Artical about banks refusing to allow landowners from getting a lease? But we had Clinton wells forever...
jcocklin@vindy.com
BROOKFIELD
When Joyce and Kenneth Thomas were first approached by BP last July to sign an oil and gas lease on their 4 acres off Warren-Sharon road, they thought little of it.
But as negotiations proceeded with the oil and gas giant, it turned out the company was willing to send a small windfall in their direction, a signing bonus of $16,926 for 4.34 acres.
Five acres is usually required to drill and maintain a Utica well. But as drilling technologies have improved, operators are going deeper, requiring in some instances 40-acre tracts of land to lay down a well pad.
BP approached a neighbor of the Thomases, obtained an additional acre to make five, and everything was going smoothly.
“I thought, ‘They’re not going to put a rig on my property — I’m just a 4-acre peon,’” said Joyce, as she sat with her husband around the couple’s dining- room table.
In December, the neighbor received his bonus payment of about $13,000 — the Thomases are still waiting.
The problem is not BP; it’s the couple’s lender. Chase Bank refuses to amend the terms of their refinancing agreement to allow the lease to go forward, barring any future operations, even though BP has no specific plans for the property.
Now, Joyce, an office worker, and Kenneth, a steel worker, are unlikely to receive a dime from BP.
The rush of leasing activity and drilling operations across the Utica Shale play in Ohio has left many of the state’s residents wide-eyed, ready to jump on leasing opportunities at a moment’s notice, without realizing the complexity of such a long-term agreement.
Increasingly, a growing number of banks are reluctant to finance properties where oil and gas leases exist, nor will they consider issuing second mortgages on similar land. In some instances, lenders have even grown wary of financing a neighbor’s property, free and clear of any oil and gas operations, for fear of a decline in property value if a drilling site is nearby.
“It’s becoming wide-spread across the industry. Servicers and lenders are becoming more unwilling to approve a loan on these properties,” said Amy Bonitatibus, vice president of communications for JPMorgan Chase. “At the end of the day, we may not even own the loan. For instance, I know Fannie Mae and Freddie Mac are reluctant to buy mortgages under an oil and gas lease.”
Bonitatibus could not discuss the Thomases’ case specifically, but she confirmed that in most cases Chase Bank does not approve or allow oil and gas leases, mainly because of “the potential impact to the value of a property.”
For the Thomases, this likely means BP will give up on their lease, said Harrington, Hoppe and Mitchell attorney Tom Carey, who represents the couple.
“It’s a very rigid policy, and [Chase] does not make any exceptions; there should be exceptions, but the bank is choosing not to understand how all this drilling works,” Carey said. “It is more likely that the bank will get paid if the lease bonus goes through, but then again, to argue for the bank they then have to rely on the Thomases to send some of that money in their direction.”
Carey added that nearly all his legal options have been exhausted. He made a written appeal to Michael Samuels, of Chase Land Services, arguing that the drilling BP has planned in Northeast Ohio involves deep wells, which require more than 5 acres to maintain, making drilling operations nearly inconceivable.
Samuels, who wanted BP to amend its lease and exclude surface rights, the crux of nearly all leases that allows operators access to the property, wrote in an email to Carey that the bank does grant home-equity credit secured by collateral where surface oil and gas operations exist.
He added, however, that it does not do so after the fact in a situation such as the Thomases’ who were requesting approval for the lease after they received a home-equity line of credit from the bank in 2007.
Carey said he’s seeing more issues between lenders and borrowers. In some instances, banks simply sign subordination agreements that allow leases to go forward; in other cases, he said, the banks will not budge.
“We’re a drop in the bucket,” Kenneth said. “I don’t know if there will ever be a civil suit or something, but there has to be hundreds of people out there in the same situation we are.”
Curtis Thomas, BP’s director of government and public affairs in Ohio, said the Thomases’ problem is not isolated, and BP continues to try to resolve such situations on a case-by-case basis.
BP was unwilling to change its lease agreement, according to the Thomases, telling them that if it makes an exception for one landowner, it would have to do so for others too.
