D/FW Lease Pays Off

Dallas/Fort Worth International Airport said Friday it got a check for $185 million as it completed a deal to allow Chesapeake Energy Corp. drill for natural gas on airport property.

That's $4 million more than the airport had expected when it first announced the bid in August.

Industry observers say the deal was one of the sweetest ever signed in the North Texas Barnett Shale natural gas field - and all the more so because Chesapeake was the only company that bid.

Insiders said Chesapeake had made it clear that it would bid aggressively. Plus, the airport set very specific standards on drilling and pipelines, and on partnerships with women- and minority-owned businesses, that made the deal less attractive for some players.

"The terms in the lease agreement are pretty onerous. It's thick as a phone book," said John Pinkerton, chief executive of Range Resources, which had considered bidding on the deal.

That didn't stop Chesapeake, an independent Oklahoma City oil and gas producer.

"The D/FW lease itself represents a significant opportunity to explore one of the largest remaining contiguous prospective areas in the natural gas rich Barnett Shale," Chesapeake chief executive Aubrey McClendon said in a press release Friday.

Chesapeake will also give the airport royalty payments worth 25 percent of the value of the natural gas the company produces on the airport's 18,000 acres. That's in addition to the $185 million bonus payment, which is about a third of the size of the airport's entire annual budget.

D/FW said Friday that Chesapeake also agreed in the natural gas lease to allow firms owned by women and minorities to invest in the project. Such firms would own more than 20 percent of the drilling project.

Also, Chesapeake agreed that 39 percent of the subcontract work would be performed by businesses owned by minorities or women.

Several industry insiders said rules about women- and minority-owned business partnerships made the deal more difficult.

"It's kind of like a marriage. ... You're in the oil and gas industry, prices go up and prices go down, you need a partner you can live with for 25 years," said Range Resource's Mr. Pinkerton.

Others shied away

The airport published a list in March of 10 potential bidders, including big Barnett Shale producers Devon Energy Corp. and XTO Energy.

Other companies on the list: Shell Exploration & Production, Encore Acquisition Co., EnCana Oil & Gas, Harding Co. (which has a partnership with Exxon Mobil Corp.), Williams Production Gulf Coast LP, and Chief Oil & Gas, which was recently bought by Devon.

Officials with Devon and Encore said the deal wasn't right for them, but declined to say why. Shell declined to comment.

Too risky

"It's not a proven area," said Mr. Pinkerton of Range. Few wells have been drilled in that particular corner of the Barnett Shale play.

He estimated the deal would require about $500 million in investment.

"If the project works, it's going to be a very good project for Chesapeake. The question is, will it work?" he said.

Further, word got around that Chesapeake would bid aggressively, according to Mr. Pinkerton and other industry insiders.

"I commend the airport. Their timing was impeccable. With gas prices down, I doubt, if they rebid that thing, they would get that again," he said.

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