New York Attorney General Eric T. Schneiderman today announced a landmark agreement with Chesapeake Appalachia, L.L.C. to allow over 4,400 landowners who were locked into unfavorable natural gas leases the opportunity to renegotiate with the energy corporation. Chesapeake, based in Oklahoma, is licensed to do business in New York State for natural gas exploration and extraction from lands in certain areas of the state.
New York Attorney General Eric T. Schneiderman today announced a landmark agreement with Chesapeake Appalachia, L.L.C. to allow over 4,400 landowners who were locked into unfavorable natural gas leases the opportunity to renegotiate with the energy corporation. Chesapeake, based in Oklahoma, is licensed to do business in New York State for natural gas exploration and extraction from lands in certain areas of the state. In addition, the Attorney General's agreement requires Chesapeake to pay the state $250,000 as reimbursement for the costs of the investigation.
As part of today’s agreement with Attorney General Schneiderman, Chesapeake has agreed that landowners with leases that were extended as a result of the Department of Environmental Conservation's (DEC) environmental review into high-volume hydraulic fracturing, or "fracking," have the right to negotiate leases with other gas companies for more favorable environmental or financial terms. Chesapeake will either match those terms or release the landowners’ original lease. The agreement includes leases which have expired or will expire prior to Dec. 31, 2013.
Terms of the Attorney General's agreement with Chesapeake include:
Chesapeake will not use the Environmental Review by the DEC as a reason to extend any leases expiring after Dec. 31, 2013;
Chesapeake will release leases that have been extended using only the Extension of Term where a blank has been left for the negotiated factor. Some of the contracts had blanks in them where a monetary amount should have been;
All other landowners, except those extended by an Extension of Term provision, with leases having expired, or expiring on or before Dec. 31, 2013, have the right to negotiate bona fide offers from other companies; Chesapeake will then either match the new offer, or release their lien;
Chesapeake will still be allowed to extend leases that have an Extension of Term provision if it does not contain any blanks and has not yet expired;
Chesapeake will make quarterly reports to the Office of Attorney General on the number of leases it has renewed, matched and released;
Number of Leases to be released outright: 50 (8,604 acres);
Leases subject to being matched: 4,365 (255,579 acres); and
Leases with the option to be extended by Chesapeake: 1,865 (96,524 acres).
In June 2009, Chesapeake sent letters notifying owners with leases whose terms were set to expire that the company was electing to extend those leases. In these letters, Chesapeake adopted the position that it could not perform any exploration and development operations for shale wells until the DEC completed preparing a Supplemental Generic Environmental Impact Statement (SGEIS) for high-volume hydraulic fracturing. In some cases, Chesapeake had leases with landowners that went back to the mid-to-late 1990's.
Chesapeake told landowners its leases contained provisions allowing Chesapeake to extend the terms under force majeure, purported force majeure and “covenants” clauses and/or other common law rights based on the principles of force majeure. Force majeure is a clause found in contracts that exempts the contracting parties from fulfilling their obligations for causes that could not be anticipated.
Today's agreement allows landowners, who were under Chesapeake's force majeure contract claims, to be released.