“I saw this happen in Pennsylvania on property that was encumbered by oil and gas leases; we saw lenders asking prospective purchasers to indemnify the bank for any damages to the property,” said Steven Franckhauser, director of energy at Hill, Barth and King, an accounting firm in Boardman.
“The reality is, the lease is a very important document, it stands to reason that the surface value is likely going to suffer if it’s subject to an oil and gas lease.”
Carey noted that larger national banks have been more reluctant to approve oil and gas leases, whereas smaller community banks are less concerned, having taken more time to understand the issues involved.
But James Thurston, spokesman for the Ohio Bankers League, disagreed, saying smaller banks are just as likely to protect their assets, because, he added, “at the end of the day, it’s the bank holding the paper.”
William Eiler, spokesman for Huntington National Bank, Youngstown’s largest bank by deposits, couldn’t share much insight on how the institution deals with oil and gas leases, saying only that each case is reviewed independently.
But Joe Gerzina, chief lending officer at Farmers National Bank in Canfield, said the bank has had no choice but to learn more about oil and gas leases and how they affect its assets.
Farmers, he said, has been very specific with operators, requiring them to outline what exactly will be done with the property.
Also problematic for the bank, Gerzina said, is the fact that it sells nearly 80 percent of its mortgages in the secondary market for better interest rates, where investors might be reluctant to make a purchase if the property is encumbered by a lease or drilling operations.
Often, if Farmers believes the lease will affect adversely a property’s value, the borrower may be asked to dedicate part of their lease bonus or royalties to the principal balance of any existing loan, especially for commercial borrowers, he said.
“It really comes down to this: We’re willing to take a look at the bigger picture. We’ve spent some time on this locally and we’ve been busy putting together unique agreements,” Gerzina said.
“Northeast Ohio is one of the most drilled-upon places in the country; there’s a lot of existing leases out there. In some respects, this is a new problem, but in others, it’s been out there forever.”
Other stories of interest
Campbell selects new superintendant of schools
Science Day brings out aspiring scientists at YSU
Mahoning flood prevention watchdog protects life and property
Views: 2556
Replies to This Discussion
-
Permalink Reply by Kathleen on
-
I've only lived in ohio for 18 yrs but the 1st farm we owned had a 99 yr lease on it and no one cared. Why are the banks caring now? Has this ever been a problem in the past with Clinton well leases?
-
Permalink Reply by Dan on
-
Kathleen,
We purchased a rental home last fall and thought increasing our HELOC home equity line of credit, secured with our residence, would be the quickest way to make the purchase. Our HELOC at that time was with a large Texas bank that we also carry our home owners and auto insurance with so an O&G lease was not an issue. Even though the bank gave us the HELOC in 2009 and appraised our home for twice the amount of the HELOC and they make us insure our home with a replacement cost policy of 8 times the amount of the loan amount, they sent an appraiser that said he could not appraise our home due to it's unfineshed state of construction. The exterior is 100% complete and 4 bedrooms, 4 baths, den, kitchen, kitchenette, office, laundry, pantry, workshop, garage and livingroom are all 100% complete. Out of anger we went to our locally owned bank where we have accounts and told them we wanted a equity line to purchase a rental home and bundle our current loan together. We told them upfront we had recently signed our property with an O&G lease. Our local bank looked at the O&G lease as a strong positive and as soon as the appraisel came back gave us the loan. Small locally owned banks make their own decisions and often hold the loans they generate in house and see the bonus money and potential royalties as not only a positive for paying the loan back but as good potential deposits. As soon as we received our bonus money we deposited it with them. As soon as we started receiving rents from the rental home we opened a checking account with them and deosit the rents. The money stays local and they have the money to loan local. Chase, Bank of America and other large banks could care less about us. If we all added banking local to trying to shop local our communities would be the stronger and leasing problems due to loans would be much less.
-
Permalink Reply by Kathleen on
-
Did you ask exactly what they considered unfinished :0).
All my loans in ohio have been from local banks since I've always found them cheaper and I liked the idea they weren't sold.
