Court Files: Coal CEO Robert Murray Unearths Lease from Aubrey McClendon’s New Fracking CompanyCross-Posted from That lease doled out to Murray Energy Corporation set off legal alarm bells for the Murray legal team. Murrays attorneys argue that the lease completely undermines the McClendon teams discovery-related legal case, while also cutting straight to the heart of what their legal complaint centers around: McClendons use of the name American Energy. Murrays legal team argued that the content of the American Energy Partners lease itself could cause potential and actual confusion about the American Energy name and which company is which. They pointed to numerous examples of such confusion both in the September 9 Motion to Compel Discovery, as well as in a more recent October 13 Motion in Opposition to the Protective Order and an accompanying exhibit.Lease Allows Fracking and Waste InjectionThe American Energy Partners lease itself is 11 pages long and Radow -- author of the article, Homeowners and Gas Drilling Leases: Boon or Bust?, published by the New York State Bar Association Journal -- says it is more harmful to land-owners than an earlier lease doled out by Chesapeake Energy. Radow supplied DeSmogBlog with a copy of a Chesapeake Energy lease from December 2009 for sake of comparison.Radow pointed out two big differences between the December 2009 Chesapeake lease and the June 2014 American Energy Partners lease.One significant addition to this lease involves the right to suspend payment of royalties to a property owner with a prior mortgage until a subordination of mortgage is delivered in a form acceptable to American Energy obtained at the cost of the property owner, Radow told DeSmogBlog via email. Educated mortgage lenders are well aware of the risks to their mortgage collateral associated with hydraulic fracturing and will be unlikely to subordinate their interests to the gas company. If they do refuse to deliver a subordination agreement, this clause gives the gas company a free pass on drilling a mortgaged property without paying royalties.The other main addition to the June 2014 version: it permits injection of hydrocarbon related substances from any source on a homeowners property for payment of just $1,000 per month.Once the lease term expires, if no drilling operations are in effect, American Energy has the unilateral right to extend the lease indefinitely to use the subsurface to inject waste, explained Radow.One possible effect of this clause is to entitle American Energy to sign leases on properties with existing wells and only use that property for deep well injection of waste. Without fully understanding the ramifications to a drinking water supply of injecting toxic and radioactive waste below a persons family residence, this unregulated practice could potentially transform a residence into an property unsuitable for habitation.Radow also cited the risk of earthquakes caused by fracking waste injection in Ohio -- and beyond -- and the loss of value that could impose upon a home.Homeowners insurance does not cover hydraulic fracturing operations and the lease has no provision for insurance, commented Radow. Even if the homeowner, at its expense, or American Energy, at its expense, were to purchase earthquake insurance endorsements to their existing coverage, it is not at all clear that the added insurance will cover manmade earthquakes.Junk Debt Fuels Second Land GrabWhile the U.S. shale boom currently faces free fall mode with the global price of oil plummeting, McClendons company appears to be repeating the ways of its precursor, Chesapeake Energy, by going full-throttle into land grab mode. Most recently, Bloomberg reported that sources say American Energy Partners may soon buy up Freeport McMorans acreage in Californias Monterey Shale, a basin whose oil-producing potential was downgraded by 96-percent by the U.S. Energy Information Agency in May 2014.Bloomberg also reported that American Energy Partners has relied on low-rated rated junk debt bonds as capital to finance its land buying spree, graded Caa1 by Moodys, which Bloomberg described as a level thats seven steps below investment-grade and indicative of very high credit risk.Prices on $1.6 billion of speculative-grade bonds sold by the upstart exploration firm of former Chesapeake Energy Corp. chief Aubrey McClendon have plunged as much as 19 percent since being issued in July, wrote Bloomberg.In the history portion of its website, Chesapeake calls the period between 2003 and 2007 its Executing the Land Rush Plan phase. During this time, we rapidly increased our acreage positions in these unconventional plays as we won what we have called the gas shale land grab, says the website. We believed that by winning this land grab, we could establish Chesapeake as the premier U.S. natural gas producer for decades to come.McClendon has also publicly stated that flipping land is more profitable than selling gas. 