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Austin attorney Glenn Johnson has Barnett Shale natural gas drilling figured out. Arguing before the three-member Texas Railroad Commission on behalf of Chesapeake Energy on Monday, Johnson said, "The commission has had problems because people in the Tarrant County area don't understand oil and gas and unfairly criticize the commission."

So, whatever is wrong is our fault? Maybe some of us just look at natural gas drilling differently.

Johnson and the six other lawyers Chesapeake assigned to Monday's case are trying to manipulate oil and gas law so it better serves their client. Whether they are successful depends on how well the commission members serve the people of Texas.

Chesapeake wants to "force pool" properties for drilling in the Glen Garden neighborhood of southeast Fort Worth, south of Cobb Park and west of the Glen Garden Golf and Country Club. It would require property owners to take part in urban natural gas drilling, whether they like it or not.

Or, as Johnson put it, the company wants "to allow all these tracts to participate in the development of the well."

Regardless of what happens in this case, he told the commission, the well will be drilled. And, "our well will drain all the gas."

In Texas, there are at least two ways for gas companies to "force pool" properties into a drilling program. The most often used in recent years has been a commission "Rule 37" exception to requirements about where companies can drill.

Hearings examiner Jim Doherty told the commission "a lot" of Rule 37 exceptions have been approved in the Barnett Shale. Many are handled administratively without commission members being involved. Only when a property owner objects and travels to Austin for a formal hearing do matters become more complicated.

Under a Rule 37 exception, property owners who do not sign leases get paid nothing for their gas.

In the Glen Garden case, Chesapeake already has been granted a Rule 37 exception covering almost 200 acres, including the slightly more than 50 acres that were the subject of Monday's hearing.

Four wells were drilled and completed three years ago in the 150-or-so acres that were not part of Monday's case. They're already producing gas. Property owners who did not sign leases for those wells already have lost their gas without compensation.

In Monday's case, Chesapeake sought a different route for property owners in the remaining 50 acres.

Evidence in the case says four homeowners have not signed leases. I count seven, but the exact number doesn't affect the principles involved.

Johnson argues that Chesapeake is being generous to unleased property owners. "We're trying to give them money."

To do that, the company wants to pursue a second route to forced pooling, the Mineral Interest Pooling Act, or MIPA. Chesapeake would force unleased property owners to take, and pay for, ownership shares (what's called a working interest) in the well.

Working interest owners see a payout only after all the costs of drilling and completing the well are paid.

Last year, the company sent letters to unleased property owners withdrawing all previous proposals and offering them voluntary working interests. The price, based on the acreage of their residential lots, ranged from $12,487 to $27,482.

They were given 14 days to decide or the price would double, what's referred to as a "risk penalty."

Johnson said Chesapeake would "carry" the property owners who did not have the money to pay upfront, taking their investment and risk penalty out of their share of gas produced from the well. Hearings examiner Doherty argued that anyone who had taken that offer on any of the four already-drilled wells would not yet have seen a payout, three years after drilling was completed.

Still, the possibility of a payout under MIPA is a better deal for property owners than zero payout under Rule 37, Johnson said. "I just don't think the commission's policy is going to be that Chesapeake can't help these people."

That's an attempt to back the commissioners into a corner. Chesapeake's goal is to earn money for its shareholders, not give it away.

So, what's the real motivation for the MIPA case?

"This will help us," Johnson said under questioning from commissioners, "to convince people that they ought to lease."

In other words, if Chesapeake can get its desired ruling from the commission and establish this case as the MIPA precedent, the company has more leverage. If people don't accept the lease terms offered by the company, Chesapeake can bring another MIPA case. Eventually, it'll be routine.

And continuing to take gas without compensation under Rule 37 could open a window of liability for gas companies. How long will it be before the value of that gas builds to the point that a hungry lawyer files a class-action lawsuit seeking to recover it?

Mike Norman is editorial director of the Star-Telegram / Arlington and Northeast Tarrant County. 817-390-7830

Read more: http://www.star-telegram.com/2011/07/14/3222593/natural-gas-industry-changes-tactics.html#ixzz1SGt8gRnA