Analysis: Chesapeake retreat ends American energy land grab

Tue Jul 10, 2012 1:21am EDT
 
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By Edward McAllister

NEW YORK (Reuters) - About six years ago, an army of agents hired by energy companies started desperately courting landowners across the United States whose farms and ranches happened to sit atop some of the richest oil and gas deposits in the world. And so began one of the biggest land grabs in recent memory.

Those days are over.

U.S. energy titan Chesapeake Energy is quickly cutting back on an aggressive land-leasing program that in recent years has made it one of America's largest leaseholders, putting an end to half a decade of frenzied energy wildcatting.

Beset by growing governance and financial problems, and a sharp slump in natural gas prices, the No. 2 U.S. gas driller is reducing by half the ranks of its agents, known in the industry as landmen.

With little evidence that its competitors are taking on the role of leading industry lease-buyer, Chesapeake's new found frugality is expected to usher in a more sedate period of U.S. land buying, and a sizeable cultural shift for an industry that has been acquiring new acreage at almost any cost.

A surge in drilling into rich shale-gas seams from Pennsylvania to Texas has pushed natural gas prices to 10-year lows, forcing producers, including Chesapeake, to cut output and put the brakes on new wells.

Drilling simply to hold on to leases represents about half of U.S. natural gas output, analysts say, which has helped keep production at record highs despite plummeting prices. Leases held by energy companies tend to last about three years, but will typically remain valid indefinitely if an energy company drills wells and produces fuel on the leased acreage.

It should be fairly easy for drillers to re-hire agents and secure more land when prices recover, according to landmen sources, and production is not expected to be affected immediately. But a lull in leasing could briefly affect production longer term, given that it takes up to six months to secure large tracts of land.   Continued...

 
Kevin B. Koonce, a landman who worked cancelling leases in Michigan on behalf of Chesapeake Energy Corporation, stands near a drilling rig in Etoile, Texas in this December 26, 2011 file photo. REUTERS/Mike Stone