Tuesday, February 07, 2012YOUNGSTOWN, Ohio -- An attorney representing landowners in Carroll and Columbiana counties says he's preparing to ask a federal judge to rule whether these landholders have the right to terminate their lease agreements with Chesapeake Energy Corp. and negotiate a better deal with another company.
"We'll ask the court to make a ruling on the four corners of the agreement," states Robert Tscholl, a North Canton attorney representing some of the 95 landholders who seek to end their leases with Chesapeake Exploration LLC, a Chesapeake subsidiary. "We agree we want a speedy resolution. We'll ask the judge to tell us who's right and who's wrong."
Oklahoma City-based Chesapeake Exploration filed a lawsuit in U.S. District Court for the Northern District of Ohio Jan. 25, arguing that they don't have the right to terminate the leases. The case is assigned to Judge John Adams.
But Tscholl says his clients are protected by a paragraph in the lease agreement that allows them to consider a third-party offer that Chesapeake would be forced to match or exceed.
The defendants sold their mineral rights to Denver-based Anschutz Exploration Corp. between 2008 and 2010. Then, the rights were commanding between $10 and $50 an acre for signing bonuses, and 12.5% royalties on net production returns, he says.
Anshutz sold the leases to Chesapeake in 2010.
Today, leases are attracting between $5,000 and $6,000 an acre, plus 20% royalties on gross production. Another company, Tscholl says, is interested in paying closer to that average, and he argues the lease includes language that allows this to happen,
According to the court papers, the leases remain in effect for three years and provide for a three-year extension option for the lessee.
Tscholl points to a preferential right to renew paragraph in the lease agreement that he says enables the landholders to terminate the leases and negotiate with another company.
"There were even several landmen who told them this could be used to get a better offer," he says.
In December, the defendants notified Chesapeake that they had received a more lucrative proposal and asked the company to match the higher mark or the leases would be terminated.
Chesapeake responded by filing a lawsuit Jan. 25, contending the landholders have no right to terminate the leases. "The preferential right to renew provision does not provide the lessor the right to terminate his or her lease before the end of the primary term. Indeed, the preferential right to renew provision does not contain any termination provision whatsoever," court papers say.
Chesapeake has stepped up activity in eastern Ohio because of vast natural liquid gas repositories in the Utica shale, a rock formation deep beneath the state. The company has locked up tens of thousands of acres in Carroll and Columbiana counties and drilled eight wells in Carroll County alone last year.
Copyright 2012 The Business Journal, Youngstown, Ohio.