Chesapeake Energy Corporation (NYSE:CHK) is trying to cut on cost through all means possible including shifting some of them to the land owners, by netting them in their royalty payments. This has led to several court cases filed against the Oklahoma city-based oil and gas drilling company.
According to Bloomberg, Chesapeake Energy Corporation (NYSE:CHK) is squeezing landowners royalties by netting various costs against them, despite the clause “no costs” contract. Apparently, Chesapeake has sought to re-interpret the contract terms, thereby offloading some of its costs to its landowners.
Charlie Munger: Invert And Use “Disconfirming Evidence”
Charlie Munger is considered to be one of the best investors and thinkers alive today. His thoughts and statements on investment research, investment psychology, and general rational behavior are often incredibly insightful. Anyone can learn something from this billionaire investor and philosopher. Q2 2020 hedge fund letters, conferences and more If you’re looking for value Read More
One landowner, Donna Thornton is quoted by Bloomberg, saying, “I don’t want to sound like I’m a bitter, disgruntled royalty owner, but this isn’t fair,” Thornton said. “Don’t do sneaky tricks. If it belongs to the royalty owners, it belongs to the royalty owners.”
Additionally, we recently published an article detailing some of the major predicaments this energy company is facing, including challenges in Financial Management and Asset allocation. Criticism over the land procurement process and management, and mismanagement of wells continues to grow.
In April this year, gas prices slumped to a ten year low, and consequently, impacted negatively on oil and gas companies, as the cash crunch began taking a toll on the companies. This led to Chesapeake’s re-interpretation of thousands of contracts in its favor, at the expense of royalty recipients. The victims of this exercise sit on top of 1 trillion cubic feet of gas, going by volume production recorded from the affected areas last year.
A large number of the landowners have already taken Chesapeake Energy Corporation (NYSE:CHK) to court over the matter, while a few, like Thornton, are backing off in the view of cost implications involved in the court process.
Chesapeake stock has slumped immensely over the last twelve months, leading to approximately $9 billion loss in value for the company. According to the company’s spokesman, Michael Kehs, this has been due to macro related events, contrary to what media points to as internal affairs.
Additionally, Kehs is quoted in a statement saying, “The current price environment for natural gas is challenging for producers and royalty owners alike,” and added, “when natural gas prices move higher, royalty owners should receive higher royalties.” This was an attempt to justify the company’s re-interpretation of the oil and gas exploration contracts with the landowners.
Additionally, Kehs expressed that Chesapeake is fully compliant with state laws and contractual lease terms, claiming that the company has paid more in lease bonuses and royalties than any of its peers in the industry. The company has also been a target of activist investors, with Carl Icahn holding a substantial stake in the company, estimated at 8.9% as per the latest filings, while Dan Loeb purchased 5 million bonds that give him 2.25% contingent ownership in the company.
At the time of this writing, Chesapeake Energy Corporation (NYSE:CHK) was trading at $19.53 per share, up nearly $0.50 or 2.59% from yesterday’s close.