N.Y. AG, Chesapeake reach agreement over natural gas leases

Jessica M. Karmasek Jun. 15, 2012, 11:00am


BINGHAMTON, N.Y. (Legal Newsline) - New York Attorney General Eric Schneiderman says his office has reached an agreement with Chesapeake Appalachia LLC to allow more than 4,000 landowners locked in "unfavorable" natural gas leases to renegotiate.

Chesapeake, based in Oklahoma, is licensed to do business in New York for natural gas exploration and extraction from lands in certain areas of the state.

The new agreement, announced Thursday, also requires Chesapeake to pay the State $250,000 as reimbursement for the costs of its investigation.

"Make no mistake about it -- this agreement will provide a safety net for thousands of landowners by allowing them the opportunity to negotiate fairer lease terms, both financial and environmental, regardless of their existing contracts. For landowners across the state, this deal literally will provide a new lease on life," Schneiderman said in a statement.

Chesapeake has agreed that landowners with leases that were extended as a result of the state Department of Environmental Conservation's environmental review into high-volume hydraulic fracturing, or "fracking," have the right to negotiate leases with other gas companies for more favorable environmental or financial terms.

Chesapeake will either match those terms or release the landowners' original lease.

In June 2009, the company sent letters notifying owners with leases whose terms were set to expire that it was electing to extend those leases.

In the letters, Chesapeake explained it could not perform any exploration and development operations for shale wells until the DEC completed preparing a Supplemental Generic Environmental Impact Statement for high-volume hydraulic fracturing.

In some cases, Chesapeake had leases with landowners that went back to the mid- to late 1990s, Schneiderman's office said.

The company told landowners its leases contained provisions allowing it to extend the terms under force majeure, purported force majeure and "covenants" clauses and/or other common law rights based on the principles of force majeure.

Force majeure is a clause found in contracts that exempts the contracting parties from fulfilling their obligations for causes that could not be anticipated.

The new agreement allows landowners, who were under Chesapeake's force majeure contract claims, to be released, Schneiderman said.

According to his office, the agreement includes leases that have expired, or will expire, prior to Dec. 31, 2013.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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