Geology Reference
In-Depth Information
declines have been in the Fayetteville Shale in central Arkansas and the Haynes-
ville Shale in Louisiana and Texas.
Some firms have shut down existing wells and halted new investments; others
began to shed assets and retrench to pay down debts. By early 2013, Chesapeake's
stock price had sunk, a raft of governance issues had caused the Securities and
Exchange Commission to investigate the company, the board was shaken up, and
Aubrey McClendon was removed as chairman. In an effort to raise $14 billion
quickly, the company took an emergency unsecured bridge loan of $4 billion at 8.5
operations in west Texas to Chevron and Royal Dutch Shell—in great haste.
Smaller companies like Norse Energy Corporation—which leased drilling
rights to 130,000 acres in New York State, but was laden by debt and stymied by
regulatory delays—have filed for bankruptcy, and are attempting to regroup under
Chapter 11 protection.
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But many firms couldn't stop hydrofracking their wells even if they wanted to.
Saddled by complex financial deals and lease arrangements they struck during the
boom years, they are contractually obliged to proceed at full speed.
With the help of such Wall Street firms as Goldman Sachs, Barclays, and Jeffer-
ies & Company, the 50 biggest oil and gas firms raised some $126 billion between
2006 and 2012 and spent it on acquiring land and equipment, hydrofracking, and
building infrastructure. This was double the companies' capital spending as of
2005, according to Ernst & Young.
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In 2008, before it hit serious financial turbulence, Chesapeake Energy signed up
for aggressive “cash and carry” deals to help finance its growth. Plains Exploration
paid $1.7 billion for ownership of one-third of Chesapeake's ownership of drilling
rights it controlled in the Haynesville Shale. Plains further committed $1.7 billion
to underwrite Chesapeake's drilling costs, in return for a percentage of profits. But
while Chesapeake spent an average of $7,100 an acre on the drilling sites it leased
in the Haynesville, Plains paid Chesapeake the equivalent of $30,000 an acre, ac-
cording to the
New York Times
. The bankers who orchestrated the deal made some
$23 million on it.
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Drilling firms like Chesapeake, Petrohawk, and Exco Resources had also signed
“use it or lose it” leases with landowners, which required them to start drilling
within three to five years and begin paying royalties to the owner, or forfeit their
drilling rights. As gas prices dropped, they were forced to spend a lot more money
producing gas than they could sell it for; the economics no longer made sense.
