Mr. Heath began his
presentation by talking about the Landmen, the fleet of salesmen that convince
landowners to sign drilling leases. He felt that a number of them attempt to
get landowners to sign through dishonest means, creating false impressions,
telling half-truths and obscuring the full and serious implications of fracking
and the lease itself. “The landmen don’t reveal the nature of what you are
signing, so I want to explain what is given away in a standard lease.” He
emphasized that “ we are not talking about your grandfather’s gas well, we are
talking about heavy industrial operations. The terms are very pro-company and
unfavorable to a landowner. Most people do not read the document carefully or
understand them. They are very complex business transactions with enormous
environmental implications. They will impact your title, mortgage, and possibly
your ability to get a mortgage and insurance. Many people have said to me ‘before
I signed I asked my family lawyer about it and he said, ‘oh, go ahead and sign,
it’s just a gas lease’. You have to find someone who knows the intricacies of
these leases because the landmen are trained to defraud you”.
“Many people think that a lease
just lets a gas company put a well on their property, but it’s a lot more than
that: roads, power lines, compression stations, wastewater ponds, not things
you want near your home. You give them the right to store gas underground, if
the geological conditions are right, no matter where the gas came from. A lease
also gives the company the right to take non-domestic water sources, meaning,
they can’t take water from your existing well, but could drill their own well
and take as much water as they want.”
“Another problem is how they
calculate royalties. All the company’s
expenses, the cost of transport, marketing, treatment, compressing, are taken
out before you would begin to see royalties. If gas is selling like it is now
around $2 there won’t be any royalty payments because there won’t be any
profit. The lure of the royalty payment is often an illusion.”
“The pattern I see is that
the lease is structured to benefit the corporation as the lease progresses over
time with clauses favorable to the company and harmful to the landowner. Ending
the lease is not straightforward in New York and leases do not automatically
terminate at their agreed end; you have to take very active and sometimes
complex steps to terminate. There are automatic extension clauses – all the
Chesapeake standard leases I have seen have them- and if you don’t cross them
out when you sign, your lease will be automatically extended for another five
years. Companies are invoking ‘Force Majeure’. This means if I am building you
a house and there was a flood that prevented me from getting to the site – that
is an act of God that has interfered with my obligations under the contract. Chesapeake
sent a letter to all of their leaseholders claiming that New York’s regulatory
situation – where they are not issuing permits during the time that the DEC is
reviewing regulations – gives them the right to extend all leases under Force Majeure.
I don’t think these claims will hold up in court but the problem is if a
landowner has to take these large corporations to court it’s almost impossible.
Additionally leases can be extended, by what in PA. are called ‘operations’. It
should mean if there is a working well on your property and it’s producing,
then your lease will extend, but the definition of ‘operations’ has been taken
to a very different level of complication for the landowner. The language in
the lease includes what companies call ‘clearing operations,’ construction of
access roads, or the delivery of heavy equipment. Or anything similar – it’s very
broad language to include just about anything. At the end of a five-year lease,
a family in Pa. had had no activity on their land and thirty-one hours before
the end of the term, the gas company staked out an access road and put a
bulldozer on it. The bulldozer wasn’t even on their particular parcel of leased
land – the company had created a large ‘pooling unit’ consisting of a group of
properties and claimed 20 leases were extended by parking one bulldozer. Now
they are in court.”
Mr. Heath ended his presentation
by sharing the complex steps a leaseholder must take if they are near the end
of a lease term and want to terminate. “Once people understand what these
leases are doing to their real estate I recommend that you use this process
because it is an encumbrance on your title. The New York State law starts off
looking great, it states that once the lease ends in five years the Company shall send you a document that can be
recorded and you go to your county clerk and that will be the end of it. Shall is the problem because there is no
penalty or remedy if they don’t send it. If they don’t send you the recordable
termination notice, you have to send them a notice letter. Not only to the
original company but you have to notify any company that they have sold any
portion of your lease to.” This is where it gets complicated because as Mr.
Heath described, “companies like Chesapeake sell off collections of leases for
profit, often to foreign companies. They can’t make a profit selling gas at low
prices – but they can make a profit by bundling and selling leases to other
companies in places like Norway, Australia, and China. They also sell the gas
overseas at higher prices than they can sell it domestically. [For an in depth
article about this practice read “The Big Fracking Bubble: The Scam Behind the Gas Boom”. You won’t know if they have sold your
lease, or a portion of it. What Chesapeake did when they sold a third of all
their leases is they went to the county clerks, filed one document that
implicated 800 or more property owners per county. The property owners got no
notice that a portion of their lease had been sold. Not only do you have to
send a specific letter to the original company, you have to send a notice to
all of them. None of this will be under your name – it will be under the company’s
name like Chesapeake, Cabot etc. I’ve worked with leaseholders in Cortland Co.
who had to send letters to 8 different companies. They have to be sent by
certified mail, and they have to be very detailed with very specific
information and particular affidavits. All the forms can be found on the GDACC
website [Gas Drilling Awareness of Cortland County]. You send the required
forms and wait thirty days. You then
take the letters and forms to the county clerk and the lease is terminated. But
this is where the landowner is in a catch-22 type situation. During that thirty-day
period all the gas company has to do is file a simple letter with the county
clerk saying ‘we are extending the
lease’. The dilemma is that by notifying the company of your intentions you
have opened up a thirty-day window for them to take some action that they might
have otherwise not taken. If this happens and your lease is extended you have
to go to court and that is very difficult for an individual.”
The program concluded with
Mr. Heath’s offer to look at leases and give advice. There was a long line of
people with leases in hand waiting to speak to him.
Another in-depth resource for
the landowner who signed a lease before understanding the full implications and
the threats that hydrofracking poses is Fleased.org. Click on resources
and there are videos of Joe Heath, forms for the leaseholder, and many articles
on leasing issues.
Some other resources and videos:
Residents with expired leases fight extensions
No comments:
Post a Comment