Chesapeake to Start Deducting Some Costs from Royalty Checks

- Chesapeake to Start Deducting Some Costs from Royalty Checks

Thursday, August 11, 2011
Fort Worth Star-Telegram, Texas
by Jack Z. Smith

About 20,000 royalty owners who have Barnett Shale natural gas leases with Chesapeake Energy will likely see their royalty checks slashed by roughly 25 percent after the company deducts expenses associated with post-production, such as gas gathering, compression and transportation.

The actual percentage and dollar amount decreases in royalty checks will vary monthly based on natural gas prices, post-production costs and output from wells.

Affected royalty owners were notified of the new company policy in recent letters. The changes took effect with July royalty checks that were based on May production, according to Julie Wilson, Chesapeake vice president for urban development and the top executive in its Fort Worth regional office.

Chesapeake is the No. 2 producer in the natural gas-rich Barnett Shale, which underlies more than 20 North Texas counties.

Henry Hood, senior vice president and general counsel for Oklahoma City-based Chesapeake, said post-production costs run from 70 cents to $1 per 1,000 cubic feet of gas produced. Natural gas prices have recently been around $4 per 1,000 cubic feet.

At that price, royalty checks will be "about 25 percent lower," Hood said.

Wilson said about 75 percent of Barnett Shale royalty owners with Chesapeake leases received letters advising them of the change.

The royalty owners whose monthly checks won't be affected are those who have lease provisions precluding assessments for post-production costs, Hood said.

As a general rule, large property owners who hired attorneys to help them negotiate leases and residents who are members of neighborhood associations that negotiated carefully crafted leases appear much more likely to have provisions precluding those charges.

Roger Venables, assistant director of community development and planning for the city of Arlington, said it has lease provisions barring Chesapeake from assessing post-production costs.

Representatives for the city of Fort Worth, Tarrant County and Dallas/Fort Worth Airport were not immediately able to confirm late Wednesday whether they have such provisions.

Hood said Chesapeake did an exhaustive internal audit of all its Barnett Shale leases to determine which could be assessed the post-production costs.

The audit took about six months, he said.

The post-production costs are routinely assessed against royalty owners in Texas unless lease provisions prohibit it, he said.

Chesapeake said in its letter to royalty owners that they will not be retroactively assessed any charges for post-production costs that the company incurred before its policy change.

"Please be assured that we do not intend to recoup these charges on past production," the letter said. "However, effective with the July 2011 check, your payments will reflect those charges going forward."

Both in its letters to royalty owners and in an explanation of the new policy on its website, Chesapeake did not provide specific information about how much royalty owners' checks might be reduced as a result of the new policy.

Hood said the company's decision to begin assessing royalty owners for post-production costs was triggered by its agreement with Total, the French oil giant, which paid $2.25 billion for a 25 percent interest in Chesapeake's Barnett Shale operations.

Total was about to begin deducting post-production costs from royalty owners' checks based on its share of the Chesapeake wells' production, so Chesapeake also decided to begin assessing for the costs, Hood said.

Otherwise, payment to royalty owners would have required two separate checks, and "it didn't make any sense to have two different checks from two different companies," Hood said.

Copyright (c) 2011, Fort Worth Star-Telegram, Texas

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Chesapeake CEO: Utica Shale Acres Worth $15B-$20B

- Chesapeake CEO: Utica Shale Acres Worth $15B-$20B

Monday, August 01, 2011
Dow Jones Newswires
HOUSTON
by Ryan Dezember

Chesapeake Chief Executive Aubrey McClendon said Friday that the company believes its acreage above the Utica Shale formation in eastern Ohio, 1.25 million acres the company has quietly pieced together over the last year and a half, is worth $15 billion to $20 billion.

"That's a big number to share but we believe we understand the hydrocarbon potential under our acreage and we also know a fair amount about how to create and extract value from a play such as this," McClendon told investors during a conference call to discuss the company's second-quarter earnings. "The Utica should emerge as a key driver in the future growth of U.S. energy supplies, especially in natural gas liquids."

Oklahoma City-based Chesapeake reported earnings of $510 million, or 68 cents a share, compared with a prior-year profit of $255 million, or 37 cents a share. Excluding mark-to-market and other impacts, adjusted earnings rose to 76 cents from 75 cents. Revenue jumped 65% to $3.32 billion on higher production and rising oil and gas prices.

Analysts surveyed by Thomson Reuters expected a per-share profit of 72 cents on revenue of $2.77 billion.

