Some Drillers Using Questionable Tactics to Hold Land Under Lease Beyond Original Term
A number of landowners in Pennsylvania signed gas leases with energy companies more than five years ago for very low amounts—$2 per acre in some cases—as a signing bonus. Landowners, realizing that a contract is a contract, waited patiently for the expiration of the lease—typically five years. But then, at the last possible moment, sometimes just hours before the lease is due to expire, the energy company would clear a few trees or park a bulldozer on the land in order to comply with the terms of lease, thereby extending the lease indefinitely because they had “made an effort” to start drilling.
Case in point: Dave and Karen Beinlich. They signed a lease for $2 an acre, for a grand total of $234 signing bonus on their 117 acre farm.
The couple, who live in Forksville, in rural, mountainous Sullivan County [PA], had been looking forward to the end of their 5-year lease, originally with The Keeton Group LLC but later transferred to Chief. They had signed it in haste. Their infant daughter was hospitalized in Philadelphia and "we really needed the money to travel," recalled Karen Beinlich, who pushed her reluctant husband to sign.
Fast-forward five years, to last fall. Their land had not yet been drilled. The couple knew that if Chief failed to begin developing a well by the time their lease expired at midnight on Oct. 24, they would be free to negotiate a new, more lucrative lease with Chief or some other company. Or free not to sign a lease at all.
Chief apparently knew it, too. On Oct. 21, the Dallas-based company placed the Beinlichs into a larger drilling unit with 19 other tracts of land. Then it staked out an access road and parked a bulldozer on one of their neighbors’ parcels – 31 hours before the lease expired. Chief didn’t actually begin clearing land for the access road until three days after expiration, according to the lawsuit.
A contractor tipped Karen Beinlich to Chief’s tactics.
"Chief is hot and heavy all over me to get this bulldozer here because they’ve gotta lock in some landowners," Beinlich recalled the man saying. He was apparently unaware that she was one of the landowners in question.
"They’re not playing fair," Beinlich said in an interview. "We expected them to be good neighbors and sit down with us."
The company asserted, through its lawyer, that its declaration of the drilling unit, and the placement of the bulldozer, constituted "operations in preparation for drilling" and kept the Beinlichs’ original lease in force.*
The Beinlich’s have filed a lawsuit against Chief Oil & Gas charging that clearing their land didn’t happen until after the end of the lease. You can expect more lawsuits from landowners:
"It’s going to be a topic of great litigation over time," said Dale Tice, an oil and gas attorney in Lycoming County, where hundreds of wells have been drilled. "The verbiage that appears in the leases may be relatively clear, but what’s going to be unclear is what exactly the gas company has to do" to hold the land by production. "Does it mean they can just put a stake in the ground?"*
MDN’s opinion: There’s more than enough money to go around when the gas starts to flow. Although Chief Oil & Gas may have complied with the letter of the law (and even that is questionable), they certainly are not complying with the spirit of it. They can afford to fairly compensate landowners like the Beinlich’s. This gives all drillers a bad name.
*KBOI Channel 2/AP (Jul 24, 2011) – Lowball gas drill leases haunt Pa. landowners