Chesapeake in Jefferson County, Ohio, Offering One-Year Lease Renewal

Our five-year lease with Chesapeake is due to expire in June.  Chesapeake has the option to renew automatically for three years by repaying landowners in our group the signing bonus (the exact amount that covered the first five years of the lease).  One of the members of our group (not us) has been approached by Chesapeake to renew for one year only, and I am assuming it's at 1/3 the price/payment.  Has anyone else in Jefferson County, Ohio, been approached and offered the same deal?  I am wondering whether Chesapeake could be doing this because they don't anticipate getting back the results of the seismic survey in time, that is, before the majority of their local leases expire.  Please share any thoughts or additional info about renewal offers or seismic survey results in Jefferson County that you may have.  Thanks.

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The likely reason they would do this is to secure the lease with the smallest amount of cash possible, possibly because the lease may be collateral on a loan. 

If they are in acquisition talks, that could sour the deal, or if they are not, they are buying time for the market to recover, again, with the smallest amount of cash possible.

Consider this. Maybe Chesapeake is looking for a buyer and would like to have something under lease to sell.

I figure Ohio is like a hot potato right now, with that Hope Fellowship Church vs Chesapeake Complaint having roots in the Ohio RICO Act. Couple that with no royalty payment for NGLs, it spells out R I C O Indictment.

This all equates to serious prison time. Someone is going to have to pay for Ohio's losses.

Like someone I once met who said his son started out at Penn State and ended up in the State Penn.

It's highly probable that doing anything to get to the White House will lead to a stay at The Big House.

We can only hope.

Our seismic survey was done in 2012 so I don't think that has much to do with it. We are with Ascent. They want to do 5 1 yr leases. Be careful as the first time they came they didn't really explain everything they wanted to change. They are weakening our Pugh clause, changing the wording of the operations clause and there was something else. They are pretty much trying to tie as much land up as cheaply as possible. Obviously, the changes benefit the oil companies and not the landowner. It seems several oil companies are offering the same thing from a few people I talked too.

Eclipse is doing the same thing here in Guernsey county. I would safely say it is merely the economics of avoiding paying the lease bonus as slowly as possible and avoiding paying for years that may become HBP, which would negate the requirement to pay the lease bonus.

I understand why it is being asked but I temper my considerations with the knowledge of how poorly landowners are being treated by the same companies basically now asking for a favor.

As with EVERYTHING you sign your name to, do yourself a huge favor and have it all vetted by an oil and gas attorney before you sign an advantage for you over to an advantage for them.

Anybody ever counter (successfully) with a 5 year lease with the bonus paid as installments over the 5 year term ?

That may work out better for the lessor if the E & P is waiting for the prices to go up before drilling - no ?

But, if the E & P's real objective is to HBP and drill during the 5th year - and throttle the production to some minimum - not so much.

Just thinking out loud a little here.


I like your question.  My knee-jerk reaction was that that'd be a great counter offer, but after a minute or two I realized that Chesapeake could well go bankrupt soon (our CHK stock is worth next to nothing already) and could find a way to hold you in the 5-year lease without having to pay the annual installments on it.  I know that sounds like it should be illegal, but Chesapeake isn't wont to follow the law in the first place.  I'm thinking that if we're approached, we'll insist on a three-year lease extension with a full-price signing bonus payment---basically, just hold them to their original agreement with its effective Pugh clause and all.  That may be the only safe thing to do, that is, if one could call any contract with Chesapeake "safe."

Reading you - and can only say that you and others such as yourself - all finding yourselves in similar circumstances - know far better than I pertaining to which lessee it may be with whom you want to do business with (and under which terms) - and that's for certain. 

I only wrote my inquiry from the perspective that you folks are already leased (but coming to term) and are contemplating the value of re-upping with the same outfit (but under modified terms).

Wishing all of you the best.

I told them I would sign with the initial signing bonus divided by 5 and it had to be guaranteed all five years and I would not sign any of there addendum's  They told us what they are offering is the best they can due in this gas market.  I told them we are not interested then.

Nice job!!!  You'll be glad you did this.  Don't let them give you excuses.  If they don't agree to the original terms, then they have to right to let it expire and then you can go to one of the many other companies.

"Eclipse is doing the same thing here in Guernsey county. I would safely say it is merely the economics of avoiding paying the lease bonus as slowly as possible and avoiding paying for years that may become HBP, which would negate the requirement to pay the lease bonus." 

This is probably the answer.  Why would they pay the bonus for all three years if they might HBP it in the next year?

One more interesting fact, when Chesapeake sold their WV holdings to another O&G company, the new company conducted the same theft as Chesapeake. I have a very reliable source that told me this fact, he said it's like he is still leased to Chesapeake.

So don't breathe a sigh of relief if your lease is sold to another company. I'm sure Chesapeake coaches them on all the ways that the landowners can be fleeced.

One more thing, some people in WV who were being paid for NGLs by Chesapeake stopped receiving royalties from the company that bought their lease. The NGLs must have either dried up (not likely) or Chesapeake is still removing the TOXIC NGLs for the new company. Free of charge of course.

I would not change the lease term signed in the original lease.

Pay up or go away.  If your land is worth drilling...they'll be back.


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