Saturday, December 31, 2011

Chesapeake's Black Eye in Michigan

Chesapeake Energy CEO Aubrey McClendon was already an unpopular man in Michigan after his proposal to develop pristine dune land on the shores of Lake Michigan in Saugatuck, MI into a luxury development, but after a leasing fiasco in the Collingwood Shale in northern Michigan last year, he might as well keep his distance from Michigan from now on.

Last year, Chesapeake and Encana were in a leasing frenzy to tie up land rights in northern Michigan, but after a test well returned negative results, Chesapeake, through a front company, cancelled most of its signed leases with property owners. A number of property owners have sued the shell company set up to do the leasing and Chesapeake itself, and Reuters has done an investigative report revealing the ugly details behind the "land grab" strategy.  It makes for a very interesting reading for anyone leasing their land to an energy company.  It's a cautionary tale that nobody wants to see repeated.

Chesapeake is a company known for being out front in all respects. Its business strategy is to be the first in a new play, tying up as much land as possible to be able to monetize it for a gain later.  From a marketing and public relations perspective, it is a vocal and highly visible leader in the gas industry, doing everything from mounting national PR campaigns to push natural gas as a cleaner alternative to donating money to local civic organizations.

Given its high level of public exposure, for better or worse it represents the gas industry.  But when its strategy backfires mid-land grab, it leaves scorched earth behind and a black eye for not just Chesapeake but for the whole oil and gas production industry.

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