In order to contend with rising oilfield service costs and ramp up drilling in Ohio, Chesapeake said it will boost spending by $1 billion over the next two years to between $6 billion and $6.5 billion annually.

McClendon said Chesapeake, which is drilling into the Utica with five rigs, plans to add three more rigs by the end of the year and eventually have as many as 40 drilling in eastern Ohio by the end of 2014.

Chesapeake has spent between $1.5 billion and $2 billion on leasing property in eastern Ohio and continues to add parcels, McClendon said. The acreage will exceed the $15 billion to $20 billion range once more of it is developed into producing oil fields, but that is its value now as Chesapeake shops it to potential joint venture partners.

Chesapeake plans to sell a stake in the property during the fourth quarter.

The Utica, a deeply buried rock formation, lies below parts of eight states, from Tennessee to New York, as well as parts of Canada. Oil companies, however, have concentrated their leasing and exploration efforts in eastern Ohio, which they believe will yield more valuable oil and natural gas liquids.

While McClendon decline to detail the results from the 15 Utica wells it's drilled so far, he said the activity that will come there should lift an Ohio work force that has suffered for years as manufacturers flee the Rust Belt. Abundant water, needed to hydraulically fracture shale formations, easy transport by rail, highway and river, and a large base of industrial workers make the Utica more attractive and potentially more profitable than many other recent shale discoveries, McClendon said.

"We think that our activity can help rejuvenate this area and we're quite pleased with the size of the work force and the quality of the work force," he said. "This is pretty much the most ideal place in America for a new play."


Copyright (c) 2011 Dow Jones & Company, Inc.

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Clean Energy Fuel Corp Is Receiving $150M Investment From Chesapeake Energy

- Clean Energy Fuel Corp Is Receiving $150M Investment From Chesapeake Energy



Jul 12, 2011

Clean Energy Fuel Corp. (NASDAQ:CLNE) is receiving a $150 million investment from Chesapeake Energy Corp. (NYSE:CHK) as part of the company's $1 billion fund to invest in companies that develop infrastructure or technology to increase the use of gas as a motor fuel, according to a Bloomberg report.

Clean Energy Fuels has a potential upside of 17% based on a current price of $14.82 and an average consensus analyst price target of $17.33.

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Samson O&G to Participate in Chesapeake Drilling

- Samson O&G to Participate in Chesapeake Drilling

Monday, July 04, 2011
Samson O&G Ltd.

Samson O&G has elected to participate in the drilling of the State 24-63 #10-1H well with Chesapeake Energy (operator) for its 25% working interest. The State 24-63 #10-1H well is located in Township 24N, Range 63W, Section 10 in Goshen County, WY. The well will be drilled as an 11,447' measured depth horizontal well in the Codell Sandstone (which lies directly beneath the Niobrara Formation). Upon completion of the well in the Codell sandstone, the fracture stimulation job is expected to fracture the Niobrara Formation.

Samson Oil & Gas Limited has also elected to participate in the drilling of the State 24-63 #14-1H well with Chesapeake Energy (operator) for its 12.5% working interest. The State 24-63 #14-1H well is located in Township 24N, Range 63W, Section 14 in Goshen County, WY. The well will be drilled as an 11,272’' measured depth horizontal well in the Codell sandstone. Upon completion of the well in the Codell sandstone, the fracture stimulation job is expected to fracture the Niobrara Formation.

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Chesapeake Energy Boosts Payout; Sees Regular Increases

- Chesapeake Energy Boosts Payout; Sees Regular Increases

Monday, June 13, 2011
Dow Jones Newswires

Chesapeake said Monday it raised its common-stock dividend by 17%, marking the natural-gas company's first increase since June 2008.

"It is our goal to be able to increase our common-stock dividend regularly in the years ahead," said Chief Executive Aubrey K. McClendon.

The company raised its quarterly dividend to 8.75 cents a share from 7.5 cents; the increased payout will cost the company an additional $32.9 million a year.

"From a value perspective, this announcement is negligible though it does paint a positive picture from an optical standpoint," analysts with Canaccord Genuity wrote in a note to clients.

Chesapeake Energy, the second-largest U.S. natural-gas producer after Exxon Mobil Corp. (XOM), joins a long list of companies that have increased payouts to shareholders in recent months using stockpiled cash. Last month, Chesapeake Energy reported that it swung to a first-quarter loss on steep derivatives losses and a 42% drop in revenue as energy prices declined, while production increased from a year ago.

