Longform

Fear and Fracking in Southlake

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The frustration in her voice was obvious, and though she tried to speak generally, it was clear she was talking about Southlake. But there is perhaps no better evidence of a suitor spurned than the industry shibboleth-laced letter she sent out to Chesapeake's Southlake lessors earlier this month:

Dear Mineral Owner:

The City of Southlake recently approved a new municipal ordinance regulating natural gas operation within the city limits. As a direct result of that ordinance, Chesapeake will not be seeking any permit approvals and will allow the last of our nearly 1,400 leases in Southlake to expire.

Although we appreciate the careful consideration given during the ordinance process, the City of Southlake placed unnecessary and restrictive conditions on doing business in their city, restrictions no other municipality has imposed.

Chesapeake has received a large number of calls from mineral owners asking if we plan to challenge the ordinance. Unfortunately, our answer is "no." With so many other attractive options in the Barnett Shale, and many cities either to work with natural gas producers to create jobs, increase tax revenues and support community development, we will simply shift our efforts elsewhere.

As shale plays in other parts of the country create a demand for our limited number of rigs, we must make difficult decisions about which areas to develop and which to forgo. On behalf of Chesapeake Energy, I am truly sorry that we don't have the opportunity to produce your minerals. We will continue to lead the path toward U.S. energy independence as we fuel the economic engine right here in North Texas.

Thank you,

Cordially,

Julie H. Wilson

It was a long way of saying: You just regulated yourselves out of the gas business. The question is whether Southlake can take at face value that assertion, that it had just denied itself a gusher of royalties that could buy new fire engines or new computers for the town's sterling schools. Or was it a low blow for the benefit of Chesapeake shareholders, dealt by a company that invested God knows how much into Southlake and got hosed not by regulations but by gas prices that had sunk as deep as the Ellenburger formation?

"I do know that many of the folks who received that letter, their leases already expired," Terrell says. "Like, a year and a half, two years ago. I'm not sure how much posturing that was versus reality."

But there was an inescapable truth in that letter: What happened at Southlake Town Hall was merely a symptom of the broader difficulties energy companies encountered as they sought to exploit shale gas in the suburbs and cities of North Texas. Instead of dealing with one or two ranchers, plus the Railroad Commission and the Texas Commission on Environmental Quality, they were dealing with both agencies, the ordinances of municipal governments and hundreds if not thousands of small landowners. Coupled with a glut of shale gas depressing the market, it acted to slow the breakneck pace of gas development or, in the case of Southlake, to bring it to a complete halt. Meanwhile, rig counts on the Barnett Shale have dropped to around 50, down from more than 200 in its 2008 heyday.

Given tanking gas prices and bullish oil prices and all the headaches found in the Barnett, companies have begun asking themselves: "Why even bother with towns like Southlake?"

Especially when there's a new place to go drilling. With the price of oil still edging near $100 a barrel, the oil-producing, sparsely populated Eagle Ford Shale, in South Texas, has risen to preeminence as the Texas playground. For now, the energy companies will lick their wounds, cut their losses and move south. If the price of gas bounces back, maybe one day they'll return. Maybe not. Either way, they'll do well to remember one thing, as Kim Davis put it: "You drive around Arlington and Fort Worth, and these gas wells are right next to apartments and playgrounds. It seems like when people are educated and have a little more money, they stand up."

Put another way: Welcome to Southlake.

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Brantley Hargrove

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