Replies to This Discussion

Permalink Reply by P.G. on August 14, 2013 at 4:24

I wonder if there could be extreme penalties written in leases for any violation of the terms..

Maybe 100 or a 1000 times charges or more of the amount that is in violation...

The little guy doesn't have the resources to sue but if the money recouped was made large enough...maybe there'd be plenty of those attorneys with the hats who'd take such a case on contingency...enough to make it worth their while so to speak...

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Permalink Reply by Skip Peel - Mineral Consultant on August 14, 2013 at 4:41

A lessor may write anything they wish in a lease.  The question is whether a lessee will accept it.  I doubt the guy with the hat would know a horizontal Pugh clause from a habendum clause.  These suits are not for personal injury attorneys/firms. This issue will take quite a while to be heard in all its variations and in all the jurisdictions where suits are filed.  Hearings to determine the court that will hear the suit, jurisdiction (state district or federal), can take a couple of years. The pre-trial discovery can also take additional years trying to pry the facts out of CHK (or any operator for that matter).  Then the challenge moves to finding "experts" who can break down and explain the very technical aspects of gathering, treating, transporting and marketing natural gas.  The industry has thousands of experts to choose from but it is quite difficult to find  an expert acceptable to a court who is willing to testify for the plaintiff(s).  Obviously those that testify for plaintiffs loose any chance of employment within the energy industry.  The cost to bring suits challenging royalty deductions is quite large and the chances of prevailing in a court of law are quite unknowable.  Few O&G attorneys would consider taking such cases on contingency.  The risk is too great.  It takes plaintiffs with deep pockets and the will to endure years of litigation to bring these suits. 

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Permalink Reply by P.G. on August 14, 2013 at 5:09

Yes I know it would be complicated and expensive...
The abusers know that and appear to be using that fact to their advantage in taking advantage..

Too bad there couldn't be a standard clause that would create those deep pockets that would make honest business people in the industry..

From what seems to be so much abuse..it should be time for some legal oversight..

I'd hate to see more gov regulation but with all the complaints of abuse, looks like it's time for something to stop this one sided abuse...

If the oil companies are going to what ever they want...why even have a lease..?

My lease finally expired and the lease says I'm suppose to get a letter within 45 days to file to show it has expired or something like that...I never  got one...not really sure I want one..If the drilling activity happened in my section..I'd rather be last to lease than first...but then from reading all the complaints about abuse..I'm not looking forward to leasing at all if the lease isn't going to be worth the paper it's written on....

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Permalink Reply by Skip Peel - Mineral Consultant on August 14, 2013 at 5:18

The chances of legislation at any level to address this problem is nil IMO.  Sad but the reality of current day special interest politics.  The courts will have to rule and rulings will have to withstand appeals.  Case law will eventually define what is legal and what is not and what wording is required to make the distinctions clear and enforceable in lease language.

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Permalink Reply by 1kw6x71km1v37 on August 14, 2013 at 7:18

The only way I can imagine to avoid the horribles Skip Peel discussed above is to word a lease with a default clause--the operator is in default if he makes any prohibited charges. As such, a lessor suit may survive a summary judgement hearing and result in a damage award straight away.

Most oil and gas companies are not going to accept such terms. So thereby you can smoke them out on their true colors if push comes to shove. Somebody is going to do you  like that and then hide under the skirts of the courts for years, you are better off unleased in Louisiana, where your mineral rights are much stronger than they are if bound by lease. The operator sells your product, he has 180 days to pay, less cost. Pretty simple proposition compared to what Skip Peel described.

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Permalink Reply by Skip Peel - Mineral Consultant on August 14, 2013 at 7:35

It is true that Unleased Mineral Interests are treated more fairly under LA law.  However in an "unfair world" we all have choices to make that may not include the perfect solution.  The problem with being a UMI in a unit with horizontal wells to great true vertical depths with long laterals is well cost.  Those who lease and become royalty interests in a unit get paid from the first production and continue to receive those payments for the productive life of the well.  Those who are UMIs in the unit do not receive payment until the well pays out.  As has been discussed numerous times there are many Haynesville Shale wells that will never pay out; recover their cost.  Is it more beneficial to be a royalty interest and get paid although those payments may be subject to deductions of questionable legality?  Or to be a UMI and risk never receiving any compensation for the ownership of minerals?  There is principle and then there is pragmatism.  The question is largely moot for those lessors under leases which do not contain No Cost Royalty clauses.  For the majority of mineral owners the best course is to lease.  For those under a lease with a No Cost Royalty clause they can rightfully complain and hope for relief from the courts while continuing to deposit that monthly check.  Many UMIs must settle for whatever satisfaction may be obtained from rightfully complaining.

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Permalink Reply by w.r. frank on August 14, 2013 at 11:26

Is CHK your Lessee?

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Permalink Reply by RONNY on August 14, 2013 at 15:04

No.  Chesapeake is the operator but not the lessee. These are minerals which I purchased from an owner who was leased with a third party.  The lease is owner friendly and the clause I quoted is in the lease.  However the lessee opted to remain a working interest(or participant) with Chesapeake instead of assigning the lease and is currently attempting to pay my royalty based on quarterly reports from Chesapeake which of course contain deductions.  I have spoken with the lessee about the difference in price and feel the exhibit "A" terminology is sufficient to receive a pre-deduction price.  I was just wondering if the clause I had was a sufficient "no-deduct" clause.  Thanks. 

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Permalink Reply by w.r. frank on August 15, 2013 at 0:49

I am told that CHK regularly shorts WI owners (your lessee) by charging unauthorized marketing fees from CEMI. Of course, as a WI owner, your lessee must bear not only production costs, but also post production costs. Getting straight answers from CHK on the true sales price of NG (and to whom sold) is difficult for WI and royalty owners. The entire system is designed to obscure the truth. Your "no cost" clause looks pretty good, but, of course, so does Ed Bass' clause in the Barnett and yet he and others are suing CHK for underpayment of royalty. It really doesn't seem to matter what the lease says.

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Permalink Reply by Joe Aldridge on August 15, 2013 at 7:36

Ronny,

It would seem to me that CHK can deduct the costs from the WI Partner but the WI partner cannot deduct those cost from the royalty interest you have.

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Permalink Reply by ken hatcher on August 15, 2013 at 13:47

A lot of us are taking one! I agree with Mr. Frank, some do as they please no matter what your lease reads.

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