CX , Halcon, Landowner lawsuit status
Firm agrees with lease holdersBy Joe Pinchot 11/17/2013 12:00 PM
While one of the defendants in a lawsuit over gas and oil drilling says it did nothing wrong, it also accuses a drilling company of improperly reneging on leases to drill.
Meanwhile, the drilling company is attacking the lawsuit for perceived technical shortcomings.
The initial suit was filed Nov. 6, 2012, in U.S. District Court, Pittsburgh, by Jeffry S. Vodenichar of Butler, David M. King Jr. and Leigh V. King of Sandy Lake, and Joseph B. and Lauren E. Davis of Stoneboro, all of whom own land in New Vernon Township, against Halcon Energy Properties, which has leased property for gas and oil drilling.
The group, with additional plaintiffs Grove City Country Club of Pine Township and Richard Broadhead of Polk, who owns land in Sandy Lake Township, filed suit Feb. 22 in Mercer County Common Pleas Court against Halcon and Morascyzk and Polochak of Bridgeville, and Co-eXprise Inc., Wexford, both firms that market landowners’ interests to oil and gas companies in return for a fee from the bonuses paid to property owners.
A dispute over which court the suit should be heard in was ended in August by the U.S. Court of Appeal for the Third Circuit, Philadelphia, which ruled Mercer County court was the proper venue.
Earlier this month, Co-eXprise filed an answer to the suit, along with claims against the defendants and Halcon.
Halcon filed preliminary objections to the suit alleging Co-eXprise and/or M&P altered documents and staged a full-court press that salvaged many more drilling contracts than Halcon wanted to honor.
In the suit, which seeks class-action status, the landowners allege Halcon entered into contracts to lease up to 60,000 acres of oil and gas rights in Mercer County, the so-called “Mt. Jackson 4 – Stoneboro Group,” agreeing to pay $3,850 an acre and a royalty of 18.5 percent on the fossil fuels pulled from wells.
As part of the agreement with landowners, Halcon had no discretionary right to refuse to lease unless there was a problem with the property’s title or specified “other defect,” the suit said.
According to the plaintiffs, Halcon rejected a large number of leases without specifying reasons and, in many cases, without even doing title searches.
“In short, Halcon improperly cherry-picked leases,” Co-eXprise agreed in its answer.
Halcon has flatly rejected the argument, saying it had “the absolute right to refuse to lease the plaintiffs’ properties.”
Halcon said in a statement it rejected the leases because the properties were not close enough together for horizontal drilling, also known as fracking, a process where water and chemicals are injected under pressure into shale rock to free up the gas stored within.
Halcon said Co-eXprise and M&P modified documents in a way that precluded Halcon from leasing land; lied to landowners about Halcon’s right to refuse leases; and recruited landowners it knew Halcon would reject.
In its answer, Co-eXprise said Halcon “wrongfully and without justification repudiated its agreement,” refusing to honor leases with owners of 2,500 parcels covering 30,000 acres.
At a mass lease-signing on June 12, 2012, a Halcon official asked another company official whether Halcon had “to take all this stuff,” a reference to a computer screen image of the Mount Jackson Group parcels. The second official answered affirmatively, Co-eXprise said.
Halcon did not tell Co-eXprise of title defects or claim that the leases had been altered in an unsatisfactory way, Co-eXprise said.
The suit said Halcon rejected leases because orders for payment drafted by Co-eXprise and M&P “fraudulently” omitted the word “geology.”
Co-eXprise responded that it was not aware that “geology” had been removed and did not consent to it. However, the omission was “immaterial” and was not grounds for Halcon to reject a lease, Co-eXprise said.
“Geology” was a reference to the Speechley sandstone formation, Co-eXprise said.
In its preliminary objections, Halcon said Co-eXprise and M&P knew that Halcon did not have to lease any of the properties, and tried to salvage deals by reaching a compromise: that Halcon would lease half of the 60,000 acres at issue.
The other owners were left with the ability “to lease their lands to other companies that were more able and likely to develop their land,” Halcon said.
