Gerrymandering Units to hold Leases Fraud

My wife and her brothers have 177 acres in Tioga County.

There are two parts to the farm on separate deeds.

There are 2 separate leases one for the upper Northerly part and one for the lower (southerly) part.

These properties do not touch and are separated by other properties.

A well was drilled on the lower (southerly) portion of the farm and a unit formed.

One well bore was drilled in the opposite direction of (south) of the northerly portion of the farm.

The only way the northerly part is affected by the drilling activity is because it was "Gerrymandered" into a unit.

There is no production coming out from under the northerly part of the farm.

There are no well bores under it and no surface activity.

These leases were obtained ten years ago for $3 per acre.

The primary term of the leases were to expire in September, 2010.

Of course the lease where the well was drilled was held by production.

Why is the upper lease held and those of landowners to the north?

Sure they may intend to drill 5 more bores, three of which will extend into the upper lease but so what? When will they do it? next year? 5 years?,ten years? never?.

In my estimation they need to get off their asses and drill the rest of the bores or release the upper portion of the farm.

This is underhanded at best and downright fraudulent at worst.

I wonder how many cases of this fraudulent practice there are?

The DEP does not involve themselves in leasing matters so who does in PA.?

Who is minding the hen house in PA. and looking at these units?

I don't care how you slice it or dice it, the upper lease should have expired.

 

 

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015334grltd9mPermalink Reply by 015334grltd9m on December 12, 2010 at 3:18pm

Although this maybe a new strategy, I think it may work for you.  Contact a bakruptcy lawyer and see if entering reorganization (chapter 11) may get the old leases reorganized.  Remember, chapter 11 is not liquidation but a means to streamline a business.

Permalink Reply by Dustin L Moore on December 15, 2010 at 6:58am

I have seen this occur elsewhere.  There is a 900+ acre unit in Bradford county (Harris Unit in Burlington Twp), in which approximately 34 leases are being held by one well.  The one well that was drilled goes 2500 ft underneath one parcel in the southern part of the unit, yet the declaration of the unit ties up the remaining 33 leases.  This is fraudulent in my opinion.  I wonder if the other people in that unit are receiving a share of the royalties coming from the well underneath the one guys property.  This unit also is a conglomerate with Chief, CHK, TS Calkins and Assoc, MKR Holdings, and a few other little guys combining all of their leases into one unit for a 2500 ft lateral drilled by Chief.  If I were a landowner in this unit I would be raising a big stink. 

Permalink Reply by Walt on December 15, 2010 at 12:35pm

I think it is important for the government to regulate units. As far as I know (and I could be wrong) there is nothing our state does to protect land owners from Natural gas companies in terms of unit manipulation. A NG company can create a unit that makes no geographical sense and there be nothing to stop them. Of course we should seek some protections through our leasing process but there are certain things that should be taken care of by the government. When they put 640 acres into a unit with the claim "yes we only have one well in currently but we plan on putting in 6 more so we are pooling you all now." it should have severe limitations on it such as the legs being started in so many months or the properties be pulled from the unit, or the unit not being able to be declared at that size till the legs are in it. 

015334grltd9mPermalink Reply by 015334grltd9m on December 15, 2010 at 1:02pm

Well, we must all understand business evolution and the great energy find of the century will sort everything out, be patient but turn in the crooks.

Permalink Reply by stormangasman on December 17, 2010 at 4:21am

You are not alone,many landowners are in the same boat.We are also a victim.Has anyone heard of a law suit ,or a proposed bill to limit the acreage in a unit for Pa.?? After all, no limit means they could put the whole state of Pa. in the unit. We are currenly in a 1200 acre unit ,but our lease says it can change even after the unit has been filed!!! (lease is 5 years old). They (G/O co. ) know what they are doing,they pooled us 2weeks before lease ran out. I had a lawyer tell me months before that,"they must drille a well on your property to tie you up",NOT TRUE.

 

Permalink Reply by Dustin L Moore on December 17, 2010 at 4:32am

Most times an amendment has to be approved of by the lessees and lessors in order for the oil and gas companies to have units larger than 640 acres as per the lease.  Unfortunately a lot of landowners get duped by the oil and gas companies declaring that it is advantageous to get larger units because more gas can be produced and there will less disturbance to the surface.  While all of those things are true, the landowners are also losing the ability to get a better deal in terms of a new lease with a better royalty and more lease signing bonus money because once they approve this amendment, their leases get held by a ridiculous 900+ acre unit that only has a small 2500 foot lateral (a 2500 foot lateral can barely drain an 80 acre area let alone 900 acres) drilled beneath one parcel with no foreseeable plans to drill more wells within a reasonable amount of time.  Keep in mind that there was a lot of leasing going on in 2005/2006 for next to nothing.  These companies are going to try to keep those properties leased so they don't have to spend more money to lease than they were getting land for back in 2005/2006 - which means robbery in the form of large units in which they have no immediate plans to develop if you ask me.

Permalink Reply by Walt on December 17, 2010 at 4:35am

A lot of laywers don't know much about what is going on. And I'm always surprised how much miss information is floating around. I've been told in the last week that the first 3 months worth of Natural gas all the profits go to the gas company and then after that you start getting your royalties, and have also been told that the whole "a well has to be on your property" thing. Both are completely not true unless your lease is unique and specifically states that.

 

I was told by the company we are leasing with that they wouldn't put us into a unit this late int he lease (3.5 weeks left) because of the PR nightmare of doing that when the unit had been declared already for a year. If they pooled you 2 weeks before the lease ran out and the unit had been declared already and they had just modified it without doing anything to the wells I would fight it. IMO would be an abuse of the terms of the lease. Also had you signed a lease with no unit limits? most of the early ones that I saw had limits of 640 acres.

Permalink Reply by M. Sean Joyce on December 17, 2010 at 6:09am

Thank you for all your replies.

I knew this was going on all over, flying under the radar.

In PA. the gas companies can do whatever they want with the blessing of the Commonwealth in regards to units.

State politicians have to be made aware of this.

There has to be oversight created on the formation of these units.

The unit shape and size have to be justified by geology and a time limit has to be placed on the drilling of the wells.

I have read of another unit that was shaped seeming to allow for the placement of a pipeline without compensating the landowners.

Eventually they will look like Barney Franks' congressional district.

This is as significant an issue as leasing and environmental issues and landowners are being robbed of millions of dollars.

I cannot see how terms in the lease will prevent this as there is no legal basis to fight it.

Hopefully more come forward and this issue gets the attention it deserves.

Land coalitions don't seem to be aware.

Attorneys are not thinking out of the box.

BTW I am 100% in favor of drilling and development of natural gas in our region.

I look forward to more replies and examples of this fraud.

 

MERRY CHRISTMAS TO ALL!!!!

 

Permalink Reply by Steampunk on May 2, 2014 at 5:25am

Has anybody had their lease unitized across state lines (Ohio/Pennsylvania)? Does anybody know the law regarding this?

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