Friday, Aug. 01, 2008

Chesapeake Holding Off on Pursuing New Leases

XTO Continues to Seek New Mineral Rights Agreements in Southlake

By Nicholas Sakelaris

Staff Writer

Chesapeake Energy has temporarily stopped pursing new gas leases in Southlake, the company announced in front of hundreds at Monday’s SPIN meeting.

The company cited the city’s restrictive ordinance and the dropping price of natural gas as reasons.

"At this time we are holding further lease signing," said Lisa Powers, public affairs coordinator for Chesapeake.

That doesn’t count mineral owners who are negotiating with Chesapeake, she said.

"We’re just not moving into other areas," she said.

On the other hand, XTO Energy has no problem working with Southlake’s ordinance, said Carolyn Morris, former mayor pro tem and gas task force member, who spoke with a company executive.

Mayor Pro Tem John Terrell said that although Chesapeake would prefer that Southlake "lighten" its ordinance, he said the council’s priority is to "to protect the citizens."

In a phone interview Tuesday, Terrell said he was disappointed that Chesapeake used an informational meeting for "posturing."

"They used that as a little bit of a negotiating opportunity," he said.

Terrell, a vice president at Dallas/Fort Worth Airport who helped negotiate an 18,000-acre lease worth $181 million with Chesapeake for drilling on airport property, said it’s typical for energy companies to temporarily halt leasing efforts when the price of natural gas drops as it has recently. But, he added, XTO Energy signed new leases as recently as this week.

The meeting was standing-room-only in the council chambers and some people were moved to a conference room to watch on a monitor. The city estimates about 200 people attended.

A representative from XTO Energy was scheduled to attend the SPIN meeting but a conflict in schedule prevented it, SPIN officials said.

Southlake residents have benefited from the leasing war between XTO and Chesapeake for several months. Now with Chesapeake temporarily out of the game, some Southlake residents wonder if the lucrative bonus payments — some as high as $20,000 an acre — would decline.

Powers said she couldn’t speculate on what other companies would do.

Terrell, who was on the gas task force subcommittee, said the city’s first gas well application could come in the next few months.

Chesapeake has already announced intentions to drill a well on the Gateway Church property at the northeast corner of Texas 114 and Carroll Avenue. The company is also considering drilling on the Rucker property near Carroll Avenue and Southlake Boulevard.

The Southlake City Council beefed up the drilling ordinance earlier this year, including setting a 1,000-foot buffer between drill sites and habitable structures, schools and hospitals. Colleyville and Grapevine have similar 1,000-foot buffers in place.

Gas wells in the Barnett Shale are drilled about 1.5 miles down, then turned horizontally another 3,000 to 4000 feet to capture the gas trapped in the shale.

Southlake resident Richie Carpenter said he opposes the city’s ordinance because it could deter drilling. He said the Barnett Shale could be an economic boom to the city and provide relief to the taxpayers.

"I don’t like my property taxes." Carpenter said. "I’m just wondering why we’re not taking advantage of that."

Chesapeake has publicly denounced Southlake’s ordinance, calling it the most restrictive in the area.

Ken Baker, director of planning, said the city’s ordinance provides reasonable access to minerals.

Cheasapeake has also said it objected to Southlake’s provisions that protected neighborhoods from gas transmission pipelines. The oil and gas industry, in comparison with public utility companies, has fewer state restrictions on placement of pipelines and on determining fair market value of property.

Fort Worth has recently indicated an interest in the provisions of Southlake’s ordinance that regulate gas pipelines. The Southlake ordinance doesn’t allow frac ponds, the large ponds that store the water used in drilling. Gas companies could apply for variances to portions of the ordinance, if conditions warrant, officials noted.Other residents at the meeting, like Joanna Grayson, are in favor of the ordinance because it protects her home, which is near a potential drill site.

"I thank you for your ordinance," she told the task force.

Gas companies will also pay fees to cover road damage and other costs the city incurs from drilling rather than making Southlake taxpayers pay for it.

"That’s why we put those fees in there to take the burden off the people who can’t participate," Terrell stated.

Energy companies will apply for a specific use permit for each pad site. Pad sites can have multiple wells.

"The SUP is a very powerful tool ... to look at each case on an individual basis," Baker said.

For more information, see cityofsouthlake.com.