Posted  05/22/2010

Posted August 15, 2009

Summary  - BHTTNA/Chesapeake Meeting

Date:                August 13, 2009

Place:               Burton Hill Baptist Church

Guests:             Kevin Strawser, Public Affairs Supervisor

                        Chesapeake Energy

                        kevin.strawser@chk.com

                        817-502-5611

                        Steven Borum, Petroleum Landman

                        Steven.Borum@yahoo.com

                        817-386-9070

The purpose of the meeting was to discuss the status of the drilling process in the area represented by BHTTNA.  The following is a summary of the presentation by Chesapeake as well as information furnished in response to questions from those in attendance.

 Kevin Strawser made a Powerpoint presentation which included maps of the area and the drill sites pertinent to residents of BHTTNA.    He noted that because of the down turn in the economy this last year and the fluctuation of the price of gas, Chesapeake curtailed much of its leasing and drilling activity in order to assess its current leases and determine which drill sites to develop.  Two drill sites of interest to BHTTNA residents have been established, one to be known as Westworth Village and the other as River Oaks.  Drilling is scheduled to begin in two months at the River Oaks padsite and is anticipated to begin in the second quarter of 2010 at the Westworth Village padsite.

Leases

Most owners of property within BHTTNA signed a lease in or close to May 2007.  In addition to Chesapeake Energy, Four Sevens and other companies offered leases. Regardless of which company initially held the lease, Chesapeake eventually acquired control of all the companies involved and now holds 95 % of leases in this area.

The standard lease entered into by BHTTNA property owners provided for a primary term of 3 years and another bonus payment with the extension of a 2 year secondary term if an extension is needed.  If Chesapeake does not exercise its right to drill within the three years or, at the conclusion of that time, exercise its option to renew, the lease will be released back to the owner of the minerals.  A lease becomes active; i.e., no longer subject to expiration or an option clause, as soon as drilling commences.  It remains active as long as the well is active.

 Directional drilling cannot pass under property that is not leased nor can a drill site be within 330 feet of the property.  In the case of directional or horizontal drilling, a path must be found around the property not leased. This can result in blocking, or greatly increasing the cost of, drilling.  The purpose of the surveyors seen in the BHTTNA area during the last few weeks is to mark property boundaries so that drilling can be tracked by GPS.  In this way, property/mineral rights of individuals are protected and appropriate distribution of royalties insured.

.If a property owner has not yet signed a lease, Steven Borum is currently seeking to enter into leases on behalf of Chesapeake and can be contacted at the above email or telephone At this time standard leasing terms are $1,000 dollars per acre throughout the city.  Chesapeake, however, has been cleared to give a $2,500 dollar per acre bonus for the remaining leases in BHTTNA units.  Terms also include a 25% royalty.

Drilling

To date Chesapeake has drilled 1,517 wells in the Barnett Shale at a cost of approximately $3.5 million per well.  Of this number, 1,100 are producing wells.  It takes about a week to put down a padsite.  A well is drilled to 1.5 miles below the surface with lateral drilling ranging anywhere from 1,000 to 8,000 feet.  Drilling takes three weeks and is done 24 hours a day, seven days a week.  It costs approximately $25,000 a day to drill a regular gas well.  To mitigate against the noise of drilling, Chesapeake uses sound blankets to surround the drill site.  Chesapeake currently has 18 rigs operating in the Barnett Shale.

Wells are drilled through the water source for the Trinity River.  To protect against any possible contamination of the water supply for Fort Worth and surrounding areas, surface casing is cemented in place to 250 – 500 feet below the Trinity water source.  After the drilling is completed, production of a gas well must be stimulated by pumping a mixture of sand and water into the well.   This procedure, referred to as fracing, causes tiny fractures in the rock which allow the gas to escape.  Fracing is typically conducted only during the day and takes from 3 – 5 days to complete. 

The water used in the fracing process, as well as water naturally released from the rock as a result of production, comes to the surface and is stored at the padsite in tanks.  It is very salty and must be treated as a contaminated product.  It is disposed of in various ways such as trucking it to salt water disposal wells.  The Texas Railroad Commission oversees and regulates salt water disposal wells.  There is also a test program currently being considered whereby the waste products of wells can be treated so that it can be recycled.

After drilling is completed, the rig is removed, a small wellhead (referred to as “Christmas Tree”) remains, as well as tanks to store salt water.  The site is fenced and landscaped.

