Chesapeake Headed to Arbitration

Chesapeake Energy to Arbitrate with Aubrey McClendon.
Chesapeake Energy to Arbitrate with Aubrey McClendon.

A district court judge in Oklahoma has ordered Chesapeake Energy to enter arbitration in an attempt to settle its dispute with American Energy Partners.

In a lawsuit filed in February, Chesapeake accused its former CEO, Aubrey McClendon, of stealing important trade secrets before leaving the company in 2013 and then using the confidential information to build American Energy Partners. 

Read more: Chesapeake Sues American Energy Partners

Attorneys for American Energy accused Chesapeake of using gimmicks to stay out of arbitration and Judge Thomas Prince agreed. Prince granted the request for arbitration, though it is unclear when it will begin.

Chesapeake cannot escape its contractual commitment to arbitrate through the procedural gimmick of leaving Mr. McClendon’s name off.
— American Energy

Last week, Chesapeake Energy reported 2015 first quarter loss of$3.8 billion. In spite of huge losses, CEO Yet Doug Lawler remained upbeat and focused on Chesapeake’s innovations.

Chesapeake is active all across the Eagle Ford including Atascosa County, Dimmit County, Duval County, Frio County, Goliad County, LaSalle County, McMullen County, Washington County, Webb County and Zavala County.

Eagle Ford Billionaires List | Led by Harrison & Hildebrand

Jeff Hildebrand - Hilcorp
Jeff Hildebrand - Hilcorp

The economic impact of the Eagle Ford Shale was more than $61 billion in 2012, but the play has also put billions in the hands of a few land owners and investors.

EagleFordShale.com's Eagle Ford billionaires list is topped by the founder of Hilcorp Resources and a land owner who controlled a 100,000+ acre ranch. One sold acreage worth billions and one leased acreage for more than one billion dollars in lease bonus money.

Jeff Hildebrand and Dan Harrison are estimated to have made $2.5 billion and $1 billion, respectively, from direct holdings in the Eagle Ford. Other members of the list either manage or have ownership in companies active in the Eagle Ford.

  1. Jeff Hildebrand - Net worth $5.5 billion - Estimated to have made $2.5 billion in the Eagle Ford
  2. Dan Harrison - Net worth $1.1 billion - Estimated to have made $1 billion leasing his ranch in the Eagle Ford
  3. Rod Lewis - Net worth $2.6 billion - Lewis Energy operates over $5 billion worth of Eagle Ford acreage
  4. Richard Kinder - Net worth $9.8 billion - Kinder Morgan has invested billion in midstream infrastructure in the Eagle Ford
  5. Scott Duncan - Net worth $5.2 billion - Owns interest in Enterprise Product Partners who has invested over $4 billion in the Eagle Ford
  6. Aubrey McClendon - His net worth isn't known, but he invested heavily in the Eagle Ford while at the helm of Chesapeake
  7. Mark Papa - His net worth isn't in the billions, but the company he directs estimates it will recover more than 2 billion boe

Eagle Ford Billionaires

Jeff Hildebrand - $5.5 Billion

Marathon Oil Eagle Ford Shale Map
Marathon Oil Eagle Ford Shale Map

Hildebrand is believed to own 100% of the equity in Hilcorp Resources. He was a billionaire before the Eagle Ford, but his wealth is estimated to have doubled as a result of his Eagle Ford dealings.

Hilcorp sold a 40% interest in its Eagle Ford holdings to KKR for $400 million in 2010. A year later KKR and Hilcorp sold Eagle Ford assets to Marathon Oil for $3.5 billion. That's $400 million from KKR plus 60% of $3.5 billion ($2.1 billion) from Marathon to add $2.5 billion to Hildebrand's wealth.

He was already on the Forbes' billionaires list (#219) and he comes in as the leader in wealth made in the Eagle Ford. His billionaire profile is also available at forbes.com

Next on the list is a man that wasn't a billionaire until the Eagle Ford boom.

Dan Harrison - $1.1 Billion

Dan Harrison was independently wealthy before the Eagle Ford boom, but the play catapulted the rancher up to number 1,268 on Forbes' billionaire list. Mr. Harrison controls the 106,000 acre Piloncillo Ranch in South Texas. The ranch is the largest single leasehold in the Eagle Ford Shale. It is rumored that Harrison signed a lease with Shell that paid him ~$10,000 per acre as a signing bonus. That is more than $1 billion for a signature to lease oil & gas rights to the ranch.

