Gas driller signs grandma, cuts grandkids from lease
Friday, November 26, 2010
MONTROSE, Pa. (AP) — 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 stolid, 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.”
The grandchildren are just as upset with their uncle — Lloyd Stevens’ brother, who evidently arranged for Bernice Price to sign the lease — as they are with Chesapeake. The uncle, who lives in Arizona, did not return phone calls.
Stevens began dialing Chesapeake’s regional office in Towanda last March, but his calls were not returned. He became increasingly frustrated and angry; the company seemed to be stonewalling him.
Finally, Stevens spoke with the company’s landman, the employee in charge of securing leases. In what Stevens recalled as a combative tone, the landman asserted that Chesapeake could drill with or without the grandchildren’s consent.
The bulldog wasn’t prepared to roll over just yet.
Stevens said he complained to Chesapeake’s partner in the Marcellus Shale region, Norwegian energy company Statoil ASA. Within days, Chesapeake offered Stevens and his siblings $4,000 an acre. But the e-mail offer wasn’t an actual contract, and included an expiration of only 48 hours.
Insulted, Stevens rejected the offer and defiantly declared that Chesapeake would never set foot on the land.
“Every square inch, my brother and sister and I own a portion of. So there’s no way they can put a gas well up there without our permission,” he fumed.
As summer gave way to fall, though, the reality of the situation sunk in. The grandchildren could choose to fight Chesapeake in court to keep the drill at bay, spending thousands of dollars on lawyers in a battle they weren’t guaranteed to win. Even if they prevailed, it was likely to be an empty victory. Nearly all the neighbors had already signed leases, and the region’s gas deposits were sure to be harvested eventually. With or without the Stevens siblings.
So they decided on an alternate path.
Stevens got in touch with a Chesapeake vice president in Oklahoma City, finding him to be far more cooperative and receptive than the company’s representatives in Pennsylvania. The vice president agreed to have three contracts drawn up, one for each grandchild.
They barely resembled the document that Bernice Price had signed three years earlier.
The company’s offer was now $8,000 an acre over 10 years — 160 times the amount of money that Price and two of her children had accepted — plus 20 percent of the value of any gas extracted from the property, up from the 2007 lease’s state-mandated minimum of 12.5 percent. That could mean hundreds of thousands of dollars for each grandchild over the life of a well. There were additional environmental and legal safeguards, too.
All three siblings signed in mid-November.
If it seemed like a contradiction that Stevens, by now an avowed foe of the drilling industry, would put his name on a gas lease, he saw it another way.
“I’m going to take their money, because that’s what hurts them. But I’m still going to drop them like a bad habit,” he said. “I want them to go home. I don’t want a dime of their royalty money because that would involve them drilling a hole in the ground.”
Indeed, Stevens has been outspoken in his opposition to gas drilling. At dozens of public forums throughout the Marcellus region, he’s denounced the industry as dishonest, called for a statewide drilling moratorium, and cited Pennsylvania’s constitution guarantee of the right to “clean air, pure water, and ... preservation of the natural, scenic, historic and esthetic values of the environment.”
He’s made few friends in a depressed region where drilling is seen as a boon by farmers and other large landowners, economic development officials, and businesses. They say anti-drilling activists like Stevens are creating hysteria.
While his own leasing saga is winding down, Stevens has no intention of slowing down. He said he’s going to use some of his windfall to fund additional travels to Harrisburg, Washington, D.C., New York state — anywhere he believes he can influence the debate.
“I’m going to spend the rest of my time fighting. I don’t think this is safe for the state of Pennsylvania and I don’t like what I see happening.”