Is this a sham?

A loop next to mine (Carroll Co., Oh) was drilled and has been producing for 4 years now. This loop abuts, looking at the map, next to my property. Chesapeake came to me a year and a half ago and said they wanted to change the size of my loop and they would be drilling within a couple of months. They have not drilled or applied for a permit to drill as of today.

I leased my mineral rights 6 years ago for $60 a acre. Chesapeake had the right to renew my 5 year lease last year and they did for the $60 a acre. Then I get a letter from Chesapeake saying congratulations I will start getting royalty payments. They say 1/8 of my property is on the loop next to me so I get roughly $30 every 3 months. All this is mute if they drill on my property in the next 4 years.

Question: Is 1/8 acre really on the loop next to me or is Chesapeake just paying me this piddly amount to keep my land tied up indefinitely (no pugh clause)? What about the two years I didn't receive any money from the loop next to me? I know it is a very small amount but it made me stop and think, are they pulling a fast one so in 4 years they won't have to renegotiate a contract with me? (if I negotiate a new contract in 4 years it won't be for $60 a acre) I read on this form that another had 200 acres and Chesapeake paid him 1/8 acre royalties, sounds familiar. Is this their standard practice for tying up land indefinitely? Any help would be appreciated, I am at a loss.

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Permalink Reply by Dexter Green on November 1, 2014 at 5:08pm

If they put you into a unit and are paying you a royalty then you're HBP.  I'm doubting your old lease had any language that compelled them to put all or none in a unit.

Permalink Reply by craig on November 2, 2014 at 4:37am

CHK did this to my brother in Western Pa. He was HBP for 1/4 acre out of the 180+ acres leased. They will most likely drill and get more of your land in the near future, before you have the time to try to do anything about it... which you probably can't anyhow. My brothers property now is 90% in a new unit after being HBP for almost a year.

It is a favorite practice of most companies from what I can see. 

Permalink Reply by Trapper on November 2, 2014 at 5:40am
Craig,how long can a lease be HBP without any production and royalties? Is there any law regarding this?
Permalink Reply by Dexter Green on November 2, 2014 at 8:28am

Depends on what the lease allows for.  "Production" isn't always the threshold.  Many leases say "capable of production" or "activities related to production", i.e. drilling, fracking, running gathering lines, etc.

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