FERC Rejects Blue Racer Midstream Plan to Change NGL Pipe Rates

We have to confess this story is a bit complex to understand. We will take a stab at making the complex understandable. Blue Racer Midstream has a subsidiary called Blue Racer NGL Pipelines LLC. The subsidiary operates the G-150 pipeline system, which provides batched propane and butane service. G-150 currently, located in West Virginia, connects a Natrium, WV processing plant to the TE Products Pipeline Co. (TEPPCO). The G-150 pipeline will also have a connection to the Mariner East 2 Pipeline when it goes into service, theoretically in June of this year. Currently the G-150 is flowing about 6,300 barrels per day of product through it–only 20% of its capacity. When the connection with ME2 is up and running, Blue Racer says it can handle 30,000 bbl/d through the G-150. However, Blue Racer itself signed up for most of the capacity (27,000 bbl/d). Blue Racer recently asked the Federal Energy Regulatory Commission (FERC) to allow it to have two different rate structures–a lower rate for “committed” shippers (Blue Racer itself with its 27,000 bbl/d) and a higher rate for uncommitted shippers. FERC rejected the request pointing out that existing shippers with contracts–namely Chesapeake Energy–would be left out in the cold in favor of Blue Racer moving its own volumes at lower prices. Yes, it’s complicated. Bottom line, Blue Racer can’t do what it wants and has to go back to the drawing board…
Continue reading

Chesapeake Stock Soars w/Update; More Marcellus Wells in 2018

Yesterday the country’s second largest natural gas producer, Chesapeake Energy, issued its fourth quarter and full year 2017 update. Chessy CEO Doug Lawler began his comments during an analyst phone call this way: “2017 was another foundational year for Chesapeake as we continued to transform all aspects of our company.” Even though Chesapeake sold a number of assets and reduced headcount in 2017, production still rose 3% for the year. Lawler said he expects production to rise another 3% in 2018, even with a planned $2-$3 billion in sales of even more assets (what’s left to sell?). Lawler also said the company will reduce spending 12% this year. The news of production increases on the way using less money sent the company’s stock price soaring 22 higher%. But all is not peaches and cream. The company is still saddled with almost $10 billion worth of debt, which tends to remove the oxygen from a company’s lungs. Still, the Chesapeake doggedly soldiers on. Disappointingly, nothing was said during the conference call about either the Marcellus or the Utica. There’s only two brief references to our region in the official update–even though the Marcellus and Utica combined provided the lion’s share of Chesapeake’s production in 4Q17 (50% of all their production came from the M-U). Chessy says they will drill 55 wells in the Marcellus in 2018 (more than the 43 drilled in 2017), and they will drill 40 wells in the Utica in 2018 (less than the 67 wells drilled in 2017). Below is the full update, the latest slide deck, and a good overview of yesterday’s news from Reuters…
Continue reading

The Great Chesapeake Massacre III: Lawler Fires Another 400 People

2/2/18 Update: Have we been unfair in our characterization of Doug Lawler? Perhaps. We don’t know Doug–have never met him. He started firing masses of people at Chessy before the downturn hit. He arguably inherited a troubled company. We intensely dislike Carl Ichan and other corporate raiders, so we attributed Doug’s actions to Carl’s influence. MDN received a very nice note from a subscriber who personally knows Doug Lawler and has a different perspective to offer, which we’re happy to pass along. He said: “Jim, regarding your article on CHK, Doug Lawler probably learned a lot from Carl Icahn, but knowing Doug the way I do, I can assure you it hurt him to release people at his home office or other areas of operations. He was left with a mess and will take him years to clean it up. Hopefully with oil & gas prices stabilizing and going up, CHK will become profitable.” We thank our subscriber for sending that along!

Just like those 80s slasher movies that did so well at the box office that studios kept making more of them (Friday the 13th, Nightmare on Elm Street, Texas Chainsaw Massacre, etc.), Doug “the ax” Lawler, CEO of Chesapeake Energy, is back with part III of mass firings at the company. In October 2013 when Lawler was newly appointed as CEO (by Chesapeake’s board, which was under the influence of corporate raider Carl Ichan), he swung his ax and fired 800 people in one gory episode, promising that was the last of it (see The Great Chesapeake Massacre: Lawler Fires 800 People in One Day). It worked so well the first time, Lawler came back with a sequel two years later (see The Great Chesapeake Massacre II: Lawler Fires Another 740 People). It’s now a little over two years since the sequel, and Lawler is back for a third time, firing another round of people–400 this time, 13% of the workforce. The latest victims worked at HQ in Oklahoma City. When corporate raiders take control of a company, as Icahn did at Chesapeake, they pressure management to fire people and sell assets–in a bid to make the stock price jump higher so they can sell their shares of stock at a higher price, pocketing the profit. It’s disgusting to ruin people’s lives and pretend it’s “just business.” At any rate, Icahn is long gone from Chessy, but Lawler learned his lessons well by sitting at the feet of the master. This is rich: Lawler said because the company has sold so many of its assets, it no longer needs the people. Kind of a vicious cycle. Fire people, sell assets. Fire more people, sell more assets. Where does it end? Pretty soon Lawler will be able to cater the company’s office Christmas party with a personal pan pizza from Pizza Hut…
Continue reading