Halcon said it agreed to the deal to avoid costly and time-consuming litigation, a plan that apparently backfired.
Co-eXprise filed a claim against the plaintiffs in order to recover the transaction fee – 6 to 8 percent of the bonus paid by Halcon to landowners – it would have received if the leases had gone through.
It would be “unjust and inequitable” for the plaintiffs to recover money from Halcon without compensating Co-eXprise, Co-eXprise said.
Co-eXprise also alleged that Halcon bypassed it and entered leases directly with some landowners, breaching the agreement the two companies had.
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Replies to This Discussion
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Permalink Reply by JREwing on
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What I want to know now is if fracking good will adopt me. If he has property that's within ~1 mile of Allam and ~1 mile of Shannon, he owns about all of Sandy Lake township and most of Frenchcreek. LOL
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Permalink Reply by fracking good on
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Talking about eastern boarder of Sandy lake twp. into Venago Co.about a mile and western boarder of Sandy lake twp. into Lake township about a mile. Never said I own property in Sandy lake twp. J.R. dont you have enough money from your Texas play? or did you spend it all on Sue Ellen. lol
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Permalink Reply by owner on
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What scares me about what happeened in Mercer is, will the same thing happen in Venango county? I don't think you will see Halcon buying anymore property from any landowner groups until the Mercer County lawsuits are is settled. I also think that Halcon is short on money due to previous purchases and they want to get their wells online to help with the cash flow.
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Permalink Reply by JREwing on
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I see it as the proverbial chicken and egg scenario in both Mercer and Venango right now. Halcon doesn't want to drill more wells in Mercer/Venango until there is infrastructure to move and sell product and they don't want to build infrastructure until there are more producing wells to justify the cost. And round and round HK goes. For the moment, the path of least resistance(and cost)is southern Trumbull and northern Mahoning. It's going to be a waiting game here in PA imho. I think infrastructure build out in Mercer, and Venango for sure, is going to require a JV of some sort with a midstream co. Rumored cost of the Allam well has been upwards of ten million dollars or more. Would anyone in their right mind(even HK?) spend and another 30-40 million to get the product from one well to market? and with full ethane REJECTION to boot.
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Permalink Reply by fracking good on
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Already in JV with Williams for the pipeline project, Last I heard Halcon tried running pipe from Allam South to National Fuel but half way there the deal fell through, now they are running west with pipeline through Sandy lake twp. to get Allam into production. Halcon stock has tanked in the last 6 month and they need production numbers to reassure investors
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Permalink Reply by JREwing on
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Thanks fg. I didn't know about the JV. All the other stuff, yeah. All I know for sure is that if the last 18 months have taught me anything about the O&G business, it's to say "I'll believe it when I see it." I would be shocked to see actual pipeline construction next year. Every single inch of row that HK cleared in Venango, including the Armstrong facility property, has been seeded and mulched.
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Permalink Reply by owner on
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There is talk about a cryogenics plant in Mercer and it looks like Halcons pipeline is heading towards its propsed location. If that plant is built, Halcon will have the pipline straight into Venango County. Their sesmic testing in Venango County must have looked positive or they would not have drilled or propsed any wells in Venango. Halcon had originially planned on having a plant south on old route 8 but pipeline ROW's and enviromental problems seem to have stopped that. Everything takes time. We'll just have to wait.
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Permalink Reply by JohnL on
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Halcon is still recording ROW's in Sandy Lake TWP as of 10 days ago for the proposed 20 in line that they plan to tie in the TGP lines. I would think any plans that Halcon had for a Perry TWP processing plant would be dead by now due to the fact that they dumped most of their leases in that area to Shell. I agree with FG that Halcon is financially stretched to the breaking point and probably were when they signed the MTJ4 group. Halcon plans to run only 1 rig in 2014, sounds to me like they're struggling big time.
I drove by the McCullough/Chevron site this afternoon on my way home from work. Very impressive. Far more impressive than the Hilcorp rig on the James property. If you're local it's worth the drive by. I also heard that Chevron is planning to drill 4 wells on that site, only 2 permits filed so far.
jl
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