show me the moneyHave you ever asked what will it take to get people and their government to pay attention to the impact of the natural gas industry?

If the answer was “A huge catastrophic explosion or blowout or similar” – it appears you are wrong.

The correct answer to “What will it take for people to demand government action” appears to lay in the “shiny”, more specifically when royalty checks are not meeting expectations.

WNEP news reported the Bradford County Commissioners held a SPECIAL MEETING on Tuesday, May 28, 2013 to “Try To clear up Gas Lease Concerns”.


A long standing and perfectly legal practice of deducting POST PRODUCTION costs from royalty checks has some residents up in arms.   Some leasers are receiving about $80 per month.   There are unconfirmed rumors some leasers are receiving bills instead of checks.

With dreams of becoming shaleonairs shattered, leasers in Bradford county are demanding action from their county commissioners.

Bradford County commissioners say they’re trying to stop this “unreasonable and unfair business.”

“When you have them basically taking everything, it’s just a little ridiculous, when you have companies taking nothing,” said Commissioner Doug McLinko, (R) Bradford County.

McLinko and other commissioners say according to the Guaranteed Minimum Royalty Act, leaseholders should  get at least a 12.5 percent profit on their lease to gas drilling companies. But a state Supreme Court decision says the law is vague and that allows gas companies to find loopholes.

SEE: Natural Gas Leasers dismayed “UBELIEVABLE,, DID NOT SEE THIS COMING”


wayback machineIn 2009, Commissioner McLinko, had nothing but praise for the industrialization of Bradford County:

“Things have changed,” Bradford County Commissioner Doug McLinko said. “There’s storefronts filling back up again, there’s vacant lots filling back up again. The independent, family-owned businesses are being saved.

“The impact it’s having for real people is pretty incredible.”

In October of 2011, when concerns about the surge in crime were being raised, McLinko brushed it off:

Bradford County commissioner, Doug McLinko, said the crime spike doesn’t change his mind about the importance of the drilling boom to the local economy. Other states, he said, would “cut an arm off” to have such a surge.

“I’m always a little apprehensive about painting this as a big problem around the county, because it just isn’t,” McLinko said. “A lot of these people are really well-behaved. … To a large degree, is it out control or a major issue? Absolutely not.”

Eight months earlier, February 2011, when McLinko was running for re-election, he had this to say:

Republican Doug McLinko, who is running for re-election as a Bradford County commissioner, said that the “traffic is incredible” in Bradford County, and is much heavier than it was anticipated to be.

The drilling “is moving too fast and furiously,” McLinko said. “We need to slow it down.”

Jump to April 2011:  Bradford County residents expressed their concerns regarding water well contamination from natural gas drilling at a county commissioners meeting.  At that time it was believed at least 70 private water wells have been contaminated.

Carol French quoted McLinko as telling Gov. Tom Corbett’s Marcellus Shale advisory committee that while the county has had instances of water wells being contaminated by migrating methane in Bradford County, it is not as widespread as some people portray it to be.

In February 2012, McLinko said he wouldn’t vote for a gas drilling impact fee.

The county would be passing up a local share of about $10 million, but Republican Commissioner Doug McLinko worries a fee would drive the drillers away. “It isn’t free money,” McLinko argued. “It’s not always free. You have to look at what it’s going to cost you. And when you’re talking about cost in jobs and business and growth – so it’s not walking away. It’s what it could cost you.”

Two months later, in April of 2012, although still opposing the impact fee, McLinko voted for it.

To recap, the increase in crime is not a concern, water well contamination is not “widespread” and impact fees would drive drillers away.  Traffic is only a problem when running for office.  Gas Drilling is wonderful for the county.

What changed?


money drying upChesapeake Energy was one of the dominant drillers in, Bradford and surrounding counties.

In January 2012, Chesapeake Energy announced it would be slashing its drilling by nearly half.   The reason given for such a move was over production of natural gas which created a glut and drove prices down.

Chesapeake moved a number of rigs to western PA and Ohio, to go after natural gas liquids (NGL).   Northeast PA counties typically have “dry gas”, low in NGL, whereas western PA and Ohio have “wet gas”.  The NGL soon became glutted and Chesapeake set it sites on drilling for shale oil.    Expectations of billions  to be made hasn’t panned out.

Four of the biggest stakeholders in untapped deposits known as the Utica Shale have put up all or part of their acreage for sale, as prices fall by a third in some cases. Chesapeake Energy Corp. of Oklahoma City, the biggest U.S. shale lease owner, last week offered up 94,200 acres (38,121 hectares). EnerVest Ltd. and Devon Energy Corp. are selling as early results show lower production than their predictions.

If you had been following the news, instead of the talking points, you would also know Chesapeake Energy is in dire financial trouble.  In April of 2013, Aubrey McClendon, the now former CEO of Chesapeake Energy, took an “early retirement”.

One more jump through the wayback machine: Per Rolling Stone article:  The Big Fracking Bubble: The Scam Behind the Gas Boom, By Jeff Goodell. March 1, 2012

As McClendon put it in a conference call with Wall Street analysts a few years ago, “I can assure you that buying leases for x and selling them for 5x or 10x is a lot more profitable than trying to produce gas at $5 or $6 per million cubic feet.

For about a year, Chesapeake Energy has been selling its lease holdings at bargain basement prices.  In April of 2013, Chesapeake sold holdings in Wyoming, Wayne, Bradford, Columbia, Lackawanna, Luzerne, Lycoming, Sullivan, Susquehanna and Tioga counties to Southwestern Energy Company. The deal brings Southwestern’s total acreage in the Marcellus to about 337,000.

Chesapeake sold approximately 162,000 acres to Southwestern for a mere $93-million, that’s about $575.00 per acre. Selling leases isn’t profitable anymore.

Tied up in all that acreage are joint partnership deals with other domestic and foreign corporations, as well as McClendon’s personal 2.5% interest in each and every well drilled.

The tangled web of deals and acreage sales is going to make the royalty mess even messier.

With the financial difficulties, and the fact a corporation exists to make money for its shareholders, it should come as no surprise sharing the cost of post production by charging it off to the royalties is one way to maximize income.  If leasers paid less attention to industry talking points, they might have been surprised to find they would be charged for the post production costs.    Post production cost which include all costs of gathering, marketing, compression, dehydration, transportation, processing, or any other treatment required.

Yes, you read that right, post production costs include marketing.   Part of all those hyped-up slick media ads, front group, and pr campaigns are being charged off to the leasers. Leasers are being charged for promoting the industry’s talking points.

McLinko had stated he feared drillers would leave if an impact fee was enacted.  Using that logic, if McLinko and the county commissioners move ahead with demanding larger royalty payments, won’t drillers would leave the county?  OOOPS, drillers have already left the area in search of the next big boom.

Meanwhile, what happened to Aubrey McClendon?  He’s started up a new company – American Energy Partners, LP (AEP).   Under the leadership of Aubrey K. McClendon, American Energy Partners has a singular purpose: To capture some of the vast opportunities available today in America’s oil and natural gas industry.   Wonder how much this will cost leasers?


©2013 by Dory Hippauf


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