PA AG Not Backing Down re Chesapeake Energy Royalty Lawsuit

At the end of last year Chesapeake Energy offered a $30 million olive branch to Pennsylvania landowners to settle claims the company had screwed them out of royalty money by artificially inflating post-production costs in an elaborate scheme to pocket more money at landowners’ expense (see Chesapeake Agrees to $30M Royalty Settlement for PA Landowners). Chesapeake’s proffered deal would 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 reset the terms of their leases going forward. The catch is that Chesapeake won’t pull the trigger on the deal unless/until PA’s Attorney General, who has an ongoing, separate lawsuit filed against Chesapeake over the same issue, settles as well. PA AG Josh Shapiro has fired back saying he will not cave to Chesapeake’s “pressure tactic” and settle. PA landowners are caught in the middle. Some of them want the Chesapeake $30M chump change deal saying a bird in the hand is better than two in the bush. That is, the AG may eventually lose his case–and it will take years to play out. Why not take the money and run now, especially if we can reset the lease terms to prevent any more gouging by Chesapeake? But other landowners, including National Association of Royalty Owners (PA Chapter) President Jackie Root say PA landowners “deserve better” than the deal offered by Chesapeake. Here’s the latest in the royalty wars…
Continue reading

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…
Continue reading

PA Fed Judge Rejects Class Action in Chesapeake Royalty Case

Yesterday a Pennsylvania federal judge denied a group of 600+ Marcellus Shale landowners’ request to form a class action in arbitrating a royalty case against Chesapeake Energy. Although the judge’s decision is a disappointment for landowners, his decision should come as a surprise. In April, the same judge, U.S. District Judge Matthew Brann for the Middle District of PA, telegraphed that the landowners, under the law (and under the leases they signed) did not have a right to form a class action (see Chesapeake Scores Court Victory to Prevent PA Royalty Class Action). However, the landowners continued to pursue it by appealing the judge’s initial decision. Brann, in rendering yesterday’s decision, begins his written ruling with a quote from the Lord of the Rings: “Short cuts make long delays.” His point: The landowners tried to short circuit the legal process and they can’t. Landowners will need to individually litigate/arbitrate their cases with Chesapeake. The judge lectured landowners that they could have already been well on their way to a resolution of their individual cases had they not stubbornly continued to pursue class action arbitration. Below we have a brief background on the case to better understand the decision, followed by a copy of Judge Brann’s decision from yesterday…Continue reading

Marcellus Racial Discrimination Lawsuit Settled Out of Court

Two African-American Marcellus Shale natural gas workers in the Williamsport, PA area claim they were fired, twice, based in part on their race. The two filed a lawsuit against STI Group (a staffing agency) and Chesapeake Energy. The case was thrown out by U.S. Middle District of Pennsylvania Court, but later reinstated on appeal by the 3rd Circuit Court of Appeals. Rather than let the case drag out endlessly, STI and Chesapeake have just settled it. The amount of money they had to pay to make it go away was not disclosed. Workers are hired and fired all the time. Ours is a boom/bust industry. Was this really a case of racism? Or just a case of boom and bust? You read the details and decide for yourself…
Continue reading

