Is this a rotten deal?

WARREN

For 7,000 property owners in Mahoning County, 7,000 in Trumbull and 450 in Columbiana whose “deep” mineral rights were transferred June 26 from Everflow Eastern of Canfield to Chesapeake Energy of Oklahoma, the result could be — eventually — higher royalties for the property owners than they now receive.

But having Chesapeake in possession of rights to the Utica shale formation won’t be as lucrative for the property owners as those who sold their mineral rights to BP America this spring, said Atty. Mark Finamore, who represents several townships and villages as well as private-property owners.

Rights to the Utica shale are sometimes referred to as “deep rights” because the Utica shale formation is lower in the ground than the Clinton shale, which Everflow has been mining in the Mahoning Valley for several decades.

Chesapeake bought the deep mineral rights to 28,000 acres for about $35 million from Everflow in February, according to a filing with the U.S. Securities and Exchange Commission.

It is not known how many of those 28,000 acres are in Mahon- ing, Trumbull and Columbiana counties. Calls to Everflow regarding the leases were not returned, and Chesapeake declined to comment.

“There’s no negative impact, no disadvantage to them for their rights being assigned” to Chesapeake, Finamore said of the property owners.

In fact, the transfer will be a “windfall” because if and when Chesapeake begins to drill on that land using horizontal fracturing, it’s likely that the company will be able to extract a much larger amount of gas and oil than Everflow could using the older vertical form of drilling, Finamore said.

The terms and conditions in the original leases with Everflow transfer to Chesapeake, Finamore said, including the percentage of royalties being paid — in most cases 12.5 percent.

The Everflow property owners won’t get a signing bonus such as the BP owners got, Finamore said. They received their signing bonus when they signed their lease — typically $100, Finamore said.

BP, conversely, is paying its property owners a signing bonus of $3,900 an acre on the 84,000 acres it has leased in Trumbull County. BP is paying its property owners royalties of 17.5 percent.

Those people who signed leases with Everflow didn’t know at the time that technology would make it possible for drilling companies to use horizontal fracturing to extract oil and gas from the much deeper Utica shale layer, Finamore said.

They made the best deal they could at the time, but their leases — some as old as 25 years — will prevent them from getting the kind of money the BP property owners are getting, Finamore said.

Two of the leases for the Everflow property owners obtained at the Trumbull County Recorder’s Office gave Everflow and any company buying the lease the right to extract minerals “for five years and as long thereafter as operations are being conducted on any such unit or oil or gas can be produced in paying quantities.”

If a property owner wishes to, he can try to argue that his lease should be canceled on the grounds that the well is dormant. Short of that, the lease allows the drilling company to keep the mineral rights for an indefinite period of time, Finamore said.

“As long as operations are being conducted and gas and oil can be produced ... their lease goes on in perpetuity,” Finamore said.

Trumbull County Recorder Diana Marchese said most of the leases transferred to Chesapeake June 26 involved Everflow but possibly not all.

The recorder’s office reported that the title work on the leases produced the largest single fee ever charged in Trumbull County for a title transfer — $34,159 — and took several employees two weeks to complete.

In Trumbull County, most of the leases are for land in the townships of Warren, Weathersfield and Howland, but there are some in Bazetta, Champion, Liberty and Lordstown. Many of the parcels are small — in many cases only a quarter of an acre, records show.

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Permalink Reply by Frank Nesmith on August 2, 2012 at 2:41am

I'm so glad to hear that Sage59. The biggest problem I have have seen is the bullying and refusal to budge by Chesapeake. They talk a big game and then throw knives the second you trust them. I know people that thought they were great and signed 96 acres with them, only to turn around and see only 1 of those acres put into a unit. If they can screw you, they will. There are so many companies out there that operate in good faith. Chesapeake gives drilling a bad name for all of them. I sure hope people wise up soon and hold out. There is no harm in holding out now, and for a very long time. Gas prices are down. The waiting game seems to be the best one for now. Best of luck to you. 

My sister is in Bradford County and CHK is going to each town now and having meetings with landowners and trying to bully them into all going to 1280 production units. If that isn't bad enough, now she tells me that they will only pay royalties every 6 months and up there, their investments are so thin with other companies owning a part, they are getting so little money. I'd like to see everyone hold a hard line until they finish shooting themselves in the foot and either sell to a good operator or go bankrupt and someone else gets the leases at a fire sale. What they are doing everywhere makes all of us that are pro-drilling look bad.

