PA Case Highlights Risk in Using Non-Lawyer to Negotiate Lease
In August 2013 an extensive investigative article about a then-director for the Pennsylvania Game Commission, William A. Capouillez, appeared in the Philadelphia Inquirer (see PA Director of Game Commission Double-Dipping with Gas Leases?). The article spotlighted a potential conflict of interest between Capouillez’s day job and his moonlighting side job as an agent for property owners who lease their land for oil and gas development. The issue? He was signing private deals with the same companies that often work with his state agency. The State Ethics Commission did a lengthy investigation and three years later, the Commission levied a $75,000 fine, which Capouillez agreed to pay (see Former PA Game Commissioner Fined $75K for Lease Moonlighting). Although he paid the fine, Capouillez remained defiant and said the fine is a tiny fraction of the original fine sought–an indication of his vindication. There is new litigation involving Capouillez. One of the leases he negotiated was on behalf of the Laurel Hill Game and Forestry Club with Range Resources. The way Capouillez constructed his leases was that he would get a cut, a percentage, of any lease signing bonus and ongoing royalty payments, in return for the leases he brokered. Range never drilled on Laurel Hill’s property, but they did start to push dirt around a few hours before the lease expired as a way of holding the acreage (some would call their action a less-than-honorable practice). Laurel Hill sued Range and the lawsuit was later settled by drafting up a new lease with new terms. The new lease/terms were not brokered by Capouillez and he was cut out of the deal–so Capouillez sued both Laurel Hill and Range. The moral of the story, according to lawyers writing about the case, is to never use non-lawyers to represent you in lease negotiations…
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EQT, one of the biggest and best drillers in the Marcellus/Utica, issued their fourth quarter and full year 2016 update yesterday. As is typical when issuing the updates, EQT’s top brass held a conference call with analysts to discuss results and take questions. In reading through a transcript of the call, one of the most interesting passages (for us) was in the prepared comments by incoming EQT CEO (currently president) Steve Schlotterbeck. In a brief passage excerpted below, Steve provides a quick update on several items: the Mountain Valley Pipeline project, EQT’s Utica drilling program, and the fact that “this week” EQT has purchased an additional 14,000 “core” West Virginia acres in Marion and Monongalia counties for $130 million, which works out to be $9,286 per acre…
In December MDN reported on the huge West Virginia Supreme Court decision against driller EQT that disallows EQT from deducting post-production expenses from royalty checks, even with signed contracts in place (see 
Yesterday a Pennsylvania State Senate panel met to discuss two bills that would help landowners in their quest for more visibility into how royalties are calculated–and what kinds of expenses are deducted (see 
One of the issues that isn’t going away is the demand by landowners in some Pennsylvania counties, like Bradford, for lawmakers in the state to pass a bill that guarantees them what they believe they are already guaranteed–a 12.5% minimum royalty, based on a 1979 law that states they should get such a royalty. We’ve extensively covered what we call a civil war between two parties who are otherwise friendly toward each other–landowners and shale drillers. Last year the issue came to a head with House Bill (HB) 1391 (
Cabot Oil & Gas has a major presence in Susquehanna County, PA, not far from where MDN is written (just across the border). In fact, Susquehanna County, located in the northeastern tip of PA, is the only county in PA where Cabot drills. It is a “dry gas” zone–and extremely productive. By our reckoning, Cabot alone produces something like 3% of the entire natural gas supply for the entire country. One driller, in one county. It is an astonishing feat! Susquehanna County is rural. The entire county has 43,000 residents (11,700 families). The largest “city” in Susquehanna County is the county seat of Montrose, population 1,600 (750 households). Until now, there has been drilling all around the edges of Montrose, but no drilling directly under the city. That may soon change. Cabot has made an offer on 10.76 acres of land located within city limits. Cabot is offering a lowball $1,000 per acre as a signing bonus, plus 15% royalties. Not long ago Cabot cut deals for $3,500 per acre and 18.75% royalties. It appears this is just an opening negotiating tactic…
A West Virginia law professor and one of his students (who went on to become a trial attorney with the U.S. Dept. of Justice), have just published a research paper on the topic of surface and mineral rights in the Mountain State. The paper, titled “Horizontal Drilling Vertical Problems: Property Law Challenges from the Marcellus Shale Boom” (full copy below) discusses property law challenges that can impede business development and negatively impact landowners and mineral owners in shale regions, with a focus on the West Virginia Marcellus. The paper explains the horizontal drilling and hydraulic fracturing process. A widespread problem in WV is that (because of coal) in many cases the owners of the mineral rights under the ground are not the same people who own the property on the surface. The paper makes the point that while courts can handle one-off cases, the WV legislature should develop better “large-scale policies” to deal with an ongoing, contentious situation…
A couple of weeks ago four companies won bids on 17 parcels totaling 719 acres of federal land (for Utica Shale drilling) in the Ohio Wayne National Forest (see 
A significant court case was decided last week in West Virginia. The WV Supreme Court ruled in a gas royalty case that not only has significant implications for WV landowners (and drillers), but also may reverberate across the border into neighboring Pennsylvania where the same issue has been a long and contentious fight–what we call a civil war between landowners and drillers. Like all such cases, this one is complicated and not easy to summarize, but we’ll do our best. The WV Supremes have just handed down a decision that says, in essence, that EQT (and by extension other drillers) cannot deduct post-production expenses when calculating royalty payments to landowners. Specifically, the justices in their ruling said that drillers can “not deduct from that (royalty) amount any expenses that have been incurred in gathering, transporting or treating the oil or gas after it has been initially extracted, any sums attributable to a loss or beneficial use of volume beyond that initially measured or any other costs that may be characterized as post-production.” Yikes! That is fantastic news for landowners who now have a case to recoup money deducted from their checks–and really bad news for drillers who will owe that money. The big winners are, of course, the lawyers who will litigate this for years to come. However, hold on to those briefs–EQT has just appealed the decision, asking the WV Supreme Court to reconsider their decision, gently chiding the court for erring in their interpretation of state law on royalties…
As we previously noted, last week the Bureau of Land Management (BLM) proceeded with an online auction for BLM-controlled land in Ohio’s Wayne National Forest (see 
All seven members of the Bowling Green City Council (Wood County) unwisely voted to reject an offer from Spectra Energy’s NEXUS Pipeline to lease 4 acres of city-owned land for the pipeline. Why unwise? Because the project is close to receiving its final federal approval, which will give it the right to use eminent domain to use the land anyway (see 
MDN has highlighted the importance of the Ohio Supreme Court’s decision with regard to the Ohio Dormant Mineral Act (DMA). In September the OH Supreme Court ruled in three DMA cases, saying all of the other cases come under those three (see