Chesapeake Energy Corporation (NYSE:CHK) closing the gas loop
A gas royalty payments state senate hearing that was held early this summer sparked some confusion. A question and answer session between Rep Tina Pickett and the Marcellus Shale Coalition’s attorney, George Bibikos resulted in the revelation that Chesapeake Energy Corporation (NYSE:CHK) is selling gas to itself. Bibikos was representing the gas-industry trade group.
When Pickett asked him if the point of sale was a valid one and whether they were selling gas to themselves, Pickett was caught off guard but eventually answered that as long as the transaction is an arm-length one, CHK does sell gas to itself. Bradford County is the most –drilled region in the state of Pennsylvania and this topic about where the gas is sold and how the sale takes place, has become one of the hottest topics of discussion here.
Allegations from landowners
A large number of landowners here have alleged that Chesapeake, the biggest drilling company in Pennsylvania is cheating them out of the royalty payments that are due to them. The landowners have stated that the company is charging them improperly for the cost of moving the gas from their wells into the market. They are saying that the “post-production” fees are prohibitive and not accounted for properly. These include expenses such as pipelines, transportation and compressor stations.
The gas marketing web
Though the company had been invited for the meeting, no CHK representative attended it. There have been similar discrepancies regarding Chesapeake Energy Marketing, a 100%-owned subsidiary of Chesapeake Energy. The company has constantly refused to comment on these widespread allegations regarding underpayment of royalties.
The only clarification or explanation that has been forthcoming from them is that as the operator, the gas is sold by the company to CEMI after which it is marketed to the end user or utility. The company says that in effect, they are not selling the gas to themselves and generating profits from it.