Chesapeake, ex-CEO fighting over La. drilling program

Nine months after being ousted at Chesapeake Energy Co., former CEO Aubrey McClendon is fighting the company over its drilling program in northwest Louisiana’s Haynesville Shale.

McClendon’s Larchmont Resources LLC has asked the state Office of Conservation to approve 12 alternate-unit wells on four units — each around 640 acres — in Bossier Parish. Chesapeake already operates a well on each of those units. Larchmont says the current wells are leaving the bulk of the produceable natural gas in the ground. Cheseapeake has asked the state to reject those applications, saying among other things that Chesapeake and the firms that own 80 percent or more of those leases don’t want Larchmont, which owns 2.5 percent, deciding when and where drilling will take place.

McClendon was widely criticized for a special program that allowed him to buy 2.5 percent in each well Chesapeake owned. A Forbes.com article described the deal as obscene because the only collateral McClendon had to put up was the drilled wells themselves.

John-Mark Beaver, Larchmont’s director of land, said the company owns parts of 869 units, and 961 wells have been drilled on those properties.

“There’s a lot of gas that’s still in the ground,” Beaver said Wednesday during a public hearing on the application.

Larchmont has filed for alternative well permits out of necessity, he said. The company has attempted to negotiate an accelerated drilling program with Chesapeake but has not received counter offers, and plans to develop the units.

Larchmont is committed to spending $10 billion to drill in the Haynesville over the next decade, Beaver said.

An economic impact study authored by economist Loren Scott says that if Larchmont and other minority working interest owners were allowed to gain approval for alternate unit wells like those proposed, over the next decade:

Business sales within the state would expand by $3.3 billion.

State revenue would increase by $921.9 million, not including severance taxes.

The minority owners’ investment would support about 22,743 jobs.

However, the Office of Conservation won’t take the study into consideration in deciding on the permits because Chesapeake didn’t receive a copy in advance, wasn’t given a chance to question Scott or to hire an expert to refute the study.

Randy Songy, an attorney for Chesapeake, argued that Larchmont and McClendon aren’t interested in increasing drilling as much as buying Chesapeake’s interests in the leases.

“That’s what this is really about, this filing. It’s to give you leverage in those negotiations?” Songy asked Beaver.

Beaver said Larchmont wants to see more wells drilled.

There are more than 3,000 additional well locations on the leases where Larchmont and Chesapeake are co-owners, he said.

Songy said even if the state approves Larchmont’s wells, the company has no way to drill them because the state forbids having dual operators on a unit.

“I see it as an exercise in futility,” Songy said.

David Ogwyn, an attorney for Larchmont, said Chesapeake is acting against the state’s best interests by preventing development and keeping large amounts of natural gas off the market.

Larchmont wants the state to recognize the need for drilling more wells per unit, he said.

Public Service Commissioner Foster Campbell, who owns part of the property where the proposed wells lie, said landowners would prefer the state allow companies to drill if they have the resources to do so.

Chesapeake is saying it will drill but not providing any details, Campbell said.

Songy said Chesapeake has gone from two drilling rigs in the Haynesville under McClendon to seven.

The company is willing to file its drilling plans for 2014 within two weeks if that’s what the state wants, he said.

The Office of Conservation is expected to issue a decision in the next 30 days or so.