Environment
10:28 am
Tue April 5, 2011

Landowners sue gas companies over leases

Last May, oil and gas companies spent hundreds of millions of dollars buying up rights to drill in Michigan. By summer, private landowners in northern Michigan had signed leases promising record payments to drill on their land. But by the end of the year, the frenzy over the new gas play had fizzled. And, as Bob Allen found out, hundreds of people were claiming they’d been cheated.

The first person to file suit against the gas companies in Emmet County is Mildred Lutz.

A sturdy 92 years old, she still keeps a garden and cans her own vegetables.

Last summer, a man knocked on her door and offered to pay her almost a hundred thousand dollars for the oil and gas deep underground beneath her farm.

Mildred had just lost her husband of sixty-nine years, Carl. And she thought the money would come in handy for a whole list of expenses, including funeral costs. So after talking it over with her five children, she signed a lease and took the document to the bank in Alanson to be notarized.

She never heard another word from the oil and gas developers and she never got paid.

And how does she feel about that?

“Well, not very good. I don’t know, I’ve always kind of had the feeling of trusting a lot of people, I guess. I hate to see people being dishonest. When you do that, you’re just really hurting a lot of people that were depending on this.”

Attorney Bill Rolinski says he’s heard from a lot of people who ended up in the same boat as Mildred Lutz.

So far, he says he’s filed a handful of lawsuits against six companies. But what he discovered is that they all were working on behalf of Chesapeake Energy, the second largest natural gas supplier in the country.

He contends they acted together to manipulate the market by bidding up the prices of leases to record levels, in effect driving out competition.

That means landowner’s properties were tied up in those leases.

Meanwhile, Rolinski says, Chesapeake drilled a test well. And he believes the test showed the Collingwood shale formation isn’t as promising as the company first thought.

So after that, he alleges, Chesapeake and its agents bailed out of these leases for what he calls bogus reasons. And hundreds of landowners were left holding worthless contracts.

“It didn’t say in the contract: if the wells are good I will pay you, if they’re not any good I’m not. But that’s in effect what happened.”

An attorney for Chesapeake says that’s an interesting story, but good luck proving conspiracy in a courtroom.

Steve Barney of Petoskey is representing all the companies named in the lawsuits in northern Michigan.

“One of the easiest things to put in a complaint are allegations relating to fraud and conspiracy. But they’re also the hardest to prove. And, all I can tell you is I would be absolutely flabbergasted if there is evidence produced supporting any of those allegations, period.”

Barney says only a small fraction of leases was rejected and for good reasons.

The main reason is the property has a mortgage on it. And Barney insists that can put a multi-million dollar well at risk if a property owner defaults and the bank forecloses. But attorneys for landowners say the vast majority of properties in Michigan have mortgages on them, and if all potential leases on those properties were rejected mineral development would never get done.

Besides, Bill Rolinski says, other gas companies such as Encana paid up.

“Here’s Encana taking x number of leases in one county, paying 90% of their leases, all right. And here’s Chesapeake, et al taking the same number of leases in the same county but paying none of them. There’s got to be something wrong there, you know?”

It will be up to the courts to decide who may have done wrong.