Landowners dig in, sue over shale leases

Chesapeake Energy Corp. has nabbed a tidy sum from selling just a portion of the oil and gas leases it owns in Ohio's shale fields. But the leases also are causing legal pain for Chesapeake, which is the object of a lawsuit by angry landowners who maintain the energy company enriched itself by failing to compensate them properly for the rights they signed away to the natural resources under their property.

Thirty-three landowners in Columbiana County who have leases with Chesapeake are suing the company. In a single lawsuit, they claim they got less than 1% of what they should have received in up-front bonus payments when they signed their leases, and that the true value of their holdings were hidden from them. In addition, the suit alleges the landowners were not fully informed of the disruptions that would take place on their property, and so did not seek protection from them in their leases.

According to the suit, filed last Monday, Feb. 27, in Columbiana County Common Pleas Court, those landowners signed leases with an agent for Chesapeake, Denver-based Anschutz Energy Corp., between 2008 and 2010, before the value of Utica shale resources widely was known. 

Land agents “concealed and/or actively misrepresented and/or failed to disclose the much greater surface, subsurface, and operational disruption as well as dramatically greater profit potential and value of oil and gas drilling rights that Columbiana County landowners owned,” the suit states. 

The landowners are suing several employees of Anschutz, along with Oklahoma-based Chesapeake. 

In a separate lawsuit, filed Jan. 25 in U.S. District Court in Akron, Chesapeake is suing 95 other Ohio landowners for attempting to get out of their leases and sell them to another bidder. 

Chesapeake declined to comment on the lawsuit against the company, and an Anschutz spokesman did not return a telephone call to discuss the case. 

However, Chesapeake did say it risks its own money in finding and proving underground reserves. 

“The bonus payment should not be viewed as equal to the value of the commodity that exists within the acreage,” Chesapeake director of corporate development Keith Fuller in a Feb. 27 email to Crain's Cleveland Business. “Remember, the financial risk of drilling remains solely with the operator as the reserves are still unproven. The landowner, while assuming no financial risk, retrieves monetary gain.”

Chesapeake hasn't been shy about bragging about the deal it got on its Ohio leases, though — at least not to the investment community.

An 'exceptional' return

In speaking to analysts and investors about its 2011 results in a Feb. 22 conference call, Chesapeake CEO Aubrey McClendon said his company had paid about $2.2 billion for leases in Ohio's Utica Shale. It then sold a 20% interest in those same leases to outside investors in order to raise capital for drilling and production, and got more than five times what it paid for them initially, Mr. McClendon said. It sold a 20% interest in its Ohio leases, mostly to foreign investors, for $2.3 billion, he reported. 

http://www.crainscleveland.com/article/20120305/SUB1/303059993