I am wondering though have these bigger banks ever cared about the Clinton well leases, or are they buying into the scare tactics printed in the press about Marcellus and Utica drilling?
I never read anywhere that someone was denied a refi or mortgage over a Clinton lease being attached to the property.
-
Permalink Reply by Dan on
-
The large Texas bank wrote us a loan on the same house two years earlier when it was only half finished. The appraiser they sent when we applied for the credit line increase was just to lazy to do his job because our house is large and unusual it is hard for them to find nearby comparables.
-
Permalink Reply by 0i7okn54zwbdo on
-
Except they don't always. Huntington bank was refusing to allow mortgages to be subordinated up until a few months ago. Now they charge landowners $500 just to look at amending the mortgage. That doesn't mean they will ultimately grant someone the right to lease, it just means they get $500 no matter what. Local banks are just as inept as larger ones.
-
Permalink Reply by dr j on
-
The BIG take home message here is this -selling mortgages on the secondary market. The secondary market has shown they are not interested in taking the mortgages with properties with oil and gas leases. Why is beyond me.... the property value argument is bogus in my experience. Banks that usually sell on the secondary market do not finance properties over 5 acres - because they can't sell anything other than a cookie cutter type mortgage. Properties under 5 acres will never have deep well surface activity. Meanwhile the 5 acre parcel could be next to a much larger parcel where the drilling actually does take place and while this may decrease the 5 acre parcel's property value, the lending bank has no control over what the neighbor's do with their parcel so what difference does it make if their client has an oil and gas lease AFTER they have already given them a mortgage?
Meanwhile if you are financing a larger parcel or a farm, the banks which sell mortgages usually will not finance you to begin with so it's a non-issue.
I agree with Dan - go with locally owned etc. And when the royalties roll in keep in mind who really is interested in understanding what is happening in our community and who is not.
-
Permalink Reply by Dan on
-
The really silly part of this is when the borrower doesn't even own the O&G rights under them and a third party does the bank doesn't know or care.
-
Permalink Reply by Misty on
-
Hi you all, I'm just providing you a update on my oil and gas lease offer. My mortgage is owned by Freddy Mac. 90% of mortgages in the US are. So, I would have to submit an application to have my gas and oil partially released, pay a $100.00 non refundable processing fee. I would need a geological map or survey from the oil and gas company to show where the drilling will occur in relation to my structure and a certified copy of the recorded oil and gas lease must be returned to the mortgage servicer. The approval process takes 30 to 90 days. If they find out that you have a gas or oil lease without permission you are in technical default of your loan. I am not signing any lease for my small .46 acre of land. I'm posting this for those of you with mortgages. Most people don't know there loans are owned by Fannie Mae or Freddie Mac.
-
-
"Most people don't know there loans are owned by Fannie Mae or Freddie Mac."
I'm pretty sure after 2008 everyone became very aware of Fannie and Freddie's role in their lives.
-
Permalink Reply by tom on
-
1. All of the sudden this seems to be a recent problem.
2. Remember, you picked your bank, they did not pick you for a customer. If they refuse to work for you, fire them and get a new bank. You can often move a loan to someone who is more agreeable and easier to work with.
3. This does not really seem to be a problem in other states.
-
Permalink Reply by Donald on
-
Am I missing something? how about ohio state law... froced pulling. if your not leased and they want your gas and oil, they can take it anyway. how does the banks fit into this? you get your royality but maby not as much as if you had negocated with the oil co. state law trumps the banks policys. or am I wrong?
-
Permalink Reply by Misty on
-
This really isn't a problem with my bank. A lot of banks sell loans to Freddy Mac and Fannie Mae. People don't always know that their loan has been sold. I wondered also about the forced pooling when you have a mortgage. Anyway, I have .46 acre of land and in my case there is not much money at stake so I will pass. It's not financially smart to refinance my loan in my case or even fill out the paperwork and pay the money to see if I meet the requirements through Freddy Mac to get my oil and gas rights released. So I wish you all the best in your oil and gas endeavors.
Top Content
Latest Activity
© 2024 Created by Keith Mauck (Site Publisher).
Powered by