Flaring a well is done to determine the presence of natural gas and to ascertain how much gas is initially in the well.  This is one of the methods used to determine whether it is economically feasible to put in a pipeline.    Pipes can be laid underground or in trenches.  If trenched, they must have at least 4 feet of coverage.  No production can occur until the pipeline is in place.

Wells are monitored electronically from Chesapeake’s office in Oklahoma City.  They are monitored around the clock seven days a week and can be shut down instantly from that location.

Gas does not seep out into the atmosphere.  Unlike oil, there is very little pressure.  Further, when gas is removed from the shale, it does not create a void or pocket nor is there any connection between gas well drilling and the earthquakes recently experienced in Cleburne.  Earthquakes occur from a much deeper layer than that affected by drilling for gas.  Earthquake activity is not uncommon in and around Cleburne and is believed to result from a fault line, identified years ago, running from Oklahoma.

Drill Sites

Multiple wells, up to twelve, can be drilled from each padsite.  Every time a derrick goes up, a new well is being drilled.  The following two drill sites will be drawing minerals from leases held by BHTTNA residents.

Westworth Village:  This site is located on Hwy 183 across the street from the Westworth Village Fire Station

River Oaks:  this site is at White Settlement and Roberts Cutoff.  Drilling at this site is expected to begin September 29, 2009.

Residents of BHTTNA participate in one of three unitized or pooled areas.  The units are designated as Doug A, B and D, with Doug A being the east-most unit   A map showing the area covered by each is attached. [Note:  This will be posted as soon as it is received from Kevin]  The size of a pool/unit is determined by the unitization provision stated in the leases.  The lease states the number of acres that can be unitized.  The most restrictive lease in the unit determines the maximum size of that pooled area.

Doug A:  This unit is made up of 220 acres on the east side of BHTTNA.  In total, Chesapeake plans to drill four gas wells in this unit from the River Oaks padsite.

Doug B:  This unit is adjacent to and west of Doug A.  It is made up of 150 acres and current plans call for two well to be drilled from the River Oaks padsite.

Doug D:  This unit is adjacent to and west of Doug B.  It is made up of 150 acres; current plans are to drill four wells in this unit from the River Oaks padsite.

[Note:  Additional wells may be drilled on these padsites but will not draw minerals from BHTTNA property owners]

Production from a well can only begin once a pipeline is in place.  Currently, Chesapeake is in negotiations with the Corps of Engineers for a permit to install a pipeline under the Trinity River which will service the River Oaks and Westover Village padsites.  Chesapeake will notify lease holders when a well goes on line and will keep BHTTNA updated with regard to the various stages of drilling, fracing, and connection to the pipeline.

No trucks or pipeline will go through the BHTTNA area. 

There was some discussion in 2007 of locating a padsite across the street from Quick Sak on a lease identified as the Van Cliburn Addition.  This property is under the jurisdiction of Westover Hills and subject to restrictions that make it unlikely that any development will occur at this location.  It is expected that this lease will be allowed to expire.

Production/Payout

Wells drilled to date in the general vicinity of BHTTNA have been strong producers.  Such wells can be expected to produce for 20 to 30 years.  The best production and, hence, the most payout will be in the first five years.  A very complicated and detailed formula is available for calculating payout, but the amount of monthly distribution depends almost totally on the market price of gas and, of course, the cubic feet of gas produced per day.  A ballpark estimate of monthly payout is $25- $75 per well.  Individuals can expect to start receiving checks approximately three months after the wells are connected to the pipeline.

Mineral Rights

In buying or selling property, ownership of the mineral rights is negotiable. Persons who purchase or sell property must specifically purchase or sell the mineral rights.  A lease of mineral rights relating to that property follows the minerals; i.e. whoever owns the mineral rights has the gas lease.

A purchaser of property who acquired the mineral rights should contact Chesapeake in order to update the records so they will receive correspondence relating to the lease including royalties on any production resulting from drilling activities.  A seller of property who retained ownership of the mineral rights should contact Chesapeake to update the address to which correspondence and/or royalty payments should be mailed.

Except for property bordering on Burton Hill, mineral rights of properties under lease extend to the middle of the street(s) on which the property is located.  This is reflected in the calculation of the amount of land under lease contained in the lease contract.  Mineral rights of the land under Burton Hill Road were retained by O.B. Leonard, the original owner and developer.

Playground

At the current time, there does not appear to be a written record of an agreement by Chesapeake to make a donation of a playground to BHTTNA.  They, as well as BHTTNA, are searching their records for information about whether an agreement was entered into and, if so, the terms of such agreement.

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