early December, a pipeline to feed the plant is now almost done (see UGI Pipeline to Feed Scranton NatGas-Fired Power Plant “On Track”). However, there is a cloud on the horizon that may delay a February start. The antis that threw out previous town board members take their seats today. Invenegy needs a final town approval to hook up to the town’s sewer system to handle some 56,600 gallons of “wastewater” (heated water) per day. Look for the antis to make trouble and try to delay the approval. Here’s an update on PA’s biggest gas-fired electric plant, coming online (hopefully) soon…
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Atlantic Sunrise Pipeline Dismantles Old Barn in Pipeline’s Path

STOP PRESS! 1/2/18 – 2:00 pm – Below is the full, original post MDN issued two hours ago. Our reporting was based on an article in the very biased Citizens’ Voice, a daily newspaper published in Wilkes-Barre, PA by the same rabidly biased, anti-drilling owners of the Scranton Times-Tribune. We should have known–the article published by the Citizens’ Voice was egregiously WRONG. It left out important facts that completely change the story. Williams reached out to MDN to set the record straight. In a nutshell, Williams’ original route for the Atlantic Sunrise Pipeline through Luzerne County totally missed a barn on the property of Dale Wilkie. Wilkie asked Williams to reroute the pipeline across his property–through his barn! Williams obliged, offering him a generous amount for the easement PLUS Williams offered to build Wilke a brand, spanking new barn to replace the old one! Wilke got estimates to rebuild the 100-year old barn as it is, using chestnut wood, making the estimate astronomically high ($400,000). This puts the entire story in a new light. We have more below from Williams responding to the Citizens’ Voice journalistic malpractice…

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New England’s Lack of Pipelines = Most Expensive Gas in the WORLD

Baby it’s cold outside! This was predictable (and indeed, MDN did predict it). With the arrival of an extended cold period, because of a lack of natural gas pipeline capacity in New England, recent spot prices for natgas near Boston have spiked to more than $35 per thousand cubic feet (Mcf). It gives New England the dubious distinction of paying the highest average price for natural gas in the entire WORLD. The price for the same gas about 250 miles away in the Marcellus? Between $1-$2/Mcf. And yet the dunderheads in New England, like U.S. Sen. Elizabeth “Pocahontas” Warren, continue to block new pipelines in the region. “Stupid is as stupid does,” as Forrest Gump said. We hope our friends in New England enjoy paying through the nose and every other orifice they possess over the next few weeks, until the arctic blast subsides…
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Marcellus & Utica Shale Story Links: Tue, Jan 2, 2018

We have a really big “best of the rest” today – stories that caught MDN’s eye over the break that you may be interested in reading. In today’s lineup: New regional director for PA DEP’s southwest office; Ohio energy industry watching effects of federal tax change on the Utica; new year, new development in Clinton County, PA; pipeline work in Lebanon County resumes following drilling mud spill; Marathon Pipe takes next step to reverse pipeline from Illinois to Louisiana; FERC advances Driftwood LNG project; US midstream companies to prosper in 2018; India to beat China in LPG demand; and more!
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