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Permalink Reply by Steve AC on May 19, 2011 at 11:44am

See what I mean:

"Pa. fines Chesapeake Energy Corp. $1.1 million for drilling violation

May 18, 2011|By Andrew Maykuth, Inquirer Staff Writer

Pennsylvania regulators on Tuesday fined Chesapeake Energy Corp. $1.1 million for natural gas drilling violations, the largest penalty ever in the state's rapidly expanding Marcellus Shale bonanza.

Under a consent order signed Monday with the Pennsylvania Department of Environmental Protection, Chesapeake will pay $900,000 for contaminating the private water supplies of 16 residences in Bradford County in northern Pennsylvania.

Chesapeake, the largest Marcellus Shale operator, will also pay a $188,000 fine for a Feb. 23 fire at its drilling site in Avella, Washington County, in southwestern Pennsylvania."

Considering Chesapeake's CEO got a $75 million bonus last year on $9.7 billion in revenue and $1.7 billion in profits, $1.1 million is a misquito bite. And it was a fine. It didn't go to the residents.

"The DEP blamed improper concrete casings of several wells for allowing natural gas to seep into drinking-water supplies. In one instance, gas visibly bubbled to the surface of the Susquehanna River. The incidents occurred in Tuscarora, Terry, Monroe, Towanda, and Wilmot Townships.

Two Bradford County residents whose wells were cited in the consent agreement said they believed the contamination was more extensive than methane, which is not known to cause health problems. They suspect that chemicals are also polluting the aquifer.

"We're sick all the time," said Michael Phillips, who lives on Paradise Road in Terry Township, where (DEP Secretary) Mike Krancer visited some of the residents on Thursday during a tour through Bradford County.

Tuesday's announcement surprised Sherry Vargson, whose Granville Township family has been drinking bottled water supplied by Chesapeake since the well on her 197-acre farm went foul last June. She said the DEP's agreement contains little help for her family."

A case of 24 X 16 oz bottled water is $4.49 at my local market. So Chesapeake's remediation for these poor people is to spend maybe $20 a week...

Permalink Reply by 0l1a6laz7smpf on May 19, 2011 at 1:16pm

Yes, It is good to see dialogue here.   This is where we are learning what to do because we are learning what already has been done and what is still happening as a result of our desire to receive some big bonus money up front not knowing that some of us were really suckers in the handling of what our forefathers gave us to care for....but not too late...we're getting more info , we are getting more wisdom, and we will find a way. (btw...i rarely if ever use the word 'suckers' but I couldn't find a better way to empasize the word 'ignorant of the tactics of the O &G companies".)

Since our area is still needing the transport line foundation to be done....then Steve I believe that when that system is in place you will get a better deal and be wiser in doing so.  Stormangasman, do you have a 'right of first refusal clause' in your addendum of your contract?   I am waiting to see if Chief really will horizontal drill and start selling the Natural gas or if they are just 'holding' our acreage.   And as more feeder and transport lines are put in ....I will see if the rest of the acreage (since we have no Pugh clause) is put into units or not.   Some of our land (about 60 acres) was put in two units but they have the lease on much more acreage than that....I am also concerned about the clause they have called 'market enhancement clause' ....but I think I have found a way to force a new lease renewal if need be or get out of the one we have so a better deal can be made.    And I surely hope that they (Chief and their investors who they sold shares to) decide to drill for gas (and maybe oil as some are finding oil) and treat us landowners respectfully and share in what they are helping themselves to as it is our land and our land's resources.   But if they are doing a 'hold and cap' game with us we won't know til the foundation is laid of the transport lines...but according to the representative at Chief that I recently spoke with (who felt sorry that we didn't have a Pugh clause as that is such an old contract that they used with us...makes me want to get out the handkerchief...you know, since I have done many contracts for real estate in my career...it just urks me that I did not impress on them enough that I was very discontented with them using an addendum with an out of date terms and conditions contract.   They have had enough time and money to provide an up to date (with these special clauses that people have had to pay attorneys to figure out and some haven't figured it out but got paid anyway) contract instead of hoping that their land agent found a real sucker with signing their old contract and maybe even without an addendum.   But fortunately some of the locals figured some things out and got in a group and someone did advise to use an addendum to cover clauses concerning royalties, etc.   They spent more time explaining the clause for receiving gas on the land if one wanted to while the drilling was in process than ever explaining that there were provisions for the lessee to renew/extend without another bonus or negotiation...or even explain the unitization of the acres.  My dad was in his 80's and surely did a fairly decent job of negotiation...and he even remarked he didn't really understand or like some of the clauses....but the landman did a great job of 'bullshitting' thru those...and of course the upfront bonus surely was the carrot in the hand that we all were hoping would be good tasting' carrot cake".....yet we didn't know about the environmental concerns ...how our land (I think Sully still has maybe one traffic light in the whole county ...or is there more?) would look with towering wells/drill rigs dotted along the mountains....and no more of stopping along the highway and filling up your thermos with that water that is sooo fresh and ooozes out of the side of the mountain...cause you don't know what is in it.   

