Chesapeake Energy is not only pulling back to analyze results from six confidential oil wells in southwestern North Dakota, it also is sending notices to mineral owners in Hettinger and Stark counties that it won't honor lease agreements signed months ago.
The company is being closely watched because it's one of few probing the far southwestern edges of the Bakken-Three Forks shale formations and a crucial bellwether for whether real development will move into the area.
Amid rumors that it was pulling its two rigs out of North Dakota, a Chesapeake spokesman said it's studying results from the wells before deciding how to proceed. It has permits to drill another 12 wells, including one it obtained two weeks ago for a site in northern Hettinger County.
Attorneys for mineral owners in Hettinger and Stark counties said they've recently been contacted by clients who have had lease agreements returned by Chesapeake, saying the company doesn't plan to honor the contract and is releasing the lease, or the clients are holding signed leases that are delinquent past when the company agreed to pay bonuses.
Regent attorney Jim Gion said he has 15 or so clients with mineral acres in Hettinger and southern Stark counties who have been contacted in that manner.
Wednesday, February 8, 2012
Reneging on Leases -- CHK - Southwestern North Dakota
Link here to the Bismarck Tribune.
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If I understand this correctly, companies lease the formation they want to drill/explore. This seems like an okay area for the Tyler Formation but Chesapeake must have not leased that formation or is not interested?
ReplyDeleteThe CHK decision is strictly a business decision. OXY is doing the same thing: redeploying a few rigs to California where they say their return is better. CHK has better prospects elsewhere; it has very little to do with future potential of the Tyler, perhaps even the Three Forks. Also, remember, surveys have shown natural gas in every county in North Dakota, except for one county.
DeleteLocally, Whiting does the same things. Most rigs in their cash cow, the Sanish; a lot of rigs in the Belfield area, but only one rig in Big Island, targeting the Red River. I get a kick out of the fact they keep that one rig drilling the Red River.
Glad to see your comment about CHK being strickly a business decision, which I agree with based on what I have read. I hope this doesn't diminish all hope for those mineral owners in SW North Dakota, as I don't believe this decision means there is no oil or gas there. I think CHK just had a bigger play in other areas.
ReplyDeleteI hope there is still hope for those that have leases in that area!
I agree with you. The area around Dickinson will still be explored, but I do think this has delayed things.
DeleteFirst, things will be delayed simply because folks will be a bit gun-shy until the CHK leases are resolved. That certainly is a six-month or one-year ordeal. CHK has not even said it is leaving, though it's pretty obvious it is, based on the story of "reneging" on leases. But like a renter in an apartment unit, one can't get another renter in that unit, until the current resident moves out. I think this will take at least a year to play out (the CHK-lease issue).
Second, even if the lease-issue was resolved overnight, even among the players in North Dakota, the returns are better in the core Bakken. In addition, the infrastructure, oil service companies, man-camps (personnel), etc., are farther north.
Bruce, Wondering about your thoughts on the low bonus amounts for Slope County at the State auction yesterday? Especially compared to bonus' paid at the Aug. 2011 auction. Really enjoy the blog. Read it everyday!
ReplyDeleteWith leases, two things: location, location, location; and, timing, timing, timing.
DeleteFirst, timing, easier to explain: there are other reasons with regard to timing, but the CHK issue is foremost. Not much more needs to be said.
Location: compare the location of the tracts in Slope County in this auction with the locations in the August, 2011, auction. The "high" bonuses in the August auction in Slope County were in tracts where seismic activity suggests high rate of success; the tracts in this auction, do not. (In both auctions, the tracts in Slope were outside of any designated fields.)
Even within the same county, disparities in bonuses can be significant. Look at the bonuses paid in this auction in Mountrail County. In Mountrail County some tracts went for $10,000/acre; some went for as little as $50/acre. That alone is incredible: $50/acre in Mountrail County, one of the most prolific counties, but it is obvious the prospects are not good on the eastern half of Mountrail County.
What are the lease issues in Stark County that might take a year to be worked out? Who's got any problem?
ReplyDeleteI would have no idea "who' has a problem. Most of this is pretty close hold, I would assume.
DeleteBruce -
ReplyDeleteMy family has a substantial amount of land in ND that has been leased to CHK. However, we have not yet received a notice about our land. What could/likely will happen to us?
I doubt anyone knows how this plays out; even CHK has said it needs to re-evaluate its strategy in North Dakota.
Delete