Hey yall,
While I know the article source is hardly unbiased, I wonder if anyone has any opinions about the shadiness of CHK's actions? It is stated in the article that the royalty owners had no protections against the misdealings but I wonder if that is really the case. Again, KOS is a website I wouldn't use for birdcage paper but there might still be some validity with this piece.
Earnest,
Just as an FYI, similar story appeared in yesterday's Wall Street Journal. I don't have a link handy, maybe someone else does.
Earnest, they have understated the case.
If I didn't know that there is always someone who did not get the memo, I would say that it is hard to believe that there is someone who has not heard of the Chesapeake lawsuits.
Or that Chesapeake went to court to redefine the meaning of "cost free" and "free of cost" in leases to mean that that you don't have to pay for your proportionate part of the well, not that you would not be charged for absolutely everything they can think of three times over. The people already leased had no defense except to sue, and the courts denied a class action suit because the leases are not identicle, so mineral owners, each and severally will have to sue Chesapeake by themselves. Unfortunately, most of the leases are going to be too small without enough possible gain to make it worthwhile for the average mineral owner to sue. Lawyers extremely unlikely to take such a case on contingency. And Chesapeake knows that. Chesapeak will not stop doing what has become a successful mode of operation. The successful lawsuits cost less than the amount they bilk from practically defenseless mineral owners. Frankly, if I worked for Chesapeak, I'd be worried that someone may take the law into their own hands.
I will disclose that I did sign a lease with Chesapeake for the minerals under a house I no longer own. I hope the present owner of the minerals is getting paid but I think more likely not. It doesn't matter what language is in your lease short of termination for underpayment of royalty clause and a no deducts clause if it's not worth enough to sue over and my 4/10 of an acre certainly was not.
R W and Kenny,
Thanks for your responses.
RW, I suppose that memo never made it to my desk, lol. I had heard of some sort of trouble dealing with CHK but did not care enough to look into the specifics. I suppose that knowing that mineral owners were being snookered with little recourse shook me a bit. This just reaffirms the importance of getting it in writing!
Earnest, I think you are missing part of the point, people had it in writing, "cost free" and "free of cost".
I can't see how a court could decide that means you don't have to pay for your proportionate part of the well because if you were subject to pay for your proportionate part of the well whether you lease or not, why would anyone ever lease?
Cost free and free of cost for many years meant that you did not pay production and post production costs. Mineral owners do not get to go back and word the lease differently, they are stuck with the new meaning.
You don't just need to get it in writing, you need to get it in writing that will stand for all time or they can go back to court and revise the meaning of terms again when it suits them. Think about that.
I personally know someone whose royalty checks went from a few thousand dollars a month to about $200 a month for 4 gas wells on his farm because "free of cost" now means he didn't have to pay for drilling the wells. I'm glad he got something out of it before the change.
You can trust Chesapeake.
In 1960 a book was published titled You Can Trust the Communists. And you can. To be communists.
You can also trust the scorpion in Aesop's Fable. It is his nature
I am partnered with Chesapeake in several wells in Oklahoma. They have always honored our agreements, which brings us to the devil's flyswatter.
The Agreement. The Oil and Gas Lease. The Law. Corporate Ethics. Shareholder responsibility. Survival.
All bets were swept off the table when CHK got so overextended that they had to do anything and everything to right the ship before they went bankrupt, including removing the person who made CHK what it is, or was, beginning with a start up capital of $50K and 10 employees in 1989.
With CHK controversies that range from toxic spills to massive layoffs, to allegations of collusion, having the SEC living in your headquarters, they had that many accolades, including being named the Best Managed Oil and Gas Company in 2007 by Forbes magazine.
Why did not anybody forecast the last half of 2008? 20 years after startup. A crash of epic proportions.
There will never be another Aubrey. And do not bet against him.
To unpack this thing with CHK, here it is broken down. CHK never crossed the line, because there is no line. You do what you have to do and deal with the fallout later.
There it is. Survival vs Conscience.
You can trust Chesapeake. Aesop was correct. Inevitable behavior.
Buddy Cotten
Editorial Comment Only
Cavete Emptor
or
Colonus Emptor
Finally a real breakdown of what I was suspecting for a long time. Buddy you are correct, survival tactics. Either way, its a huge scam that hurts taxpayers and royalty owners. Unfortunately, they are not the only company utilizing such tactics, they are just well known for it in the headlines. This article should make anyone potentially leasing with CHK understand how their business process works, and all the hoops you will likely have to jump through, even if you have an iron-clad lease, just to get paid royalties on anything even remotely close to what you think is market value. Lessors beware!
Thank you, Kitchen. That means a lot coming from you.
One point I did leave out. The board did not run Aubrey off. That was just smoke and mirrors for the market. Aubrey falls on his sword so that the market is satisfied and Aubrey's asset cap in CHK will recover quicker.
Also. Let me restate a point with more clarity. CHK and other companies typically honor agreements. WHEN there is no wiggle room. Think that you can go up against them alone? Get a hired gun.
Buddy
Buddy
Kitchen said:
Finally a real breakdown of what I was suspecting for a long time. Buddy you are correct, survival tactics. Either way, its a huge scam that hurts taxpayers and royalty owners. Unfortunately, they are not the only company utilizing such tactics, they are just well known for it in the headlines. This article should make anyone potentially leasing with CHK understand how their business process works, and all the hoops you will likely have to jump through, even if you have an iron-clad lease, just to get paid royalties on anything even remotely close to what you think is market value. Lessors beware!
Colonus beware. Read Liviticus.
Pecan One said:
Cavete Emptor
or
Colonus Emptor
Dave and Buddy, your posts make my day. Excellent analysis and comparisons.
Further thought of this article brings to mind some additional concerns.
1. States should consider regulating the gathering charges by intrastate pipeline to prevent excessive prices being deducted (to leases that provide for such charges). This would enable equitable treatment to royalty owners by having a more level playing field when it comes to these types of charges. It would also allow for operators who do not have the ability to have such lucrative contracts and have paid gatherers (and charged) lessees a "fair" price for transportation fees, to have a level playing field with other operators who obviously hold a nice competitive advantage with the inflated contracts. Wouldn't other companies who have played by the rules (or much closer to them anyways) want to see this happen (essentially disallowing the competitive advantage held by a few)?
2. What happens to wells that are sold to a different operator, or foreclosed by a lender and then re-sold? Is the contract with the existing gatherer ( for example - a gathering charge several times above a typical arms length charge in the area) still in effect, or would a foreclosure (obviously a rare case) nullify that contract and therefore a new contact must be agreed to?
3. If a state law was enacted, how does it impact existing contracts?