 

But if you say ....I don't want to lease cause they may be harming the environment....I say that is foolish.  Because they are going to do what they are doing all around you anyway..

  What is better is to get informed, be a wise negotiator, use your knowledge to help your neighbors and yourself with getting these oil/gas investors/ and companies into check with them having to do better. 

I think that all us landowners of the marcellus should be demanding that the contracts that the O & G be standardized with the clauses that they know we need in them.   In real estate the reputable brokers used a standardized form contract used by the state or national builder/realtor associations and the clauses were not just one sided....and it was updated when basic changes in real estate and the area necessitated it.   The addendums were for those special cases to add to the contract not become the contract.   The Oil & Gas leases I so far have seen are old and pertain in one sidedness for the lessee and only some clarification for the lessor...yet the addendum is what makes or breaks the contract....so it is not balanced...and is unfair.  Most of the landfolk in the Marcellus shale area are not that smart to know what to put in an addendum and so the trade paper which was used was a real disappointment.   I was not able to understand the need at that time to enforce what I already saw was fair for both parties...though I did mention that I thought it was archaic to use such old contract clauses and clean them up in the addendum...why not just update the contract?   I actually did ask if we could have a better contract than rewrite all of this in an addendum but the landman said this is what Chief uses...as in if this is what the oil company uses then this is what we use....I didn't know about ROW attorneys and oil and gas attorneys at that time and dad didn't really want to use an attorney...but even if he did he wouldn't have known to find the right one most likely at that time.

 

anyway...if you have a 'right of first refusal' clause in your contract then there is hope that something can be done if you need to come out of the contract lease.  And if you have a 'market enhancement clause' in your contract addendum then look and see if you have a 'gross vs. net' clause in the same addendum.   And if you don't know about these clauses..then use search in our discussions here at the county discussion and the main menu and read what you can about them.

Permalink Reply by 0l1a6laz7smpf on May 19, 2011 at 1:34pm

oh...yes...one traffic light in sully..

I haven't seen the area in years but I sure love it!

http://www.dushore.com/tour/redlight.html

Permalink Reply by Blindsquirell on October 13, 2011 at 7:03pm

VG......How would 'right of first refusal' benefit you to get out of a lease?  Doesnt that provision allows the LESSEE the opportunity to match a bona fide offer made to the LESSOR by another OG outfit?  It would prevent or t least alert the LESSEE of a possible TOP LEASE attempt.  You would have to provide the written offer to the LESSEE and they would have a specific amount of time to either match it or walk away.  This would only apply during term (typically within 6 months of the expiration date) and would be insignificant if LESSOR is in a unit of production.  I dont see how the provision would help you "to come out of the contract lease".

Permalink Reply by 0l1a6laz7smpf on October 16, 2011 at 10:26pm

Just happen to see your comment blindsquirrel....

 

I am still learning about my lease and its clauses... that is why I appreciate your input as well as others regarding this particular clause.   If the Lessee isn't doing their part to produce production or there are clauses that cannot hold the land in the lease without production...then the 'right of first refusal' may well be a clause that can work to help either get a better deal from the Lessee by informing them that there is another interested party that wishes to lease or it could open the door to better communications with the existing lessee as right now they are not trying to communicate at all....and it isn't fair for them to exclude the landowner in what they do on the property (and that would be in conflict with another clause of their duties as lessee).   Right now they have some of my land in two units and they have not at all informed me...I had to find out by calling the county for the permit info.   I am waiting to see if they will drill a well on my property without even contacting me as I do not live on the property to see if they are doing such...I just call the county and find out if they are pulling permits to get my info.   I tell you that isn't just for us landowners to do all the work in finding out what is happening on our properties (some do not live on their lands or even nearby and they know that).

Permalink Reply by Blindsquirell on October 21, 2011 at 10:18am

As you obviously know by now....OG is BIG BUSINESS.  I dont believe any OG company that has the revenue to develope a horizontal well would dare to just go on a leasehold of theirs and begin the process without first contacting the LESSOR.  Check your lease for "WELL SITE APPROVAL"..."MUTUALLY AGREED UPON"...etc.  Im sorry to hear that you werent informed of your acres that were/are included in a unit of production.  Typically, these acres are acknowledged in the permitting process with the state.  You say you dont live in the area, so make sure they have your correct mailing address.  As we all know, negative news travels faster than positive and this lack of communication would be a very ignorant way of being in the public eye.  I still dont understand how you believe that the "right of first refusal" (TOP LEASE" Prevention) can get you out of a lease.  That provision is the choice of the LESSEE.   If your lease gets to that part of the term and the LESSE hasnt contacted you to renew.....they dont want it.  Even if some of your acres are not in the unit...the entire lease is HBP (unless you have a PUGH CLAUSE, releasing those acres at the end of term).  You have to also realize that, if you do get the un-unitized acres released, how would another outfit be able to pooling those acres into a unit of theirs when your current LESSEE is developing their unit (I dont think you would grow oranges tree in an apple orchard or vise versa)?   Just because you have some acres not in a unit now...doesnt mean the outside acres of yours would be in another unit of your current LESSEE, down the road (unless theirs a spacing issue too).   Sorry if Im repeating myself.