Better yet, industry analysts report the lease was for a prescribed interval that includes the Eagle Ford. If Shell finds other targets that are more shallow or deeper, there's a chance more lease bonus money could head his way. That's before considering any royalties.......

Harrison's wealth is tied to his grandfather who was an oilman and helped discover the Old Ocean field in Brazoria County. The first Dan Harrison used his oil wealth to build a ranching empire. Harrison inherited the ranch and is now reaping more from the land than his grandfather or father ever imagined.

With the bulk of his wealth coming straight from the Eagle Ford, it's safe to say Harrison belongs near the top of the Eagle Ford billionaires list. Harrison has a cool $1 billion plus in his pocket.

His billionaire profile is also available at forbes.com

Rod Lewis - $2.6 Billion

Rod Lewis - Lewis Energy
Rod Lewis - Lewis Energy

Mr. Lewis controls Lewis Energy and has been drilling wells in South Texas for decades. The company isn't given credit for discovering what led to the modern day Eagle Ford boom, but they did test the Eagle Ford as early as 2002. Lewis leveraged early experience in the play to what is now considered a leading position. Industry experts estimate the company holds more than 400,000 acres prospective for the Eagle Ford. Forbes mentions the company holds 500,000 acres around the Eagle Ford, so it's safe to say it's a multi-billion dollar portfolio.

Acreage in the Eagle Ford has sold for anywhere from $10,000 to $25,000 per acre. At just $15,000 per acre, Lewis Energy operates over $6 billion worth of Eagle Ford acreage. That's just the land and doesn't account for the various services and contractors the company controls. Lewis operates the acreage and BP is a partner in the Eagle Ford. Details of the Lewis-BP joint venture were never released.

According to Lewis, “We (Lewis Energy) control our own destiny—by owning our own rigs, completions, and continually expanding our operations.”

Lewis has been in headlines recently due to a pending divorce. It could be one of the largest breakups in history, but it has been largely overshadowed by Harold Hamm's (Continental Resources founder and Bakken billionaire) pending divorce.

Lewis ranks #554 on Forbes' billionaire list. He is the second richest man in San Antonio. He is second to HEB founder Charles Butt ($7.4 billion). His billionaire profile is available at forbes.com

Richard Kinder - $9.8 Billion

Mr. Kinder is one of the founders and the CEO of Kinder Morgan. He was a billionaire before the Eagle Ford oil boom, but his company has invested billions in processing, pipelines, and related midstream infrastructure. In one of the biggest transactions of the year, Kinder Morgan acquired Copano Energy. Complimentary assets in the Eagle Ford were part of the motivation for the acquisition.

Kinder ranks #112 on Forbes' billionaire list. His billionaire profile is available at forbes.com

Scott Duncan - $5.2 Billion

He's an heir to Dan Duncan, who founded Enterprise Product Partners. Yes, he was already a billionaire, but Enterprise has invested more than $4 billion to expand and add midstream infrastructure in the Eagle Ford. When it is all said and done, Duncan and his siblings will likely add billions to their wealth because of investments in the Eagle Ford.

Duncan ranks #239 on Forbes' billionaire list. His billionaire profile is available at forbes.com

Aubrey McClendon - ?

Chesapeake Eagle Ford Acreage Map
Chesapeake Eagle Ford Acreage Map

He's not on the Forbes billionaire list this year, but its hard to argue that much of his wealth wasn't the result of his dealings in the Eagle Ford. If it wasn't for oil properties like the Eagle Ford, Chesapeake would have had an even harder time trying to get through the low gas price environment we've experienced over the past few years. Chesapeake signed a $2+ billion Eagle Ford JV agreement with CNOOC in 2010. Since that time, Chesapeake's production has grown from near zero to more than 166,000 boe/d gross.

He's no longer at the helm of Chesapeake, but he's out raising capital for his next venture. McClendon owns a 20% stake in the Oklahoma City Thunder and has an interest in thousands of oil and gas wells that were acquired through his "founder well incentive" at Chesapeake.

Mark Papa - $200 million +

EOG Eagle Ford Shale Acreage Map
EOG Eagle Ford Shale Acreage Map

It's hard to talk about the Eagle Ford and not talk about EOG Resources. The company's CEO isn't on Forbes' list, but I'd guess he might have a chance of making it before he retires. It's hard to find any up to date estimates on his net worth, but he was estimated to be worth more than $130 million in 2009. I'd go out on a limb and estimate that between compensation and stock appreciation he is worth more than $200 million today.

EOG operates approximately 639,000 acres and estimates potential reserves net to the company at 2.2 billion boe in the Eagle Ford.

