If you’re interested in the fracking issue, especially the big currents that drive it, there’s been no better source for insights than Reuters, which has exposed the land speculation, shady finances and inner dealings of some of the industry’s biggest players.
This latest analysis, based on the series, says the big energy-driven land rush is over.
With little evidence that its competitors are taking on the role of leading industry lease-buyer, Chesapeake’s new found frugality is expected to usher in a more sedate period of U.S. land buying, and a sizeable cultural shift for an industry that has been acquiring new acreage at almost any cost.
A surge in drilling into rich shale-gas seams from Pennsylvania to Texas has pushed natural gas prices to 10-year lows, forcing producers, including Chesapeake, to cut output and put the brakes on new wells.
In a practical sense, what that means for North Carolina is less frenzy, which is a good thing. It does not mean land speculation isn’t going to happen, but there’s less cash sloshing about and, because of prices, less economic incentive to open up new areas.
As Chesapeake Energy Corp and Encana Corp face antitrust investigations, emails reviewed by Reuters indicate that top executives of the two rivals shared sensitive information that gave Chesapeake the upper hand in deals with Michigan land owners.
The usual end-of-session appointments bill has a long list of folks Speaker Thom Tillis wants to see sitting on various boards, including the new Mining and Energy Commission, which is not quite law yet.
One of the new members, Charles Holbrook seems to have a problem with the idea of man-made climate change and a lot of opinions on other matters. Another, Ray Covington owns a ton of land in the shale gas region and has a company that’s been working with landowners on lease deals. I just talked to one informed observer who wondered how the guy could ever vote on anything fracking related given his conflicts.
Oh, and nominee Christopher J. Ayers is a lawyer who represents the energy industry.
SECTION 1.29.(b)Â If Senate Bill 820, 2012 Regular Session, becomes law and Senate Bill 810, 2012 Regular Session, does not become law, then the following shall be appointed to the North Carolina Mining and Energy Commission: Charles E. Holbrook of Moore County (Seat 7) for a term expiring on June 30, 2014, Raymond T. Covington of Guilford County (Seat 4) and Christopher J. Ayers of Wake County (Seat 6) for terms expiring on June 30, 2015, and Charles Taylor of Lee County (Seat 5) for a term expiring on June 30, 2016.
The fallout continues over yesterday’s big takeout by Reuters on possible collusion between Cheasapeake Energy and Encana to suppress land prices in Michigan. The state is taking a hard look at the deal and as is pointed out in today’s follow up story, the land in question is now going to be tied up in the investigation.
About 80 percent of Chesapeake’s Michigan acreage is located on land it leased from the state. “I assume the state of Michigan will be fairly aggressive in investigating the alleged improprieties raised in the article, and similarly private landowners also appear to have some basis for seeking damages” if the companies conspired to keep land prices low, said Mark Hanson, an oil analyst with Morningstar in Chicago.
While the Michigan story continues to unfold, the other major fracking headline comes from comments yesterday by Energy Secretary Ken Salazar that the feds need to step in and regulate the industry. Via The Times:
“There are some who are saying that it’s not something we ought to do, it should be left up to the states. That’s not good enough for me because states are at very different level, some have zero, some have decent rules.”
If the feds get involved, especially if they put in place a comprehensive set of rules, what the General Assembly just set in motion to deal with fracking will need to produce regulations and rules that jive with the federal regs or be superceded by them.
New fed regs will also likely spell out what the states can and can’t do.
That process could slow the process in North Carolina or at the very least force a rewrite of whatever rules DENR comes up with in the interim.
Reuters has been killing it lately in its investigation of fracking finances, specifically the various deals done by Chesapeake, a major player in the fracking industry, and the company’s high flying CEO Aubrey McClendon.
Their latest piece looks at land deals and fracking. Protecting landowners from predatory leases or behaviors on the part of land companies has become one of the chief concerns raised about fracking in North Carolina. The image portrayed in the hearings – and one I’m sure pushed by the oil and gas industry – is that there are a few bad actors in the business and they can be dealt with by adding more protections in lease requirements, mineral rights purchases, land buys and so on.
But what if there’s something bigger than just a few unscrupulous landmen? What if the two biggest players in the industry get together to suppress land prices in an entire region? What if the bad actors are playing the lead role?