 

Permalink Reply by David on October 21, 2011 at 8:17am

I have posted many times get a good lawyer that knows and understands the nuiances of oil and gas rights. Pay them to review your lease. If in the end you don't like what you are told then don't sign the lease.

Permalink Reply by 0l1a6laz7smpf on October 21, 2011 at 9:33pm

thanks all of you...

As far as communications with the oil company (Chief) ....They didn't contact, I had to call them about the land/acres being put in a unit...perhaps that is their policy as I don't think that the county sends out notices to allow the landowner to know that a permit has been pulled.   A well wasn't put yet on our land so perhaps that is why they didn't contact us....but it would have been more polite since they list what acres of ours on the permit (i think they do, I haven't seen it).  The land/houses was inherited and the person I spoke with said they have an accurate list of the new owners (maybe that office does).

As far as the 'right of first refusal' clause....it was explained to my relative (with me present) that it was to our favor as lessor and when my relative refused to sign/accept it because of the one statement stating that if the NG was enhanced for market then their would be a 'full' charge to Lessor for those costs as our contract specifically states that there are no costs at the royalty payment...only gross (not net).  We were specifically told that the right of first refusal clause was of benefit to us and that that one clause regarding enhancement would most likely not apply as it is seldom used.   Now the contract also states (how we missed that one to cross out I do not know)...that no verbal representations would be honored only those in writing.

Yes, a lawyer (esp. one that is fully knowledgeable/talented in gas/oil contracts) would have been best.....But tell that to some of these old time farmers who have lived over 80 years in that area who do not trust lawyers anyway (not all are that way) and try their best to do it themselves.  Most of the time my relative was good at these things...but the ignorance of what the oil company had on a contract was beyond his full understanding evidentally....as I keep learning of things that pertain to ways out of re-negotiating at the end of the lease term that are hidden (yet not hidden) in some of their clauses regarding production/units.   No pugh clause was even discussed or mentioned at the time (about 3 years ago).

 

I sure do hope that some who are able to sign new leases or re-negotiate what they have are utilizing this forum here for our county and for the main group discussions...as so many of you are willingly sharing the good/bad/and hopeful news for us all to learn of this marvelous phenomenen that we are encountering on the pristine (almost undeveloped) area of this county with only one traffic light (at present).

Permalink Reply by 0l1a6laz7smpf on October 21, 2011 at 9:52pm

btw...  blindsquirrel, you are the first one that has mentioned to me that the right of first refusal clause is for the lessee.   We were not told that and we have discussed this on the main menu several times....and I am not saying that you are wrong...in fact I welcome your comments as I do not fully understand some of these clauses.

  Now the area of our land is in a unit that has a well but it is not productive yet as there are no pipelines in the area of the well...so it is possible that having our land in a unit with no production may cause a renewal of the contract....will need an o&g lawyer as we get further into near the end of the lease for sure.

 

Here is what the clause states on my lease contract (the addendum)

"If , at any time within the primary term of this lease or any continuation thereof, or within six months thereafter, Lessor receives any bona fide offer, acceptable to Lessor, to grant an additional lease (top lease) covering all or part of the afore described lands, Lessee (the gas company such as Chief) shall have the continuing option, by meeting any such offer, to acquire such a lease. Any offer must be in writing and must set forth the proposed Lessee's name, bonus consideration and royalty consideration to be paid for such lease, and include a copy of the lease form to be utilized reflecting all pertinent and relevant terms and conditions of the top lease. Lessee shall have fifteen (15) days after receipt from Lessor of a complete copy of any such offer to advise Lessor in writing of its election to enter into an oil and gas lease with Lessor on equivalent terms and conditions. If Lessee fails to notify Lessor within the aforesaid fifteen (15) days period of its election to meet any such bona fide offer, Lessor shall have the right to accept said offer. Any top lease granted by Lessor in violation of this provision shall be null and void."

 

now this is a great concern...as we do not know when production will occur or even how much...and since the oil company has yet to have a producing well in the unit and no well on our present property...the clause does state that an offer could be made at 'any time' so it could even be now...for another company such as Chesapeake may want to put a well on our property (it is a fairly good amount of acreage).  And this would be a good time to 'clean up' the mistakes that we as lessors did not know that our relative encountered in not negotiating out certain clauses or putting protective clauses in...as we should be more informed now we have these forums and know the need to have a good o&g atty (which the fee could be put in the new lease bonus money).

Permalink Reply by Blindsquirell on October 22, 2011 at 7:37am

The well that is drilled but no production because of infrastructure inadequacy...is considered "shut in". I believe ALL acres of your lease are HBP. And bc the lease does not contain a Pugh Clause...will remain that way for the life of the well. Once production starts you will receive Royalty for your proportional share in the unit not royalty for all acres in the lease.

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