Chesapeake energy  has proposed Drilling  units that run from the vicinity of the intersection of Thompson Road and Kilgore ridge road running to the south east for approximately 3 miles to the edge of State Route 151.  The well pad has been prepared. Approximate 250 landowners have signed leases, but one landowner  owning  approximately 30 acres has refused to sign a lease.  This  Owner is reportedly requesting a $7500 per acre signing bonus  and other lease clauses unacceptable to Chesapeake.  A reliable source has reported the Chesapeake is preparing an application for force pulling from the Ohio DNR.  Attorneys who are familiar with this process tell me that it is unlikely that the application will be decided on in the remaining six months before approximately 100 leases expire. The Issue then becomes whether Encino  will  attempt to release the properties with expired leases. LET’S hope so! 

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Wow....and we were so close.  I asked our attorney about that process and he said there's still opportunity to try to negotiate even after they file.

What stops you from leasing land to an entity other than an oil company?  Such as a land  broker or land speculator who might be inclined to give more favorable terms ? It might be worth taking payment at a latter date to secure a good lease and not be subjected to forced pooling.

Clarification....we're leased so it's not our property.  What I meant was that we are/were so close to being in a drilling unit.   However, we did inquire about the mandatory pooling process from an informational perspective when we were negotiating.  Hopefully the landowner and the company will come to some sort of agreement.  

Regarding the leases that are due to expire, it is my understanding that a "force majeure clause" in a lease will extend the lease past expiration date while a forced pooling action is being processed including the time allow to the company to drill.

They will drill this unit as soon as they get this last lease signed.

It is clear that there are many well-informed members of this webpage. Hopefully this site adds to your knowledge.

I have firsthand knowledge on this issue having talked to representatives of all concerned. Trust me when I say the situation is dire. The land owner is elderly and has significant medical challenges and continues to incur medical expenses. The land owner has placed total confidence in a lay person who is acting as a mentor. Unfortunately, while this individual is quite knowledgeable, it appears to me that the landowner is being used as a pawn by the mentor who has a vendetta against Chesapeake energy. An out of state attorney is aggravating the situation By suggesting unsupportable Bonus payment amounts. It appears to me that he wants to line his pockets. I personally don’t see this issue being resolved before Chesapeake sells it assets to Encino.

KW, I think your strategy to have a third-party lease the minerals would work. But what company would buy into this mess with the risk of being force pooled subjecting themselves to a possible
1/8 royalty/working interest?

David, I disagree with your belief that this unit will be drilled. I also know of a couple of land owners in Rumley Township that played hardball with Chesapeake. Chesapeake drilled around them and now approximately 500 acres has not been include In a drilling unit and I don’t think it ever will be.

Hi Al,

Can a company break a lease through forced pooling? Aside from issues like increasing maximum acreage in a unit would they have any grounds to challenge terms that they just don't like.  What if a company wanted to lower the royalty amount?

My thought was to lease to a third party such as a land broker, a vertical driller or a speculator, with no upfront money.  Payment to be made to the lessor at the time of permitting or upon transfer of the lease.  The third party would make their money when the lease is purchased from them by an other company Much like when drilling companies acquire acreage that is leased to other drillers.  This would secure terms of the lease that could  be very favorable the mineral/land owner and stop forced pooling.

I have had experience with a company the used forced pooling of a small parcel to extend the terms of all other leases in the unit that were due to expire.  This may not be the case here but companies do weaponize the forced pooling process.

I would appreciate any thoughts on this.

 KW, I don’t mind replying as long as you understand my response is a personal opinion, and I am a Ley person not an attorney.

I attended the national Association of royalty owner convention last week. While at the convention, I asked questions about force pulling  with three attorneys.  at the end of the convention there was a joint conversation among the four of us and I was surprised to learn that even the attorneys were not in agreement. Of course, you must understand we’re talking about Ohio.

For the case at hand, there is no lease  which is the reason for the forced pooling. Another reason for force pulling might be a result of the landowner not agreeing to it an increase in the drilling unit size. As I understand it, all the owner would get is A 1/8 royalty/working Jana and no funds would be paid until 400% of the drawing cost was recovered by the operator  when forced pooling is used in Ohio . An operator cannot break a lease through  forced pooling, but they certainly can get the  Ohio DNR to modify some of the restrictions. The DNR’s involvement is to make it possible for the operator to legally drill and would not change  simply because the operator initially agreed and now doesn’t like the lease provision.

There is a significant problem with your strategy. And it involves the  feds. Federal tax statutes require the amount of a signing bonus to be paid in the year that the lease is signed. I’m pretty sure that the theory of no payment  would be considered by the feds to be avoidance of a tax liability and therefore you would not have a legal contractual document.

I’m not sure if this totally answers your question, but this is a very complex issue, and for the case at hand I believe forced pooling is totally justified.

Unfortunate situation.  I don't understand why Chesapeake would even start the mandatory pooling process if they intended to walk since they've already invested significantly in this unit.  If they do walk, will Chesapeake also default on all the leases they have recently signed?  

It’s not their intention to walk. They’ve invested significant effort into this drilling unit but are not going to pay an outrageous bonus payment. They’re only option is to pursue forced pooling.The important fact here is that Chesapeake is selling all of its Ohio assets to Encino within the next three months. It is highly unlikely the Ohio DNR Will render a decision within that timeframe. All valid leases will be transferred to Encino Who will then have to decide how to proceed. Everyone should understand that I am not Attempting to be an advocate for Chesapeake-Simply trying to keep the readers of this website Informed.

I appreciate the updates.

This unit is already on their drilling schedule as it takes time to have the equipment and crews available for drilling. This size unit will take three months to drill and another three months to frac. They will simply go around her or do this by forced pooling. Her thirty acres will not make or break us.

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