Bradford County, PA Judge Keeps Chesapeake Royalty Lawsuit Alive

A Bradford County, PA judge has turned down Chesapeake Energy’s attempt to wiggle out of a royalty lawsuit on a technicality. However, the judge also punted the case to a higher court to settle what he calls “novel questions of law”–rather than spending more time and money on such issues at the county court level. This is good news for landowners in Bradford County who have been shafted by Chesapeake’s royalty scheme to shift the cost of piping and processing to landowners by using inflated values for those services. In December 2015, Pennsylvania’s felony-indicted Attorney General, Kathleen Kane (now gone), brought a lawsuit against Chesapeake Energy, Anadarko and Williams accusing them of, among other things, royalty fraud (see PA Atty General Sues Chesapeake Energy, Williams for Royalty Fraud). In May 2016, Chesapeake and Anadarko filed to dismiss Kane’s complaints against them, accusing Kane of attempting to litigate federal antitrust claims in state court (see Chesapeake, Anadarko Try to Wiggle Out of PA Royalty Lawsuit). In June 2016 Kane’s office fired back by filing a motion to keep the case in state, not federal, court. In August, U.S. Middle District Judge Christopher C. Conner granted Kane’s motion–the case stays in the state court system (see Lawsuit Against Chesapeake, Anadarko Heads Back to PA Court). With a new AG now in place, Chesapeake and Anadarko tried to get the lawsuit tossed yet again–this time by saying the law that the AG’s office claims was violated has to do with consumer protection, for people who buy things. Chessy & Anadarko argue landowners aren’t buying anything, they’re selling (minerals), so the law doesn’t protect them from predatory leasing practices (see Chesapeake Tries to Wiggle Out of PA Royalty Lawsuit on Technicality). The Bradford County judge didn’t buy Chesapeake’s argument…
Continue reading

NatGas, Oil Industry Partnership to Accelerate Methane Reductions

Yesterday America’s natural gas and oil industry announced “a landmark partnership”–called the Environmental Partnership–to “accelerate improvements to environmental performance in operations across the country.” How will they do that? The first area of focus will be to reduce methane and volatile organic compound (VOC) emissions. The Environmental Partnership includes 26 natural gas and oil producers, including several major Marcellus/Utica drillers (Chesapeake Energy, Cabot Oil & Gas, Chevron and Southwestern Energy). The list of 26 produce a “significant portion” of American energy resources–we’d peg it at around 80% of all production. The participating companies (full list below) will begin implementing the voluntary program starting January 1, 2018. Did you get that? It’s VOLUNTARY. Yet they will do it and they will voluntarily hold themselves and each other accountable–because they are good corporate citizens and (gasp) actually care about the environment. They don’t need the jackboot of government to force them to do it. Here’s how profoundly biased mainstream media reports it: Oil Firms Pledge to Plug Methane Leaks in Bid to Burnish Image (Bloomberg News). Yep, according to the anti-everything people, these companies are only doing it to “burnish” their image. They don’t really care about the environment. They’re evil, nasty fossil fuel companies (icky). MDN readers know differently. These companies are respectable, providing jobs and investment in local communities AND protecting the environment in those same communities–where they live. The other side? Groups like the Sierra Club destroy jobs in the name of “protecting” Mom Earth…
Continue reading

Federal Court Clarifies Ohio Law for Calculating Gas Royalties

A month ago MDN brought you the news that the U.S. District Court in Akron, OH had made a major ruling that affects all Utica landowners and drillers (see Federal Court Says Chesapeake Royalty Deductions Allowed in Ohio). The case, known as Lutz v. Chesapeake Appalachia, is about whether or not drillers (Chesapeake in this case) are allowed to deduct certain post-production costs from landowner royalty checks. The Ohio Supremes were asked to decide whether Ohio follows the “at the well” rule, which permits the deduction of post-production costs, or if the state follows the “marketable product” rule, which limits the deduction of post-production costs under certain circumstances. The Supremes refused to tackle the ultimate issue, which is: What does “at the well” really mean? How is it defined? Instead, the Supremes bounced the issue back to the U.S. District Court in Akron for further clarification. The federal court defined what is meant by “at the well.” The court’s decision means that Chesapeake Energy (and by extension other drillers) CAN deduct post-production expenses from landowner royalty checks–at least in certain instances. We spotted an explanation of the case and the decision by the Akron court from our friends at powerhouse energy law firm BakerHostetler. They do a great job putting the ruling in language we laypeople can understand…
Continue reading

