CHESAPEAKE PUSHING FORCED POOLING - "Intent Is To Intimidate"

(11/12/2008)

COMMENT By Bob Weaver

Force pooling natural gas holdings will be the center of attention at a December 2nd hearing in Charleston, with Chesapeake Energy requesting that a number of hold-outs be brought into compliance with their deep well drilling project in Roane County.

The four-mile deep Chesapeake project near Vineyard Ridge involves 695 acres and a considerable number of leases.

Chesapeake says 91% of the holders have voluntarily signed contractuals, while 9% are holding out. Those holders are wanting to negotiate financial packages at a higher rate.

Among those holdouts are several large concerns, including Exxon/Mobil and a number of holding companies, in addition to regional holders, Alvin Engelke, I. L. Morris, Spectrum Land, Ed Broome, North Coast Energy, and about fifteen others.

Interestedly, the 91% who have already signed with Chesapeake have signed at various rates of reimbursement, with indications that the holders are unaware of the different deals or the forced pool hold-outs.

Forced pooling has been used in West Virginia before, but it is unclear if the action has been challenged.

Creston WV producer Alvin Engelke says "Chesapeake's intent is to intimidate. We would hope West Virginia officials deal with this in an even-handed manner, with the holders being fairly compensated."

"The latest gas boom in the Mountain State has just begun, and holders need to be careful," he said.

Holders in parts of West Virginia have had acreage leased for a few dollars an acre, while their neighbors have received several thousand dollars an acre.

West Virginians often accept one-eighth royalty, while in many states the royalty holder gets 20%.

Chesapeake and other large producers haven't been happy with routine royalty payments to holders, they began to charge their production costs against the royalty payments.

Those actions resulted in a $404 million lawsuit win against the large producers.

Now the producers are putting the production cost charge-backs in the fine print of their standard contracts.


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