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Wheeling suit says Chesapeake took gas without leases

WHEELING, W.Va. — Chesapeake Energy sold its way out of West Virginia’s Marcellus shale play via a $5 billion deal last year, but multiple Wheeling non-profit groups believe the company caused them “hundreds of thousands of dollars in damage” by taking oil and natural gas without a lease agreement.

The Parks System Trust Fund of Wheeling – an organization closely related to the Wheeling Park Commission, which oversees Oglebay Park and Wheeling Park – joined Ohio Valley Medical Center and four other plaintiffs in filing a federal lawsuit against the Oklahoma City-based firm May 1.

The organizations believe Chesapeake’s local operational unit, Chesapeake Appalachia, committed fraud and trespassing by drawing natural gas and oil from property owned by the non-profit groups without a legal lease agreement.

 

Joining the Parks System and OVMC in filing the complaint in U.S. District Court for the Northern District of West Virginia in Wheeling are the Elmhurst House of Friendship, Vance Memorial Presbyterian Church, the Children’s Home of Wheeling and the YWCA.

Each of the organizations hold an ownership interest in 224 acres worth of property in Ohio County bequeathed to them in 1957 by Annie M. Jacob, according to court documents.

“Defendant Chesapeake Appalachia intentionally and with full knowledge that it did not have valid and enforceable leases covering the Jacob Beneficiaries’ interests, drilled several wells within the drilling units that the plaintiffs’ property was pooled,” the complaint filed by Wheeling lawyers Charles J. Kaiser and Jeffrey D. Kaiser, states.

Chesapeake spokesman Gordon Pennoyer declined to comment on the matter.

Units, wells and production

West Virginia Department of Environmental Protection records show Chesapeake produced a total of 783.3 million cubic feet of natural gas and 81,414 barrels of oil from three specific Ohio County wells in 2013:

When natural gas drillers such as Chesapeake form pooled units, they often include property from several different mineral owners to complete the unit.

Documents on file in the Ohio County Clerk’s Office showed Chesapeake pooled together 27 separate leases in the Oglebay Park area to create the Timmy Minch drilling pad. The majority of this acreage is in the name of the Wheeling Park Commission and the City of Wheeling, which each signed contracts to allow the drilling on the Oglebay property in late 2009.

The Parks System, OVMC and their fellow plaintiffs believe Chesapeake incorporated the acreage bequeathed to them from Jacob into the Rayle and Hall drilling units – and then produced the oil and natural gas from them without leasing the property.

Chesapeake/Southwestern Energy Deal

After leasing, drilling and producing throughout West Virginia for several years, Chesapeake sold its Mountain State operations to Houston, Texas-based Southwestern Energy Co. for $5 billion late last year. The West Virginia DEP now lists Southwestern as the operator of wells in question, but company spokeswoman Susan Richardson said the firm is not responsible for anything that happened prior to the transaction.

“Under the purchase and sale agreement, Chesapeake retains liability for all obligations relating to the properties before the effective time of the transaction. We have no comment on any governmental inquiries or investigations regarding Chesapeake,” she said.

A Chesapeake filing with the Securities and Exchange Commission late last year stated the U.S. Department of Justice is investigating the driller’s royalty payment practices.

Requests for relief

Meanwhile, the plaintiffs believe a third-party firm working on Chesapeake’s behalf, Redsky, helped Chesapeake commit fraud by attempting to get the landowners to sign leases for the property in question in March 2014. This occurred after the non-profits believe Chesapeake already took oil and natural gas from their property.

The plaintiffs also allege Chesapeake trespassed on their property by taking the minerals without a lease, so they believe this cost them “hundreds of thousands of dollars” worth of lost revenue. They also want Chesapeake to provide them with complete accounting records for all natural gas and oil pumped from their land.

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