Chesapeake Energy 3Q17: “Pleased” Production Declined, Loses $41M

Yesterday the 800-pound gorilla in the natural gas space, Chesapeake Energy, issued its third quarter 2017 update. One of the highlights during the analyst phone call was CEO Doug Lawler’s bragging about the “world class” Marcellus Shale. During 3Q17 Chessy drilled and put online two Upper Marcellus wells in Susquehanna County, PA that turned in peak initial flow rates of 29.6 and 29.8 million cubic feet per day (Mmcf/d) of natural gas, which is 50% higher than previous Upper Marcellus wells drilled by Chessy. The company used 3,000 pounds of sand per foot in fracking the wells. On the down side, Chesapeake lost $41 million for the quarter after making $470 million in profit during the previous quarter. However, when compared with the same quarter last year (3Q16), losing $41M ain’t so bad. In 3Q16 Chesapeake lost $1.3 billion. The company’s stock price continues to be low, bumping along in the mid-$3 range ($3.66/share as of this morning when we checked). One odd statement from Lawler on the phone call. He said this: “I’m pleased to report our production has started to decline as forecasted following the previously announced weather-related operational delays experienced during the quarter.” He’s “pleased” production is down?! Yes, the company did previously forecast a drop in production–but how can you be “pleased” with that? Converting all hydrocarbons Chessy produces (natural gas, oil, condensate, NGLs) into barrels of oil per day, Chessy produced 542,000 barrels of oil equivalent per day (boe/d) in 3Q17, versus producing 638,000 boe/d in 3Q16–a drop of 15%. Combining the Marcellus and Utica, Chessy produced 246,000 boe/d in 3Q17 versus producing 261,000 boe/d in 3Q16–down 5.7%. The company currently operates 14 drilling rigs across all plays–two of them in the Marcellus/Utica. Below is the full 3Q17 update, including financials, select portions of the analyst phone call, an updated slide deck, and analysis by Reuters…
Continue reading

DOJ Ends Probes into Chesapeake Royalty Practices, Land Deals

In September 2016, Chesapeake Energy filed disclosure forms with the Securities and Exchange Commission which says the U.S. Dept. of Justice (DOJ), a number of states, and even the U.S. Postal Service have served the company with subpoenas for information (see Everybody Just Subpoenaed Chesapeake Energy for Everything). The filing indicated that Chesapeake had received DOJ, U.S. Postal Service and state subpoenas “seeking information on our royalty payment practices. In addition, we have received a DOJ subpoena seeking information on our accounting methodology for the acquisition and classification of oil and gas properties and related matters.” An enterprising investigative reporter with Reuters noticed Chesapeake recently filed another disclosure form with the SEC–to say that the DOJ has now ended what was a three-year probe into the company’s royalty payment and land purchase practices–ended without taking any action…
Continue reading

Federal Court Says Chesapeake Royalty Deductions Allowed in Ohio

The U.S. District Court in Akron, OH has just made a major ruling that affects all Utica landowners and drillers. In 2015, the Ohio Supreme Court accepted a case that will sound familiar to readers of MDN. The case, known as Lutz v. Chesapeake Appalachia, is about whether or not drillers (Chesapeake in this case) are allowed to deduct certain post-production costs from landowner royalty checks. The Ohio Supremes were asked to decide whether Ohio follows the “at the well” rule, which permits the deduction of post-production costs, or if the state follows the “marketable product” rule, which limits the deduction of post-production costs under certain circumstances. The Supremes came down off Mount Olympus in November 2016 to render their verdict (see OH Supreme Court: Royalty Deductions Decided Case-by-Case). The court said, in so many words, “We’re not deciding.” In other words, each royalty case should be litigated individually, case-by-case, in a trial court. There is no one-size-fits-all with respect to deducting expenses from royalty checks. Each case will depend on how the contract is written, and the success of lawyers litigating it. The Supremes refused to tackle the ultimate issue, which is: What does “at the well” really mean? How is it defined? The U.S. District Court in Akron did tackle that issue. The federal court took up the Lutz case and has now defined what is meant by “at the well.” The court’s decision means that Chesapeake Energy (and by extension other drillers) CAN deduct post-production expenses from landowner royalty checks…
Continue reading

Analyst Speculates Chesapeake May Look to Unload Marc/Utica Assets

Reuters ran a story yesterday quoting an analyst with Tudor Pickering who says he thinks Chesapeake Energy is actively considering a sale of some (most? all?) of its Marcellus and Utica Shale assets, as a way of helping raise $2-$3 billion which the company previously said it would raise from asset sales this year and next. Idle speculation? Perhaps. There’s no doubt Chesapeake has a real jewel in its Utica and Marcellus acreage–built by Aubrey McClendon back in the day. Would Chessy really consider selling it? The Tudor analyst says yes, because these days the company is concentrating on oil drilling and production more than gas. But is that really true?…
Continue reading

Top 10 Drillers in All of PA, by Number of Permits Issued

Yesterday we brought you the “Top 10” drillers in southwestern Pennsylvania, as ranked by the number of permits issued (see Top 10 Drillers in SWPA, by Number of Permits Issued). Today we’re bringing you the Top 10 list of drillers by number of permits issued for the entire state of PA. As you might imagine, the picture statewide is quite a bit different from looking at only SWPA. Yes, some of the same companies are in both lists–but only three are in both lists (Range Resources, EQT and Rice Energy). Our Top 10 list is extracted from a list prepared by the (must read) Pittsburgh Business Times…
Continue reading