On Friday, shareholders demonstrated dissatisfaction with the company's board and pay practices as about 22% of votes were withheld in McClendon's re-election as chairman, up from only 4% that opposed his election in 2008. In an advisory say-on-pay vote, only 58% said they approved of Chesapeake's executive-compensation plan.

Chesapeake spokesman Jim Gipson said Monday that the dividend hike had "been planned for many months" and wasn't made in response to Friday's shareholder votes.

Shares, which have risen 19% in the last year, recently traded down 77 cents, or 2.63%, at $28.47.

Copyright (c) 2011 Dow Jones & Company, Inc.

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Chesapeake Energy CEO Re-Elected to Board as Chairman

- Chesapeake Energy CEO Re-Elected to Board as Chairman

Monday, June 13, 2011
Dow Jones Newswires
HOUSTON (Dow Jones Newswires)
by Ryan Dezember

Chesapeake Chief Executive Aubrey McClendon was re-elected Friday as chairman of the Oklahoma City energy producer, though the voting results showed a significant decline in shareholder support for one of the highest paid executives in the U.S.

McClendon, who had come under fire from an influential advisory firm that called for his ouster from the board, garnered about 78% of the votes cast at Chesapeake's annual shareholder meeting. Friday's vote ensures the 51-year-old executive will remain chairman into 2014, but the results signal diminished shareholder support for McClendon, who received more than 96% of the vote in 2008, the last time he stood for re-election to the board.

"This is a remarkable level of opposition," said Carol Bowie, head of compensation policy at Institutional Shareholder Services, the proxy advisory service that called for McClendon's departure from the board. Corporate board elections rarely yield opposition greater than 10%, Bowie said.

Chesapeake spokesman Jim Gipson said the vote shows "overwhelming support for management and for our board." He added that in 2008, McClendon's nearly unanimous re-election came as the company's stock climbed to a record high of $74 on historically high natural gas prices. Chesapeake shares traded Friday at $29.34, off 1.41% amid broader market declines.

McClendon, who helped found Chesapeake in 1989 and build it into the second-largest natural gas producer in the U.S., has been one of the highest paid executives in any sector in recent years, collecting compensation valued at more than $152 million since 2008. His 2010 pay package was valued at more than $21 million, according to securities filings.

ISS recommended shareholders remove McClendon from the board, citing an executive compensation system that is not tied to performance standards.

On Thursday, just ahead of the meeting, Chesapeake seemed to cave in to some of ISS's pressure, when it announced it hired an "independent compensation consultant" and committed to implement a pay system recommended by that firm that "includes objective performance criteria."

On Friday, Chesapeake's shareholders narrowly approved the company's executive compensation plan, giving the proposal about 58% of the vote, indicating widespread shareholder discontent.

As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, corporations must now provide shareholders with a nonbinding advisory vote on the compensation of named executive officers. So far, opposition to pay plans has been rare. According to ISS, shareholders have opposed proposals at only 31 companies out of 2,230 that had held votes by June 1.

In a separate tally, shareholders overwhelmingly asked that the plan be reviewed annually, following the board's recommendation.

Copyright (c) 2011 Dow Jones & Company, Inc.

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Chesapeake Resumes Work Three Weeks after Accident

- Chesapeake Resumes Work Three Weeks after Accident

Monday, May 16, 2011
Pittsburgh Post-Gazette
by Laura Olson

Three weeks after the gas-well blowout at one of its Bradford County sites, Chesapeake Energy announced it will resume well-completion operations in Pennsylvania.

The company had voluntarily halted hydraulic fracturing and other procedures to prepare a well for production following an April 19 accident. As workers attempted to seal that well, briny wastewater spilled for several hours into a nearby creek tributary.

Chesapeake's well-completion work resumed in late April at its West Virginia and Ohio sites, but sites here remained idle as state Department of Environmental Protection officials sorted through company paperwork detailing what happened.

DEP spokeswoman Katy Gresh said the agency also was waiting on "assurances" from Chesapeake that they would use local well-control specialists if the company has an accident requiring such assistance. In the Bradford incident, the company called the Houston-based company Boots and Coots, who did not arrive on the scene for 12 hours.

Ms. Gresh said Chesapeake agreed to local well-control specialists in the future, which the company also noted in its statement.

The company attributed the accident's cause to a faulty connection at the wellhead, which allowed fluid to be released. They described the valve failure as "extremely rare," adding that they have since inspected their wellheads and updated how the equipment is assembled.

