Columbiana County property owners negotiate new oil and gas lease terms

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SALEM, Ohio — More than two dozen property owners who signed oil and gas leases in 2008 have been permitted to re-negotiate certain details of their lease, following a lengthy four-year battle in court.

The 25 property owners, mostly from Columbiana County, signed leases in 2008 for about $10 an acre, thousands of dollars less than market value, and under terms they say were misleading.

The leases were purchased by Patriot Energy Partners, which was formed in 2007. According to court documents, Patriot then sold the deep rights to Chesapeake Exploration, for $1,100 an acre.

Unsatisfied

The property owners filed suit in Columbiana County Common Pleas Court Aug. 31, 2011, seeking to have the leases rescinded and declared null and void.

At the same time, Patriot and Chesapeake sought to continue the leases, through an arbitration clause found in the contracts.

On May 15, 2012, the common pleas court ruled in favor of the landowners, denying the motion for arbitration, but the energy companies successfully appealed the case before the Seventh District Court of Appeals, which the ruled last year the arbitration clause was valid.

Attorney Robert L. Guehl, who represented the property owners, said the property owners sought non-binding arbitration, and an agreement was ultimately reached through mediation, in July of 2014.

Guehl said the mediation took two days, and involved 53 changes to the leases, which ultimately resulted in additional payments to land owners in the event their properties are developed, additional payments if the leases are extended, and compensation to settle the litigation.

“The attorneys for Chesapeake, while defending their case vigorously, also were gracious and civil enough to come to a reasonable compromise position that allows Chesapeake to develop the oil and gas on the properties while also providing adequate protections and compensation to the property owners,” Guehl wrote in a statement to Farm and Dairy.

Mutually satisfied

Timothy McGranor, legal counsel for Chesapeake, and from the Vorys law firm of Columbus, said the case has been “resolved to the parties’ mutual satisfaction.”

He declined to say more, because mediation is a private process, privileged under Ohio law.

Mediation involves a mutual third party in an effort to dissolve a dispute, and is different from arbitration because it is non-binding.

The common pleas court dismissed the property owners’ case Jan. 29, 2015, and assigned one-third of the costs to Patriot, and two-thirds of the cost to Chesapeake.

Guehl said Patriot has a history of “lease flipping” and that the company had about 40,000 acres under lease with similar provisions as the New Hope property owners.

Some property owners have struggled to have their leases renegotiated and many have been unsuccessful.

Sticking together. Guehl said a big reason the New Hope group was successful was because “the group was unified.”

He said the challenges of taking on a big energy company are often too cumbersome and costly for individuals, but if landowners can stick together, they can sometimes be successful.

But, landowners can also avoid conflict by carefully reviewing the terms of a lease before signing it, and seeking expert counsel as part of the review.

Court documents show property owners were contacted by Patriot landmen over the telephone, with leases that were then mailed from Patriot to the landowners, for signature and return.

The landmen — those who contacted the landowners — were Patriot President Andrew Blocksom, Thomas Blocksom, Benjamin and Robert Dickey, and William Hlavin, of Bass Energy.

Guehl said most of the leases were signed without a lawyer’s review, or what the industry calls “on the hood of a pickup.”

Seek advice

His advice to property owners in the future is to review everything carefully, and seek outside help.

“Have (the lease) reviewed by someone who has some credentials in oil and gas,” he said.

Property owners

(These property owners were part of the mediation process with Patriot Energy and Chesapeake Exploration. There may have been additional names that could not be confirmed.)

New Hope Community Church; Leroy H. Baker Jr. and Christine A. Baker; Leroy H. and Edith Baker Trust; Christine Ann, Jeffrey, Bret H. and Leroy H. Baker Jr.; Richard and Billie Jo Cameron; Randy and Vicki Carroll; Larry and Beverly Dulaney; Thomas H. and Carol J. Excell; Lavern Jr. and Ursula Gossman; Nina Graves; Thomas and Nancy Keating; Bruce C. and Irma L. Meadows; David Miller; Thomas and Nancy Sherwood; James and Bonita Smeltzer; Evelyn Thompson, Clara Leatherberry; John P. and Phyllis Chestnut; Zeb and Judith A. Locklear; Timothy S. Peterson and Denise A. Tancer; and Michael and Craig Bushway.

Related coverage:

Starkey family bound by lease.

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Chris Kick served Farm and Dairy's readership as a reporter for nearly a decade before accepting a job at Iowa State University Extension. An American FFA Degree recipient, he holds a bachelor’s in creative writing from Ashland University.

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