Chesapeake’s Best Utica Well (Buell 8H) in Legal Trouble
From time to time MDN will tackle a complicated issue and try to, as briefly as possible, break it down for our readers to understand the essence of it. This is one of those issues. It involves property rights, contracts, deeds, a sympathetic landowner, and Chesapeake Energy’s single largest-producing Utica Shale well in Ohio—the Buell Well.
The Buell Well, designated Buell 8H by the Ohio Department of Natural Resources, is named after the landowner Kenneth Buell, a 73 year-old farmer. It’s located in Archer Township in Harrison County, OH. It was one of the first Utica Shale wells to be drilled in Ohio and previously yielded 1.5 billion cubic feet of natural gas in 198 days—2% of the total gas production for the entire state. It’s 300 times more productive than the average vertical well in Ohio, and it has also has produced in excess of 13,000 barrels of oil. By any measure it’s a star performer—the star performer in Ohio. And it’s now in danger of being shut down because of legal disputes over who owns the rights to drill it. That’s where the situation gets messy and complicated.
For a proper backgrounder, you should first read this story appearing in the Akron Beacon Journal. What you will learn, in brief, is this:
- The land where Buell farms, and much of the surrounding land, had the mineral rights separated many years ago—for coal mining in the area.
- The mining rights, which include surface land and underground mining rights for coal and other minerals (including natural gas and oil), were sold by the original owner North American Coal, to Mountaineer Natural Gas Co, and Mountaineer later resold the rights to Chesapeake Energy.
- Chesapeake drilled the well on Buell’s farm, tying up most (all?) of his 243 acres. He can’t even harvest the hay from it.
- Buell gets very little compensation for having his land confiscated for drilling purposes. He still has to pay the taxes on the land, but he can’t use it. Hardly a fair situation.
- Buell has health problems—back and heart surgeries—that have prevented him from mounting a legal challenge. And, he can’t afford to.
- However, a property not far away, owned by the Jewett Sportsmen & Farmers Club, did mount a legal challenge in a similar circumstance. They sued over a provision in their deed (also found in Buell’s deed) with language saying the mineral rights owner has 21 years to drill “through and under” the land. After 21 years, it expires. The attorney for Jewett argued it expired years ago, and a judge agreed.
- The upshot is, for Jewett, Chesapeake can drill straight down and harvest the gas it finds. But it can’t drill horizontally, “through” the rock layer, and harvest gas beyond the border of that particular landowner (even if they own the mineral rights for the adjacent property).
Buell’s deed has the same “through and under” language as the Jewett deed, and so Buell found an attorney and has filed a lawsuit against Chesapeake with the same judge who ruled in the Jewett case (see both the Buell and original Jewett court motions embedded below).
The debate that rages is this: Many of the leases in Ohio have the same language. If the local judge’s ruling stands (and it will certainly be challenged by Chesapeake), it will throw much of the Utica Shale drilling industry into chaos across the state. Drilling leases would have to be negotiated (for the first time), or renegotiated with landowners to allow horizontal drilling across property boundaries—and that means time and more money (lots more money), and more lawsuits.
In the meantime, what does it mean for Chesapeake’s most productive well in Ohio, Buell 8H? MDN is not sure. There is talk on the landowner forums that it may have to be “shut in” for a period, until the lawsuit is settled. The shame of it is if Chesapeake had not tied up all of Buell’s land in the first place, it likely would have never come to this. Buell has stated, repeatedly, he’s not interested in being a millionaire—he just wants to use his land.
This is certainly a story that will develop in the coming months. MDN will keep an eye on it.
See these resources:
- Akron Beacon Journal (May 17, 2012) – Ohio landowner misses out on Utica shale bonanza
- Youngstown (OH) The Business Journal (Apr 3, 2012) – Chesapeake’s Well Results Show Utica Shale Potential