Tuesday, February 1, 2011

Chesapeake Unpopular in Michigan

Last summer, there was sudden talk of shale gas under Michigan.  EnCana drilled a big well and there was big activity at a state lease auction.  Apparently the action attracted Chesapeake Energy, which has made a habit of rushing into new plays to snap up as much land as possible.  It fuels the company's joint venture strategy - buy low, sell high!  The Chesapeake landmen were dispatched to Michigan to tie up land before anybody else.

But things didn't go so well in Michigan.  Chesapeake CEO Aubrey McClendon is already somewhat of a marked man in the state after proposing to develop a resort on pristine dune acreage he owns on Lake Michigan near Saugatuck Township in western Michigan.  Now, Forbes reports that Chesapeake is being sued by a number of landowners in Michigan after the company used technicalities to opt out of closing lease agreements after re-evaluating the economics of the play.  The landowners claim that most technicalities were easily curable and many ended up in a bad financial straits because of Chesapeake's promises.

It's an interesting article.  There are always two sides of a story, and only one is reported in depth here because Chesapeake offered little defense, but it shows the dark side of speculative leasing for both parties - something many in the Haynesville Shale area can appreciate.  It also goes to show that you shouldn't spend the lease bonus before the check clears the bank.


Anonymous said...

"It also goes to show that you shouldn't spend the lease bonus before the check clears the bank."

Oh how true that is!

Anonymous said...

Spending the lease money before the check clears isn't the financial problem that the landowners in Michigan are experiencing. They are experiencing no checks-no money; because leases have been canceled for reasons such as; a mortgage, property tax, signed wrong document, signed too late and not in area of interest.

In fact, it appears all leases written by a single company weren't honored; there are 1000s of leases affected. Other gascoshave paid their leases. The culprit.....

allegedly Chesapeake Energy. The legal system will soon be working to removed the "allegedly" in that sentence. This is a serious situation for many landowners in MI as well as the state of MI itself.