"We understand that operating in the Commonwealth of Pennsylvania is a privilege," said John Reinhart, Chesapeake's vice president of operations for its eastern division. "We have learned from this and have taken steps to mitigate the risk of this type of event happening in the future."

Of the wastewater that spilled off the well pad, Chesapeake officials said about 240 barrels of "a mixture of well fluid and rain water" flowed onto nearby land and into a small tributary. They estimated that figure included one barrel's worth of highly diluted chemical additives used in hydraulic fracturing.

The spill caused "minimal and localized impact" to the environment, according to the company. They said a small farm pond near the well was drained, and the water treated at a Chesapeake wastewater recycling facility. DEP officials also have reported that an unknown number of amphibians died in the pond.

State environmental officials have not yet issued any fines or violations in response to the incident. Ms. Gresh said the DEP investigation is ongoing.

Copyright (c) 2011, Pittsburgh Post-Gazette

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Chesapeake Energy Topped Q1 EPS Estimates

Chesapeake Energy Topped Q1 EPS Estimates



May 2, 2011

Chesapeake Energy (NYSE:CHK) reported Q1 EPS of $0.75, ex-items, ahead of consensus estimates of $0.70 per share. Revenues for the quarter fell to $1.61 billion. Analyst expected revenues of $2.68 billion, which may not be comparable.

Chesapeake Energy has a potential upside of 19.4% based on a current price of $33.23 and an average consensus analyst price target of $39.67.

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Chesapeake Begins Tender Offer to Buy Bronco Drilling

Chesapeake Begins Tender Offer to Buy Bronco Drilling

Tuesday, April 26, 2011
Chesapeake Energy Corp.

Chesapeake announced that it, through a new wholly owned subsidiary, Nomac Acquisition, Inc., is commencing a cash tender offer to purchase all outstanding shares of common stock of Bronco Drilling. On April 15, 2011, the companies previously announced a definitive agreement whereby Chesapeake would acquire Bronco in a cash tender offer and subsequent merger for approximately $315 million, including debt, net working capital and outstanding warrants.

Upon the successful closing of the tender offer, Bronco stockholders will receive $11.00 in cash for each share of Bronco common stock tendered in the offer, without interest and less any required withholding taxes. If more than 50 percent of the shares of Bronco common stock on a fully diluted basis (but less than all of the outstanding shares of Bronco common stock) are tendered, and all other closing conditions are satisfied, any remaining shares not tendered will be converted into the right to receive the same consideration in cash in connection with a merger of Nomac Acquisition into Bronco. Following the transaction, Bronco will be an indirect wholly owned subsidiary of Chesapeake.

Today Chesapeake will file with the Securities and Exchange Commission (SEC) a tender offer statement on Schedule TO that provides the terms of the tender offer, and Bronco will file a solicitation/recommendation statement on Schedule 14D-9 that includes the recommendation of Bronco's board of directors that Bronco stockholders accept the tender offer and tender their shares in the offer. As previously disclosed, the board of directors of each of Bronco and Chesapeake has unanimously approved the transaction.

The tender offer will expire at Midnight, New York City time, on May 23, 2011 unless extended in accordance with the merger agreement and the applicable rules and regulations of the SEC. The closing of the tender offer is conditioned upon the valid tender of a majority of the outstanding shares of Bronco common stock on a fully diluted basis. As previously disclosed, stockholders holding shares representing approximately 32% of Bronco’s outstanding common stock have agreed, among other things, to tender all of their shares in the tender offer. In addition, Bronco’s directors and executive officers, who beneficially own in the aggregate approximately 1.7% of the outstanding shares of Bronco common stock (excluding unvested restricted shares), have indicated that they intend to tender their shares in the tender offer.

The closing of the transaction is conditioned upon expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions.

Chesapeake Shuts Pennsylvania Gas Wells

Chesapeake Shuts Pennsylvania Gas Wells

Friday, April 22, 2011
Dow Jones Newswires

Chesapeake on Thursday suspended the controversial drilling method of hydraulic fracturing, or "fracking," at all of its wells throughout Pennsylvania until it determines the cause of this week's spill in the northern part of the state, the Associated Press reported.

The company -- the biggest driller of natural gas in the shale formations of Pennsylvania -- said crews had significantly reduced the flow of chemical-laced water from its out-of-control well near Canton, in Bradford County, Pa.

Chesapeake spokesman Brian Grove said the exact cause of Tuesday night's breach wasn't known, but the leak was located in a wellhead connection.

