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NY Marcellus Shale Lease Extensions Through Force Majeure – XOM and CHK

by Kenneth E. DuBose on July 12, 2011

ExxonMobil and Chesapeake Energy are moving to force extensions of NY Marcellus Shale leases.  The leases were signed and paid back during the boom in 2007 and 2008.  Then, NY decided to ban the completion technique needed to economically produce gas wells. The greedy part of me says companies should have considered that impact when leasing, but we all know that no one can predict the governments’ actions.  The companies will likely win any court decision, but a question remains on whether there will be any payment to the landowners for the extension period. And, how long can they extend the leases? As royalty owners, we should just be glad they might be able to drill some day.

We’ll probably get a indicator from what happens in the Gulf of Mexico where many operators had to declare “force majeure” on their operations during the BP Macondo oil spill.  It was a federal issue and invloves service companies against operators.

The major positive in this situation is that the companies are fighting to keep the leases.  That is a sign that they are worth something and you’ll likely begin getting royalty dollars sooner than later.

Force Majeure is contract lingo for “unforeseeable circumstances will keep us from fulfilling our contract”.  You hear it a lot in the pipeline world when there are accidents and a company is not able to move as much natural gas or oil as it had contracted.

“XTO Energy is seeking to forcibly extend oil and gas leases because of long-standing bans on high volume hydraulic fracturing, the company told landowners in “force majeure” letters sent to members of the Deposit Coalition last week.”"Signed in May 2008, leases gave landowners $2,411 per acre up front in addition to 15 percent royalties and were originally set to expire after five years.”

“The deal between the landowners and XTO — now owned by ExxonMobil — marked the beginning of the gas lease rush in the Southern Tier, which has slowed precipitously as the techniques used to extract natural gas from the massive Marcellus Shale formation have been stalled by government regulatory reviews.”

Read the full news release at TheIthacaJournal.com

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