Permalink Reply by Kathi Albertson on August 10, 2012 at 11:32am
I have been following this discussion and wonder if a land owner group was formed. My neighbors and I think that we might be in a similar situation some day if the state of Ohio signs leases to drill in state parks from adjacent properties. We would like to learn from your experience and wonder how things are going for your group.
Permalink Reply by Dan on August 2, 2012 at 3:56am

The discusion is comparing leases with rights sold.  If rights were sold why would royalties be paid?  Is this the case or a mis-quote or is the atty. clueless? 

 

"But having Chesapeake in possession of rights to the Utica shale formation won’t be as lucrative for the property owners as those who sold their mineral rights to BP America this spring, said Atty. Mark Finamore,"

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on August 2, 2012 at 4:06am

I think he meant those who leased their rights to BP.  He either misspoke or is totally unfamiliar with the most basic premise of how the oil and gas industry works.

Permalink Reply by Dan on August 2, 2012 at 4:16am

Kinda of scary............if I were a landman trying to buy the rights outright, this quote would be in my work folder today.

Permalink Reply by James Kerns on August 2, 2012 at 4:25am

Obviousley the quoted atty. was either misquoted by the writer, or he mixed the terms leased and sold, maybe an honest mistake, maybe he is inexperienced in O&G and showed his ignorance. Trumbull county ALOV LEASED to BP.

The excellent idea brought up is for landowners hbp or those simply leased long ago , not drilled, and not having the lease doc. released at the county courthouse, either case, they should form groups and get an experienced attorney to re-negotiate. Everyone should try to get the word out quickly to everyone who has land, before it's to late. It's already been proven here, you must stand together or fall individually.

Unitization clause restrictions might be the only tool available to be used to get better terms, also a forensic audit of your old lease might turn up more ammo for the fight.

Too many people balk at shelling out money for attorney's, and in most cases the consult is free. Just be sure you completely understand what terms you come to with the attorney and limit the fee's, no blank checks, per se and no percentage of Bonus money or royalty to the blood suckers, er i mean atty..

Permalink Reply by Dan on August 2, 2012 at 4:59am

James,

I agree with "before it's too late".  We may have recently lost some of our rights due to not getting papers filed in time.   

I used to own land in WV that had an old storage lease.  Our attorney tried for three years to find if and where the annual lease payment was.  The leasee never replied.  The land comprised within the original lease has been split many times over the years.  I never thought twice about it back then, but now I often wonder if the current land owners had recently received payment for storage which upon cashing the check would reactivate the old lease to again hold them.   

Permalink Reply by Frank Nesmith on August 2, 2012 at 5:22am

These people need to act fast and for goodness sakes, get a lawyer.

Chesapeake reminds me of Wimpy. I'll gladly pay you Tuesday for a hamburger today!

Tuesday never comes with them. That's why I am glad I never dealt with them. People need to know that CHK is broke. Even they admit it, so the promise of 12.5% may never come. They made a lot of promises to leaseholders and even their subcontractors and backtracked on a lot of them. For the life of me, I don't know why some people don't see this. I sure hope they act fast and do whatever they can with their old lease terms to get more and get good terms or CHK will hold their property forever and never pay them a dime. Most likely, this was yet another ploy to get land to sell to China, or whoever else they are trying to lure in now.

Permalink Reply by Sage59 on August 2, 2012 at 5:50am

I agree James. ALOV leased to BP. Chesapeake bought our old leases as written. Thousands of old leases. They have the right to adhere to the terms in that lease as originally written, or renegotiate a new one with each landowner that has a Unitization clause restriction in their existing old lease. It is our right to renegotiate a new and useful lease with Chesapeake, or whomever they sell us to. A lease is useless to them if it does not allow a property to be joined with another to form a 640 acre unit for a horizontal utica well. CHECK YOUR LEASES for a unitization clause. My lease is very standard for an old lease, and it has an 80 acre limit. It took me 5 minutes to find it myself. A friend of mine has a 160 acre limit, and his lease is nothing special either. At the time the O&G companies must not have seen the need for larger units. A good business relationship results from honest negotiation. The only way we will be able to negotiate better terms, within reason, for ourselves and our families is by forming a group similar to ALOV. As a group we will not be able to be coerced into thinking we have to agree to their terms only. They will not be able to ignore Mahoning and Trumbull county as we are a large, valuable, and necessary commodity to the O$G industry. Check your leases and talk to your friends also.