Thousands of gallons of drilling fluids were spilled. They escaped containment, crossed over farm fields and went into nearby Towanda Creek.

Grove told the AP that initial testing of waterways in the area had shown "minimal impact, if any."

The spill forced the temporary evacuation of some families, but no one was injured.

Fracking involves blasting shale rock with a mix of water, sand and chemicals at high speeds to crack open gas-bearing rock.

Chesapeake Ropes Bronco Drilling

Chesapeake Ropes Bronco Drilling

Friday, April 15, 2011
Chesapeake Energy Corp.

Chesapeake and Bronco Drilling have entered into a definitive agreement for Chesapeake to acquire Bronco for approximately $315 million, including debt, net working capital and outstanding warrants.

Under the agreement, Chesapeake will make a cash tender offer to acquire all outstanding shares of Bronco's common stock at a price of $11.00 per share. The $11.00 per share purchase price represents premiums of 6% and 24% over the closing price of Bronco's common stock on the NASDAQ on April 14, 2011 (the date of signing of the definitive agreement) and the average closing price for the 90-calendar day period ending on April 14, 2011, respectively.

The transaction has been unanimously approved by the Boards of Directors of both companies. The Board of Directors of Bronco unanimously recommends that Bronco's shareholders accept the Chesapeake offer. Third Avenue Management LLC, on behalf of its investment advisory clients, and Inmobiliaria Carso, S.A. de C.V., which are Bronco's largest shareholders and collectively own or have dispositive authority over approximately 32% of Bronco's outstanding common stock, have committed to tender all their shares into the Chesapeake offer.

The acquisition will enable Chesapeake to further its goal of owning approximately two-thirds of the rigs that it operates in its drilling program - a key aspect of its vertical integration strategy - at an attractive price per rig. Bronco currently owns 22 high-quality drilling rigs primarily operating in the Williston and Anadarko basins, including three that are under contract with Chesapeake. Chesapeake is currently Bronco's second largest customer.

Following the closing of the transaction, Chesapeake will integrate Bronco's 22 rigs into Chesapeake's wholly owned subsidiary, Nomac Drilling, L.L.C., which currently owns 95 drilling rigs available for service, of which 90 are currently drilling under contract for Chesapeake. The company is currently operating a total of 160 drilling rigs and plans to end 2012 utilizing approximately 200 drilling rigs. Chesapeake believes that the acquisition of Bronco should satisfy the vast majority of Chesapeake's anticipated rig investment needs through 2012.

Aubrey K. McClendon, Chesapeake's CEO, stated, "We have known and admired Bronco's management team and assets for years and we are especially pleased to announce this transaction today. The acquisition of Bronco is a great additional step in our vertical integration strategy and increases confidence in our plan to ramp up drilling activities in highly lucrative, liquids-rich unconventional resource plays. We look forward to working with Bronco's management team to quickly complete this transaction and integrate operations."

D. Frank Harrison, Bronco's Chairman and CEO, stated, "We are excited about this transaction with Chesapeake, one of the premiere and most innovative energy companies in the world. Chesapeake's visionary and people-centric approach is highly admired. We view this as a great opportunity and in the best interests of Bronco, our shareholders and our employees."

The definitive agreement entered into by Chesapeake and Bronco provides for Chesapeake to acquire Bronco in a two-step transaction. The first step will consist of a cash tender offer to be made by a wholly owned subsidiary of Chesapeake for all outstanding shares of Bronco common stock at a price of $11.00 per share in cash. In the second step, the tender offer will be followed by a merger in which the holders of the outstanding shares of Bronco common stock not purchased in the tender offer will receive the same per share price paid in the tender offer, in cash, without interest. Upon completion of the transaction, Bronco will become an indirect wholly owned subsidiary of Chesapeake. The tender offer will be conditioned upon a majority of the outstanding shares of Bronco common stock being tendered into the offer and will also be subject to regulatory clearances and other customary terms and conditions.

Chesapeake is expected to launch the tender offer shortly and the transaction is expected to close in the second quarter of 2011, subject to customary closing conditions. The transaction is not subject to or conditioned upon financing arrangements.

Johnson Rice & Company L.L.C. is acting as financial adviser to Bronco and has delivered a fairness opinion to its board of directors. Thompson & Knight is acting as legal counsel to Bronco. Jefferies & Company, Inc. is acting as financial adviser to Chesapeake. Commercial Law Group, P.C. and Wachtell, Lipton, Rosen & Katz are acting as legal advisers to Chesapeake.