In emails between Chesapeake and Encana Corp, Canada’s largest natural gas company, the rivals repeatedly discussed how to avoid bidding against each other in a public land auction in Michigan two years ago and in at least nine prospective deals with private land owners here.
In one email, dated June 16, 2010, McClendon told a Chesapeake deputy that it was time “to smoke a peace pipe” with Encana “if we are bidding each other up.” The Chesapeake vice president responded that he had contacted Encana “to discuss how they want to handle the entities we are both working to avoid us bidding each other up in the interim.” McClendon replied: “Thanks.”
That exchange – and at least a dozen other emails reviewed by Reuters – could provide evidence that the two companies violated federal and state laws by seeking to keep land prices down, antitrust lawyers said.
The Consumer Protection section of the NC Department of Justice recommends the state adopt a Surface Damages Act to protect landowners from damages from fracking operations. The act would include strong protections for water supplies.
DOJ representatives also suggested the state adopt strong anti-fraud protection for landowners and a “cooling off period” when involved in oil and gas lease negotiations to prevent pressure sales and better understanding of rights.
Another key point: recording the leases. Right now, there’s no state law that says a lease has to be recorded in local register of deeds offices.
Chesapeake Energy, the company that may very well become the main player when/if fracking comes to North Carolina, is headed up Aubrey K. McClendon.
Reuters just published a lengthy report on McClendon and $1.1 billion in personal loans he got from his company. It’s a long read but well worth. Anyone considering the future of this state and fracking ought to give a look.
McClendon has borrowed as much as $1.1 billion in the last three years by pledging his stake in the company’s oil and natural gas wells as collateral, documents reviewed by Reuters show.
The loans were made through three companies controlled by McClendon that list Chesapeake’s headquarters as their address. The money is being used to help finance what could be a lucrative perk of his job – the opportunity to buy into the very same well stakes that he is using as collateral for the borrowings.
The size and nature of the loans raise concerns about whether McClendon’s personal financial deals could compromise his fiduciary duty to Chesapeake investors, according to more than a dozen academics, analysts and attorneys who reviewed the loan agreements for Reuters.
There have been a lot of questions raised about D.R. Horton’s ‘energy wing’ (that’s right, a homebuilder with its own energy company) and mortgages in North Carolina’s potential frack zone. Indy story on it here. Now, the State Employees Credit Union says selling mineral rights are not allowed under the standard Fannie/Freddie deeds and are generally not cool.
Just got this from the mineral rights peeps at RAFI:
LENDERS: FRACKING PRESENTS MORTGAGE RISK
North Carolina landowners who sign oil and gas rights leases could be ineligible for mortgages from the State Employees Credit Union and mortgages backed by Fannie Mae or Freddie Mac.
A statement by the State Employees Credit Union, released last month, reads:
The standard Fannie Mae/Freddie Mac Deed of Trust document recorded for most real estate liens prohibits the homeowner from selling or transferring any part of the property during the term of the loan without obtaining prior written approval from an official of the financial institution holding the mortgage. This includes the oil, gas and minerals found on the property. Any property financed with a State Employees’ Credit Union mortgage falls under the aforementioned restriction. Approval of exceptions from State Employees’ Credit Union would not be granted due to heightened risk concerns associated with extraction of these natural resources, including hydraulic fracturing technology (otherwise known as fracking or horizontal drilling).
“The policy adds another layer to debate over legalizing fracking in North Carolina. It highlights the risk that mineral rights leases can present for landowners even before drilling starts,” said Jordan Treakle, Mineral Rights Campaign Coordinator at the Rural Advancement Foundation International — USA.
The organization is consulting on landowner rights concerns for the State Attorney General’s section of the state’s Shale Gas Report. The report is expected in early May.
Fracking is illegal in North Carolina, but in 2010, companies began approaching landowners in Lee County. About 80 leases, accounting for more than 9,000 acres, were signed. Lessors likely did not know that oil and gas leasing could affect their mortgages.
Well since I just got interviewed on the radio, I guess I ought to post something new on fracking.
Actually, there is quite a bit of news including the DENR hearings last night where the message from the public was again GO SLOW.