From what I gathered from the article, there were 2 separate payments the land owners were expecting:
1. A signing bonus for signing with Chesapeake instead of EnCana.
2. If successful wells are drilled, royalties.
Also affected was John O'Hair, a former judge and chief county prosecutor in Detroit. He leased his 140-acre family farm in Antrim County, Mich., to O.I.L. in a contract that offered an $84,000 signing bonus. If successful wells were drilled, the O'Hairs would receive 12.5 percent royalties.
The broker, David W. McGuire of O.I.L. Niagaran, voiced concern about Chesapeake's directives, court records indicate. He told McClendon that Chesapeake was asking O.I.L. to default on contracts that Chesapeake never intended to pay, according to the court records.
McGuire told McClendon that he had "never been put in a position like this," court records show. His comments were recounted in court this month by lawyers representing land owners.
By the time he arrived, Koonce says, Chesapeake's strategy was to abandon leases it had already signed. "Our instructions were to flunk the title if there was a word misspelled," Koonce says. He says he decided to speak publicly about the situation because he objected to the approach.
Chesapeake's main competitor in Michigan, EnCana, told Reuters that it honored the vast majority of leases it signed in the state and has faced no lawsuits that allege it reneged on any leases there. EnCana "very rarely" voids any lease it has signed, spokesman Alan Boras says.
Q. How much money can I expect if I sign an oil and gas lease?
A. The benefits to a landowner flowing from a lease primarily consist of three things. First, the lease may provide the landowner with the right to use a certain amount of free gas from the well for household use. This could easily add up to $2-3,000 each year and this could go on for decades. Second, the lessee is often willing to pay a signing bonus or delay rentals in return for your execution of the lease. These numbers are scattered all over the board and really depend on how “hot” your neighborhood is for oil and gas production and the current market price for oil and gas. Finally, if a well is drilled, you will also be receiving a royalty that is based upon the amount of oil and gas sold from the well – again, all over the board.
Frequently Asked Questions About Oil and Gas Leasing and DrillingSince no wells were drilled, obviously they don't get the royalty check. But since they did infact sign with Chesapeake, it is my understanding they are still owed the signing bonus.
And the article said that Chesapeake doesn't think it violated the law. The pantiffs obviously do think they violated the law. If the signing bonuses were contingent upon wells being drilled, I don't think Chesapeake would be using such slimy tactics as rejecting leases for misspelled words.
Legal scholars say the operation serves as an intriguing test case of the use of shell companies. The tactics "raise moral and ethical questions about how entities can be used," says Joshua Fershee, a contract law professor at the University of North Dakota. "If Chesapeake knew from the start there was a good chance it would renege on leases and used (Northern) to avoid liability, that is improper," says North Dakota law professor Fershee.
The oil barrel is half-full.
