Shale court battles: One loss and one settlement in the works

STEUBENVILLE, Ohio — A Jefferson County farmer lost his court battle with the Hess Corporation in May.

However, other area landowners may benefit from another court fight that has a proposed settlement on the bargaining table.

David Cameron, a Jefferson County dairy farmer, lost the legal battle over his oil and gas lease in the U.S. District Court for the Southern District of Ohio, Eastern Division.

Background

The Hess Corporation filed an appeal after a lower court judge ruled in favor of Cameron in the fall of 2013.
Cameron and Steven J. and Melissa Griffith, of Mount Pleasant, Ohio, had filed a joint lawsuit in January 2012.

Cameron owns approximately 166 acres and the Griffiths own approximately 228 acres. The Griffiths signed their lease in 2007 and Cameron signed his lease in 2008, both with the Mason Dixon Corporation.

In the first decision when the Griffith and Cameron cases were still joined, the judge ruled the leases were invalid because of a statement over delayed rentals.

During the appeal process, however, the single case was broken into two separate court cases.

Court battle

Cameron lost the court appeal mainly because the judge ruled the lease could be subject to two or more reasonable interpretations and because Cameron cashed a check for delayed rentals.

Christopher Gagin, Cameron’s lawyer, said Cameron had a tractor that needed repaired and he needed the money to keep farming.

However, the District Court interpreted that cashing the check meant Cameron granted an extension of the lease on his land.

Hess pleased

“The Court correctly ruled that Hess’ lease with the mineral owner is valid,” said John Roper, senior manager for onshore communications for the Hess Corporation, in an emailed statement. “This ruling is well supported under Ohio law.”

Griffith case

Gagin, who is also the attorney for the Griffiths, shared an update on their lawsuit, as well as another case brought by Anthony and Nancy Kelich, of St. Clairsville.

At the crux of the Griffith case is language in their lease that states, “if operations for drilling are not commenced on the leased premises or on acreage pooled therewith, on or before twelve months from the date (June 14, 2007 in the Griffiths’ case), this lease shall then terminate as to both parties unless lessee (Mason Dixon), on or before the expiration of the said period, shall pay or tender to lessor the sum of $100 per mineral acre of the associated lease, hereinafter the called the ‘delay rental,’ which shall extend for 12 months the time within which drilling operations may be commenced.”

Likewise, in a federal court in Columbus, Ohio, a judge held the Keliches’ oil and gas lease terminated under its own terms in December 2011, because Hess Ohio Resources failed to commence drilling operations, or make a required delay rental payment, prior to the end of the lease’s initial five-year term.

Settlement

Now, a proposed settlement for both the Keliches and the Griffiths has been offered, according to Gagin, and it could affect the owners of up to 20,000 acres in Belmont and Jefferson counties.

Specifically, the settlement could cover close to 300 leases that Mason Dixon Energy originally obtained in 2006, 2007 and 2008. The Mason Dixon leases were sold to Hess Energy in 2011.

Gagin said Hess has offered a settlement and so far 60 landowners with leases like the Keliches or Griffiths have signed the settlement agreement.

The settlement would mean the landowner’s lease with the Hess Corporation would remain in effect.

Although terms were not released, the settlement would mean a bonus delay rental payment, additional land use protection and a bump in royalty payments.

Hess declined to comment about the proposed settlement.

In January, Hess announced the company had reached an agreement to sell its leased acreage for $924 million to American Energy Partners, founded by former Chesapeake Energy Corp. CEO Aubrey McClendon. American Energy Partners now holds leases on 260,000 acres in the southern Utica Shale play, predominantly in southern Jefferson, Belmont, eastern Guernsey, Harrison, Monroe and Nobel counties.