Chesapeake Energy's attempt to extend its Marcellus Shale leases in New York State by declaring "force majeure" as a result of the state's moratorium on hydraulic fracturing ended Thursday when the firm agreed to a settlement with the state attorney general that will release a small number of acres and require the company to make new offers on 255,579 acres.
"For landowners across the state, this deal literally provides a new lease on life," Schneiderman said.
According to New York Attorney General Eric Schneiderman, around 4,400 landowners will have the opportunity to renegotiate their lease terms under the terms of the settlement.
Oklahoma City-based Chesapeake began informing New York leaseholders in the summer of 2009 that it intended to extend their leases indefinitely under the "force majeure" clause while making rental payments until the DEC issued the Supplemental Generic Environmental Impact Statement governing fracking end the current moratorium on the practice in New York.
Schneiderman said that most leaseholders whose terms Chesapeake had extended will have the right to renegotiate the lease with other companies, although Chesapeake will have the right to match the terms.
Chesapeake will also pay New York $250,000 to cover the costs of Schneiderman's investigation, the attorney general's office said.
"Chesapeake admits to no wrong-doing and the amount to be paid represents reimbursement for the attorney general's time and expenses in investigating this matter, not any sanction or penalty," Chesapeake said Thursday.
"It is unfortunate that we have been in this situation in New York since 2008, where landowners and their mineral lessees have been unable to develop mineral rights in the Southern Tier despite a robust drilling program being undertaken in neighboring Pennsylvania," the company added.
Under the terms of the settlement, 50 leaseholders of 8,604 acres will be immediately released from their deals with Chesapeake because the extension lacked any monetary compensation and the leases would normally have expired, according to Schneiderman's office.
Another 4,365 leaseholders of 255,579 acres now have the right seek better offers, with Chesapeake keeping the right to match the new offer. This portion of the settlement covers all leases that have expired, or will expire, by the end of 2013.
Chesapeake can still extend leases that expire after December 2013 as long as it is paying some monetary compensation.
Chesapeake has 1.55 million acre land position in the Marcellus stretching from New York south through Pennsylvania and into West Virginia. It was not immediately clear how many acres of New York leasehold it owns.
But this settlement, which will allow many landowners who rented at the cheaper levels to increase the price they charge the company, cuts against the grain of Chesapeake's business model of finding shale plays early and snapping up acreage quickly and cheaply.
