Texas mineral owners who have signed oil and gas leases with Chesapeake Energy may be faced with some unanswered questions.
The American natural gas industry faces the paradox of having been too successful in recent years. A glut of natural gas on the market due to technological advances have allowed access to previously inaccessible gas, especially through horizontal drilling and hydraulic fracturing. The glut of gas has pushed prices down 45 percent in the past year. In fact, natural gas prices are at a ten year low right now. As a consequence, the second largest natural gas producer in the nation, Chesapeake Energy Corporation, recently announced that it will cut gas production by half. The company will only operate 24 of its dry gas drilling rigs, down from the 50 rigs it operated in 2011.
Chesapeake’s measures will only reduce America’s supply of gas by 1.4 percent. The indications from other natural gas companies regarding cutting gas production has been mixed. EQT Corporation stated that it would suspend natural gas drilling in Kentucky indefinitely because of low prices. Exxon declined to comment. Cabot Oil & Gas has no plans to cut production.
Chesapeake says it will take the $2 billion it plans to cut from natural gas production and shift it into the more profitable area of oil production, as oil prices have remained high even as natural gas prices have fallen. Chesapeake also plans to cut $2 billion from its land buying budget and immediately cut production by 8 percent. It is deferring new dry gas wells and pipeline connections where possible. Chesapeake is considering letting current mineral leases expire. The company expects its lowest expenditures for dry gas drilling since 2005.
While this may be good for Chesapeake’s financial stability and its investors, it raises questions for Texas mineral owners who have already signed mineral leases with Chesapeake. If you are a Texas mineral owner who has already signed a lease with Chesapeake, you may wish to have a Texas oil and gas attorney review your lease to determine what your options may be.
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