Promise, peril in gas fields

Date: February 28, 2011

Family feels deceived by Chesapeake Energy\’s small offer and may fight back.


MONTROSE — As she lived out her final years in a nursing home, 94-year-old Bernice Price had a visitor one day, a stranger interested in her family\’s wooded, 115-acre spread. Would she care to lease it to one of the nation\’s biggest energy companies?

It was a paltry offer, only $50 an acre. Price accepted it, signing a 10-year lease giving Chesapeake Energy Corp. the right to sink gas wells on the former dairy farm in northern Pennsylvania.

While other landowners living atop the gigantic Marcellus Shale gas field made similar bad deals as the gas rush began in 2007 — signing industry-friendly leases for a relative pittance — Price\’s leasing story came with a twist: She wasn\’t the only person who had a say in what happened to the land. Her three grandchildren shared ownership and they knew nothing about the agreement.

Chesapeake not only didn\’t get their consent, the company never approached them about the land that\’s been in their family since the 1830s.

“We weren\’t even invited to the party,” said Craig Stevens, her 50-year-old grandson.

Stevens and his siblings were incensed when they found out, accusing Chesapeake of going behind their backs and disregarding their rights as co-owners. They worried that drilling would ruin the land. They also remembered the words of their late father — Bernice Price\’s son — who had voiced deathbed concerns about the approaching gas boom and warned them not to sell out.

Now they were confronted with a dilemma.

Should they fight to keep Chesapeake off the property? Or should they swallow their anger and try to persuade the company to make them an offer, one that would not only pay more than their grandmother had agreed to but include adequate protections for the place they held dear?

Their story, played out over years and concluded just this month, illustrates both the promise and the peril for landowners above the vast Marcellus Shale, a rock formation more than a mile deep that holds the largest known reservoir of natural gas in the United States — one that could supply the entire East Coast for 50 years.

Recent technological advances have allowed drillers to reach and free the gas for the first time, creating a rush that is transforming sleepy villages into boomtowns and fattening landowners\’ bank accounts by billions of dollars. Chesapeake alone has forked out more than $1.1 billion in Marcellus lease payments and royalties since 2008.

Yet environmentalists and many homeowners in the Marcellus are fighting the gas industry, contending it is turning a bucolic region of small towns and farms into an industrial zone replete with heavy truck traffic and poisoned drinking water.

In Dimock, Pa., for example, homeowners sued last year after Houston-based Cabot Oil & Gas Corp. drilled faulty wells that allowed methane and, possibly, toxic drilling chemicals to escape into their drinking water aquifer. Chesapeake itself has been blamed for instances of methane migration into some nearby water supplies, though no link to the company has been proven. Federal environmental regulators are also studying the environmental consequences of “fracking,” a controversial drilling technique in which crews inject millions of gallons of water, mixed with sand and chemicals into each well to crack open the shale and release the gas.

A few miles away from Dimock, in Silver Lake Township, Bernice Price\’s heavily wooded tract was an insignificant speck on Chesapeake\’s map. The Oklahoma City-based company is the most active driller in the United States and the largest stakeholder in the Marcellus Shale, with 2.7 million acres under lease.

But the land meant everything to Craig Stevens, a sixth-generation owner.

So, a few days before Price\’s death in January at the age of 97, Stevens moved in to the family\’s century-old wood-frame home — determined to set right what he believed to be a terrible wrong.

She had signed near the beginning of a leasing frenzy in which landmen, working on behalf of dozens of drilling companies, rushed to lock up millions of acres in the huge untapped gas field beneath Pennsylvania, New York, West Virginia and Ohio.

Most landowners who signed early could do little but stew as lease prices climbed ever higher, and neighbors banded together and signed lucrative master leases bringing thousands of dollars per acre. But Stevens believed he had a strong case against Chesapeake.

“I was really sickened that they hunted my grandmother down in the nursing home. They came in here as used-car salesman, snake-oil guys,” Stevens said. “I\’m sure they were down there stroking her hard: \’Your family will be millionaires, set for life.”\’

Strolling an overgrown pasture with his two young sons in late summer, Stevens said he believed that Price, though mentally competent, didn\’t have a clear understanding of what she was agreeing to.

“This is all about getting their meat hooks and Dracula fangs into the ground,” the California native said.

He gestured out over the hushed landscape, where thick stands of ash, cherry, oak and maple give way to a 15-acre clearing where dairy cows used to graze. Two natural springs, a stream, and abundant wildlife — including bear, fox, coyote, deer and turkey — complete the picture. “It\’s beautiful. It\’s not something I want to see destroyed.”

A bulldog of a man — friendly but tenacious, with close-cropped hair and a solid, compact build — Stevens was motivated to speak out in part by his deathbed conversations with his father.

Lloyd Stevens lived with his mother, Bernice Price, for more than a decade after she was seriously injured in a 1994 car accident. Occasionally, drilling company representatives came knocking. He always shooed them away.

Diagnosed with terminal cancer in 2006, Lloyd warned his son about gas drilling. The elder Stevens had co-founded a nonprofit group that manages Salt Springs State Park, a nearby gem that boasts three waterfalls and 300-year-old hemlock trees. He worried that drilling would ruin the unspoiled beauty of his little corner of the Endless Mountains.

Lloyd also had a keen business sense: He knew the family homestead was worth a whole lot more than the landmen were offering.

“Dad knew there was something here. He could see the changes. The last few days of his life, he said, \’Here\’s what I want you to do. Here\’s what my wishes are,”\’ Craig Stevens recalled. “\’Don\’t sign a gas lease\’ was his thing.”

Lloyd Stevens died on April 30, 2007.

Less than three months later, his mother signed the lease.

The agreement was ratified by her other two children, each owning a one-third share of the property. The remaining one-third stake was inherited by Lloyd\’s three children — Craig, his brother Mark, and their sister Laurie Strawn.

It\’s unclear why Chesapeake apparently made no attempt to contact them about a lease when its own policy says that it should try to obtain agreements with “all co-tenants prior to developing minerals.” Indeed, there\’s evidence that Chesapeake was aware of the divided ownership. Mark Stevens received a sheath of documents earlier this month that included an old ratification letter that bore his name and address, along with a sticky note indicating it should be “sent soon.”

It never was.

In a statement Oct. 1, Chesapeake said that while its policy calls for inclusion of all owners, it was not legally bound to get the signatures of the grandchildren in order to drill on the property. Chesapeake cited a 100-year-old Pennsylvania court case to bolster the claim.

Brian Grove, senior director of corporate development, said Pennsylvania and other states follow a “majority rule” allowing a landowner to develop minerals without the consent of the co-owners — so long as the non-consenting parties receive “an accounting for their interest in the minerals developed.”

Thus, he said, “It is Chesapeake\’s position that the lease and the ratifications are legal and binding and in full force and effect.”

Stevens and his siblings were in the dark for 14 months until a letter arrived from their estranged aunt: “As you should know,” it said, “Gram signed a ten-year oil and gas drilling lease on her property in July \’07.”

Strawn, for one, was shocked.

“We were very unhappily surprised,” she said. “They did exactly what my father said he had feared for the community: They had signed for very little money, and without regard to the potential environmental problems or liability issues.”

Copyright: Times Leader

Joe Price
Attorney Joe Price is a seasoned Trial Lawyer serving Northeast, Central and Southeast Pennsylvania for the past forty (40) years. He has handled serious personal injury cases in courts throughout the Federal system including New Jersey and New York. Attorney Price is A.V. Rated by Martindale Hubble. He is Board Certified in Civil Practice by the National Board of Trial Advocacy since 1996.