3uq96odaochmjPermalink Reply by 3uq96odaochmj on August 7, 2012 at 12:50pm

unless the legal definition of "held by production" is changed by either the courts or state legislature..........nothing can be done. 

Permalink Reply by James Kerns on August 7, 2012 at 6:25pm

Hello Jasper, Hello to all, Thanks to all who are helping to keep this site relevant, and i feel we all need to work harder to reach out to our friends and neighbors who don't use the internet, to keep them up to speed.

"Held By Production" is generally accepted to mean hydrocarbons are being produced in paying quantity's, commercially viable, not just a trickle of house gas and a slug of brine water through the flow line once a day.

If you go out to your well head and have less than 40 lbs of line pressure on the tubing or 80 lbs on the casing, you dont have much of a well. If you look at the chart in the chart box and the red pen line is a fairly faint, consistent line around the chart, you aint got much going on there. A good gas well, the red pen has multiple  curved red spikes per day going off the chart. Think of it like a heart monitor at the bedside of someone in the hospital. you want to see some action out of that red pen.

 The small operators out there have been sitting on these old wells for decades with very little activity worth bragging about, but they knew this was here under us, they just had to wait until conditions were right to make it worth the expense involved in drilling for it. I recall classroom discussions about it back in the early 1980's. Now the oilmen run out there and get a service rig in on that old well and do a hot water treatment on the well, swab it out and re-work whatever equipment that needs repair, to get one last bit of production out of it, so they can cash in at your expense, because now it's HBP.

They send a guy out there with five gallons of green paint and pay him to paint everything so they can say they are still operating the well in good faith, to HBP.

Stop blowing smoke up our backsides here you die hard company men, cause i know all the little games, i used to work in the industry, but it left a real bad taste in my mouth and i searched out greener pastures.

The implied intent, the covenants, in the old leases the landowners signed, is what will be argued in court. In any event the pooling clauses limiting unit size to 40, 80, or 120 acres in those days was due to the state's min. spacing standards back then which related to the depth of the well and percieved drainage area down-hole. The 1/8 or 12.5 % royalty was pretty much standard as well in ohio anyway, which was pretty good all things considered. It cost less to drill the vertical only wells, recovery was limited to the frac.program length based on formation thickness, porosity, permeability, and geology of those shallower formations.

It's obvious this is a whole new ballgame when a horizontal frac string can run 5,000 to 7,000 feet on each one, with several possible from one pad. yes and in many cases property has changed hands, so why would we not wish to have justice be done by proper releasing the old leases when a well was not drilled, or a well was plugged, or should have been plugged, and have a chance to re-negotiate.

The actions by many of these good old boys and their shallow oil and gas well company's is nothing less than fraud and theft.

One side want's to wag their finger and say the landowner is being greedy, but the landowner in most cases owns those mineral rights, and they have worked that land and worked to hold that land, hoping one day they would get their blessing for doing so.

The people standing on the sideline with no skin in the game want to call us greedy, but they have no problem with seeing the legislature unjustly tax us and steal it all right out from under our noses to fund their pet projects.

And all the while the fractavist's, lawmakers, lawyers, politico's and other suburbanite type's keep driving their big pretty 8 MPG trucks and SUV's, that never have had mud on the fender or sweat on the seatbacks, to the office, then to the gym, and whatever, and all the while maintaining that "Not in MY BACKYARD" Mentality about oil and gas production, oh my what a mad, mad world we live in. 

Permalink Reply by william r rinehart on August 8, 2012 at 5:14am

James,

I cannot agree with you more. We purchased property, onlt to find that a shallow well driller held the minaral rights to our property, we own the rights but are hdb. The best part is Devon is drilling a well on the property next to ours, and they have called wanting to know more about who own the rights. The well was on a farm 246 acres. The well sits across the street about a mile from our property, it has been there since 1972, it is hard for me to beleive it is propducing commercial amounts.  The tanks where rusted and leaking, but last week drove by there and the tanks now look brand new, painted.  The whole thing stinks to high heaven. Where would one find the chart your refering to, they have been paying the heirs to the oringial lease about $100 a year. I have own the property for 10 years.

Bill

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