Chesapeake Irks Landowners As It Renegotiates Leases

Chesapeake Irks Landowners As It Renegotiates Leases by Daniel Gilbert, August 15, 2012, Wall Street Journal
Chesapeake Energy Corp. CHK -2.46% is pushing Ohio landowners to accept revised lease contracts that would help the cash-strapped driller save money while holding on to its prized oil and gas fields. The company’s actions, documented in scores of property and court records, aren’t the first time that Chesapeake has tried to change the terms of lease deals, or walked away from them. Since 2008, more than 100 lawsuits have been filed across the country by landowners, who claim the company breached contracts. In some cases, settlements have been reached, in other cases the litigation continues.

Chesapeake’s agents tell landowners that they will be shut out of the oil and gas boom if they don’t agree to the changes, according to landowners interviewed by The Wall Street Journal, which reviewed more than 100 property records in Ohio filed over the past year detailing the changes. … It says that many of the leases it acquired in Ohio were negotiated by other companies, some going back more than 20 years, and are ill-suited for the horizontal wells needed to extract oil and gas from shale rock; it acknowledges, however, that it stands to save money by combining leases into units that cover two square miles, at least twice the size of most existing units.

“It kind of makes you mad,” said Karen Hampton, who owns about 10 acres in Carroll County and refused to be part of a larger unit. She is one of eight landowners who last month sued Chesapeake to cancel their leases, alleging the company’s agents, known as land men, warned them their property would become a “hole on the map” if they didn’t agree to change their leases. The company declined to comment on litigation. The company, in its legal response, said the plaintiffs failed to allege the specific circumstances in which the “hole on the map” comment was made, and that it was legally insufficient to support a charge of fraud. Chesapeake says in court filings that landowners are looking to cancel valid leases to pursue richer offers.

A federal judge in Houston ruled last week that Chesapeake must honor a contract to buy leases from three Texas landowners for more than $100 million, a deal the company refused to close in 2008. Chesapeake says it will appeal. The company is also seeking to overturn a $22 million judgment over a 2008 deal on leases in east Texas.

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