Dezember, Ryan. Wall Street Journal (Online); New York, N.Y. [New York, N.Y]26 Nov 2017: n/a.
The Federal Bureau of Investigation is looking into an eastern Ohio landowner's claims that oil-and-gas investment firm EnerVest Ltd. sold valuable shale-drilling rights on his property that should have been his to sell, according to people familiar with the matter.
The probe follows allegations made against EnerVest in a more than two-year-old civil case filed in Ohio's Guernsey County, where drilling into the prolific Utica Shale has made the state one of the country's top energy producers.
The case involves EnerVest as well as Ascent Resources LLC, a company started by the late oilman Aubrey McClendon and two big investment firms, which has delayed plans to drill the property because of the dispute.
Ascent has become one of the country's top natural-gas producers by drilling one gusher after another in eastern Ohio; it is preparing for an initial public stock offering or sale that could value the company at more than $3.5 billion. It acquired rights to drill some of the landowner's property from EnerVest in 2013 and started the civil case when it sued landowner Matt Crislip for access to the property in 2015.
At issue is a tenet of the oil-and-gas business in which a drilling lease generally remains intact only as long as a well is producing from the property, a concept known as "held by production."
While his dispute with Ascent was litigated, Mr. Crislip made a counterclaim against EnerVest, alleging that the 37-year-old natural gas well on his property in rural eastern Ohio had been dead for many years but that EnerVest "took steps to deceive [him] into believing the well was still producing," including feeding gas backward from a pipeline to the well, so the firm could retain control of the rights to drill the Utica Shale below.
"They back-fed a dead well, tricked me into thinking my well was producing, held my 342 acres, sold my deep rights for millions and I got nothing," Mr. Crislip said.
EnerVest has denied the allegations in court. An EnerVest spokesman said, "We deny Mr. Crislip's baseless allegations, and a third-party expert review has validated our internal assessment. We will defend ourselves vigorously."
Ascent, which is controlled by Energy & Minerals Group and First Reserve Corp., declined to comment.
FBI investigators have discussed Mr. Crislip's allegations with local landowners and recently questioned others involved in the dispute, according to people familiar with the matter.
So far, the federal probe has been limited to the Guernsey County case, according to a person familiar with the matter. Investigators have been interested since at least February, according to a letter the FBI sent to Mr. Crislip enrolling him in its Victims Assistance Program that was reviewed by The Wall Street Journal.
"We have identified you as a possible victim of a crime This case is currently under investigation by the FBI," the letter said, without being more specific. No charges have been filed.
Conflicts between prospectors and landowners over contract language, royalty and lease payments, and land use have proliferated over the past decade as advances in drilling technology have unearthed previously unattainable troves of oil and gas. In many places, including eastern Ohio, decades-old drilling leases that held rights to these now-within-reach reservoirs have soared in value.
The case in Guernsey County's Court of Common Pleas has been scheduled for a jury trial in March after Guernsey County Judge Daniel Padden earlier this year turned down EnerVest's request to dismiss Mr. Crislip's claims.
"There are genuine issues of material fact remaining as to the issue of production of the Crislip No. 3 well," he wrote in that June order.
Houston-based EnerVest, which manages private investment funds and owns a controlling stake in publicly traded well owner EV Energy Partners LP, acquired the drilling lease for Mr. Crislip's property in 2009 as part of a push into Ohio in which it spent more than $1 billion acquiring rights to more than a million acres ahead of the oil industry's interest in the Utica Shale.
Mr. Crislip's parents signed the lease in 1980 with a local drilling outfit. The lease gives its holder rights to drill 342 acres so long as oil or gas is being produced from the property. For many years the lease's various holders have relied on the output of the small gas well that was drilled there shortly after the lease was executed in 1980.
EnerVest in 2013 sold 152 acres covered by the lease, but not the well itself, as part of a larger package of drilling rights to Ascent for nearly $285 million.
Write to Ryan Dezember at firstname.lastname@example.org
Credit: By Ryan Dezember