BP Cancels Deal for 7% of ALOV Leases in Trumbull County, OH

Weakest Link In March 2012, BP signed a huge deal with landowners belonging to the Associated Landowners of the Ohio Valley (ALOV) group to lease 84,000 acres in Trumbull County, OH (see BP’s Big Utica Shale Deal, Leases 84K Acres in Ohio). The terms of that deal were $3,900 per acre as a signing bonus and 17.5% in royalties. Very sweet indeed.

Part of the process when signing a lease deal is “due diligence” in researching property deeds to be sure the driller will have a clear right to drill on or under the property. About 180 landowners with a collective 4,203 acres didn’t make the cut for the ALOV deal, and their contracts, according to the terms of the lease, were “released” this week by BP:

BP America Production Co. has opted not to lease minerals on more than 4,000 acres in Trumbull County, releasing nearly 200 property owners from their signed contracts.

The decision was made after BP completed its research on the property deeds and found legal issues that could not be overcome on these properties, according to Curtis L. Thomas, BP’s director of government and public affairs in Ohio.

”Upon completion of this due diligence review, in certain instances there were issues with the property, such as situations where the property was under lease by another party, or where there was current production by an existing well,” Thomas said this week.

James Marsteller of Kinsman, who had leased the mineral rights on his 56 acres with BP, said a previous lease he had signed with Cobra Resources LLC became an issue and led to BP releasing him from the lease.

Marsteller expressed his frustration, noting that he had believed he was released from the Cobra lease before he signed on with BP, but later found out Cobra had instead sold his mineral rights to Carrizo Utica LLC.

”I don’t know what’s going on. It’s all a big mess,” Marsteller said Thursday.

He was one of about 180 Trumbull County property owners with combined acreage of about 4,203 acres released by BP from their lease agreements since November.

BP’s Thomas said in an effort to keep the lessors informed, letters were sent out, giving them a period of time to clear issues like title defects. In addition he said a team in the BP office was set up to work with concerned lessors attempting to clear these defects.

”In a small percent of these instances, the defects were not cleared within the time frame allotted so the terms of the Agreement to Lease dictated that BP release the property,” Thomas said.

He said BP records show that the company has released about 7 percent of the leases with the Associated Landowners of the Ohio Valley, or ALOV, that were taken by BP.

”We have paid and fulfilled the bonus payments terms of the remainder of leases," Thomas said.*

MDN Note: We ran the numbers. BP says they released “about 7 percent” of the leases, but if you do the math, 4,203 out of 84,000 is closer to 5%, not 7%. We’re not sure why the discrepancy.

*Warren (OH) Tribune Chronicle (Jan 18, 2013) – BP opts out of some gas leases