Please share your throughts in the comments below. Is there anyone we should have included?

CHK Plans For New Leadership - McClendon Retiring

Chesapeake Eagle Ford Rig Map
Chesapeake Eagle Ford Rig Map

Chesapeake's CEO, Aubrey McClendon, has announced plans to retire as of April 2013. McClendon founded Chesapeake in 1989 and, as a landman, was well suited to oversee the company's shale land grab over the past decade.

Chesapeake has a market cap of more than $13 billion, with underlying assets that have significant growth potential.

Mr. McClendon was a fairly controversial figure in the investing world as he led the most aggressive leasing strategy ever implemented. The company has leased millions of acres and in turn flipped a portion of the assets to other companies. The deals funded the company's shale leasing spree.

McClendon came under scrutiny multiple times throughout the past several years as his position magnified. The company's "founder well incentive", lucrative pay packages, and disagreements with a new board of directors eventually led to his demise.

Aubrey K. McClendon, Chesapeake’s Chief Executive Officer, said: “Over the past 24 years, I have had the privilege of developing Chesapeake into one of the world’s premier energy companies. It has been an honor to work with my outstanding management team and the company’s 12,000 very talented and dedicated employees. I am extremely proud of what we have built over the last quarter of a century, and I am confident that Chesapeake is in a great position to continue to grow and achieve great success in the future as it realizes the full value of its outstanding assets. While I have certain philosophical differences with the new Board, I look forward to working collaboratively with the company and the Board to provide a smooth transition to new leadership for the company.”

His exit was announced as an early retirement, but legally it is "termination without cause" and he'll be entitled to a severance package worth as much as $50 million.

Chesapeake's Eagle Ford assets are a prime example of the company's leasing strategy. The company assembled more than 600,000 acres then sold a ~33% interest to CNOOC for $2 billion. CHK has continued to add acreage and controlled almost 500,000 acres as of the end of the third quarter 2012. Production has also surged over the past few years. Chesapeake literally grew its operated Eagle Ford production to over a 120,000 boe/d (52,000 net) from almost zero just four years ago.

Utica Shale - Eagle Ford Shale Debate Pits Texas vs. Ohio

The Utica Shale vs. the Eagle Ford Shale debate has drawn a lot of attention since Chesapeake announced a 1.25 million acre position in the Utica Shale. Aubrey McClendon's comments have gotten a lot of traction:

As a result of its analysis, the company believes the Utica Shale will be characterized by a western oil phase, a central wet gas phase and an eastern dry gas phase and is likely most analogous, but economically superior to, the Eagle Ford Shale in South Texas.

 

That quote sent many articles to the press touting the Utica Shale as the new great shale play and made many Texans wonder if we'd lose some drilling rigs to Ohio. You can track the rig count yourself with the Eagle Ford Shale Drilling Index that is updated each Friday, but if you don't have the time, the counties where the Eagle Ford is present have seen more than 40 rigs come into the play over the past three months. That's more than 10% of the total U.S. onshore rig count (230+ rigs) working in an area that is economically inferior. The catch, it's possible, but the Eagle Ford shouldn't lose much if anything.

We'd like to see an open debate between Chesapeake and other operators like Anadarko, BHP, EOG Resources, Petrohawk, and Marathon Oil. I doubt the guys that have poured billions into the Eagle Ford will agree. But if the hype is true, you'll see rigs working in both plays and will not have to worry about the Utica pulling resources away from Texas.

While the Utica Shale likely has areas that provide better economics than parts of the Eagle Ford, it is hard to imagine any drilling rigs leaving for Ohio. Natural gas rigs deployed in other parts of the country are far more likely to make the move. Natural gas is trading below $4 per mcf as of August 2011. That's not what most plays need to make an economic return and you'll see more drilling shift to liquids plays like the Utica and Eagle Ford.

Not every acre in any play will be economic. We've seen how a highly touted play can do a 180 in the Haynesville Shale and we've even experienced a little of that in South Texas. Most recently, Petrohawk abandoned its Red Hawk Field in Zavala County. That means that Zavala County might face more challenges than we thought, but Dimmit County, DeWitt County, Gonzales County, Karnes County, LaSalle County, and Webb County will likely benefit as rigs move within the Eagle Ford.

In summary, I don't think the entire Utica will prove to be economically superior to the entire Eagle Ford, but I do believe you could read between the lines and say that Chesapeake's Utica Shale acreage looks to be better than Chesapeake's Eagle Ford Shale Acreage.

In short, the Eagle Ford and the Utica look to be big resource wins for the U.S.

R.T.