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, he once said on an investor call.An Exhibit found within court records from the Murray v. McClendon case shows American Energy Partners has posted newspaper advertisements reading We are drillers, not land flippers!, likely an attempt to differentiate the new start-up company from the past deeds of Chesapeake Energy. Yet, the content of the American Energy Partners lease served to Murray Energy, the companys current on-the-ground activity nationwide and McClendons Cheasapeake Energy land grab track-record tells another story: that of another land grab well in the making.By Steve Horn Cross-Posted from That lease doled out to Murray Energy Corporation set off legal alarm bells for the Murray legal team. Murrays attorneys argue that the lease completely undermines the McClendon teams discovery-related legal case, while also cutting straight to the heart of what their legal complaint centers around: McClendons use of the name American Energy. Murrays legal team argued that the content of the American Energy Partners lease itself could cause potential and actual confusion about the American Energy name and which company is which. They pointed to numerous examples of such confusion both in the September 9 Motion to Compel Discovery, as well as in a more recent October 13 Motion in Opposition to the Protective Order and an accompanying exhibit.Lease Allows Fracking and Waste InjectionThe American Energy Partners lease itself is 11 pages long and Radow -- author of the article, Homeowners and Gas Drilling Leases: Boon or Bust?, published by the New York State Bar Association Journal -- says it is more harmful to land-owners than an earlier lease doled out by Chesapeake Energy. Radow supplied DeSmogBlog with a copy of a Chesapeake Energy lease from December 2009 for sake of comparison.Radow pointed out two big differences between the December 2009 Chesapeake lease and the June 2014 American Energy Partners lease.One significant addition to this lease involves the right to suspend payment of royalties to a property owner with a prior mortgage until a subordination of mortgage is delivered in a form acceptable to American Energy obtained at the cost of the property owner, Radow told DeSmogBlog via email. Educated mortgage lenders are well aware of the risks to their mortgage collateral associated with hydraulic fracturing and will be unlikely to subordinate their interests to the gas company. If they do refuse to deliver a subordination agreement, this clause gives the gas company a free pass on drilling a mortgaged property without paying royalties.The other main addition to the June 2014 version: it permits injection of hydrocarbon related substances from any source on a homeowners property for payment of just $1,000 per month.Once the lease term expires, if no drilling operations are in effect, American Energy has the unilateral right to extend the lease indefinitely to use the subsurface to inject waste, explained Radow.One possible effect of this clause is to entitle American Energy to sign leases on properties with existing wells and only use that property for deep well injection of waste. Without fully understanding the ramifications to a drinking water supply of injecting toxic and radioactive waste below a persons family residence, this unregulated practice could potentially transform a residence into an property unsuitable for habitation.Radow also cited the risk of earthquakes caused by fracking waste injection in Ohio -- and beyond -- and the loss of value that could impose upon a home.Homeowners insurance does not cover hydraulic fracturing operations and the lease has no provision for insurance, commented Radow. Even if the homeowner, at its expense, or American Energy, at its expense, were to purchase earthquake insurance endorsements to their existing coverage, it is not at all clear that the added insurance will cover manmade earthquakes.Junk Debt Fuels Second Land GrabWhile the U.S. shale boom currently faces free fall mode with the global price of oil plummeting, McClendons company appears to be repeating the ways of its precursor, Chesapeake Energy, by going full-throttle into land grab mode. Most recently, Bloomberg reported that sources say American Energy Partners may soon buy up Freeport McMorans acreage in Californias Monterey Shale, a basin whose oil-producing potential was downgraded by 96-percent by the U.S. Energy Information Agency in May 2014.Bloomberg also reported that American Energy Partners has relied on low-rated rated junk debt bonds as capital to finance its land buying spree, graded Caa1 by Moodys, which Bloomberg described as a level thats seven steps below investment-grade and indicative of very high credit risk.Prices on $1.6 billion of speculative-grade bonds sold by the upstart exploration firm of former Chesapeake Energy Corp. chief Aubrey McClendon have plunged as much as 19 percent since being issued in July, wrote Bloomberg.In the history portion of its website, Chesapeake calls the period between 2003 and 2007 its Executing the Land Rush Plan phase. During this time, we rapidly increased our acreage positions in these unconventional plays as we won what we have called the gas shale land grab, says the website. We believed that by winning this land grab, we could establish Chesapeake as the premier U.S. natural gas producer for decades to come.McClendon has also publicly stated that flipping land is more profitable than selling gas. 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, he once said on an investor call.An Exhibit found within court records from the Murray v. McClendon case shows American Energy Partners has posted newspaper advertisements reading We are drillers, not land flippers!, likely an attempt to differentiate the new start-up company from the past deeds of Chesapeake Energy. Yet, the content of the American Energy Partners lease served to Murray Energy, the companys current on-the-ground activity nationwide and McClendons Cheasapeake Energy land grab track-record tells another story: that of another land grab well in the making. ift.tt/1gB4pon
Posted on: Fri, 17 Oct 2014 03:25:35 +0000
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