Contractors’ liens filed for Chesapeake’s non payment show up as claims against land owners

Oil and Gas Leasing Help
1

Before I read this Reuters article http://www.reuters.com/article/2012/12/27/chesapeake-mcclendon-idUSL1E8NQ2H720121227, I was not aware that a Lessee’s nonpayment for services rendered could result in a claim against the Lessor’s land.

Is there lease language to protect the land owner against such claims?

Do such claims extend beyond the surface estate to the mineral estate, including the mineral estate of the non surface owners?

Here are excerpts from the article:

Otis Eastern [is] a New York-based contractor that laid pipeline for Chesapeake...

In summer 2011, Chesapeake began to fall behind paying its bills ... After months of fruitless demands, Otis sued. It is now in the process of filing liens on Pennsylvania land that was leased by Chesapeake....

Otis Eastern isn't the only company upset with Chesapeake and its affiliates. ... Those affected extend beyond the contractors, too:

* On Nov. 2, a New Jersey construction and drilling company filed a lien against property leased by Chesapeake...

* On Dec. 7, two New York contractors also filed liens...

* And on Dec. 20, a Minnesota drilling contractor filed three liens on properties leased by Chesapeake...

Chesapeake may have transferred the debts owed to contractors, but the company is still listed as the debtor in the non-payment suits. And the liens filed for non-payment show up as claims against land owners with whom Chesapeake cut deals.

Such liens could interfere with an owner's ability to sell the property, said Stanley B. Edelstein, a Philadelphia construction law attorney. "Depending on the language in a mortgage, it could be an act of default," he said.

Bradley Sink and his wife, Beatrice, own the land where construction company Carson & Roberts filed its lien against Chesapeake. Sink, a retired farm equipment dealer, did not know the lien had been filed until he was contacted by a reporter.

2

Chesapeake needs to be liquidated. I'm not just picking on CHK, I think I have some reason and I have said as much about airlines a time or two also. It seems to me thar CHK backs out of leases about as often as they complete the deal and pay the lessor. If CHK gets production from the lease they are famous for underpaying. Now CHK is not paying contractors and the result is liens being placed against mineral owners property. No company has a right to exist and CHK less than most. If CHK can't sell off enough of the company or borrow enough money to pay their debts, they need to be sued out of existence, broken up and sold. What of stockholders? If you own CHK stock and you have not been paying attention to the last 2 years, it's your fault. What about CHK employees? You know where you work. Nobody's position is safe these days. CHK has benefitted from years of tolerance, that is how it has come to be this bad. I wish 10,000 people would send ominous letters on legal letterhead to CHK tomorrow, I think there may be at least that many people with a valid grievance and it would probably take years for CHK lawyers to winnow it down to suits they need actually fear and they may make a few mistakes in that classifying. If CHK holds your lease it would belong to someone else after CHK is gone and that could be the best thing that could happen for you. Likewise equipment, it won't go up in a puff of smoke, as long as it is operable someone will own it and it's useless sitting there so it will be put to work. Just as the planes belonging to an airline would have a new companies name on them and soon be flying again if the airline was liquidated, the physical equipment of CHK would continue to work. I don't think society as a whole would miss CHK. CHK borrowed money so they would not have to sell off parts of the company at fire sale prices to stay alive. CHK is paying off their loans to avoid higher interest, evidently at the expense of their contractors and lessors. I think it is time for CHK to be shown that the bottom line is not just how much business you do, but how you do business. I am amazed that the article from the link posted by Wilson escaped my notice. I would be more amazed if I didn't find something about CHK just as bad next week. I think that CHK is going to join ENRON on the list of companies whose legacy smells worse than their product ever did.

3

It depends on the wording of your state’s lien statue. In Texas, the owners are not responsible for the lien debt. All that can happen in Texas is they could foreclose the lien against CHK’s lease interest. We have had to file liens due to CHK’s non-payment of contractors, but they seem to have gotten better about paying. None got to the lien foreclosure stage.

4
"In Texas, the owners are not responsible for the lien debt"
Wade,
Thanks for that clarification. I know a lot of property/mineral owners were glad to see that statement.
Clint Liles
5

While I am glad I don't have to worry about my neighbors having liens placed against their property due to CHK, evidently not all states protect their residents as well. Now I just have to worry about my neighbors getting their fair compensation, too bad the state is no help there.

6

Wade, thank you for your response to clarify what this means to Texans. What a relief!

To be sure I understand your reply: If a claim is foreclosed on in Texas then the contractor would come into possession of the CHK lease on the property (becoming the Lessee) and the contractor would be free to market that lease to an oil & gas exploration company or anyone interested in buying it in order to recover their money for services rendered to CHK. Correct?



Wade Caldwell said:

It depends on the wording of your state's lien statue. In Texas, the owners are not responsible for the lien debt. All that can happen in Texas is they could foreclose the lien against CHK's lease interest. We have had to file liens due to CHK's non-payment of contractors, but they seem to have gotten better about paying. None got to the lien foreclosure stage.
7

If the lease allows the leasehold interest to be foreclosed without terminating the lease, that is correct.

8

Thank you Wade.

Wade Caldwell said:

If the lease allows the leasehold interest to be foreclosed without terminating the lease, that is correct.
9

I have written hundreds and hundreds of leases but never encountered specific language that would cover this situation. No, a surface or mineral owner, at least in Texas, would not have to pay any such claim against CHK because they did not enter into an agreement with the foreclosing party.

10

@ Mr. Caldwell, I've come upon the problems of minerals liens on my minerals and during my research found this discussion. What would happen by Texas law with the following in my lease, should my lease terminate for proper cause?: Would I then be responsible for the liens?

"18.1 Lessee hereby agrees and all persons are hereby given notice that, upon the termination of any part of this Lease, with or without an instrument of release, reassignment or reconveyance, Lessor’s interest in said land affected shall be free and clear of any overriding royalty, payment out of production, net profit obligation or carried interest, or any lien or obligation to which it may have been subjected by Lessee, its successors or assigns sub lessees, agents or employees. Any such interest, lien or obligation shall, ipso facto, cease and terminate and be of no further force and effect upon the termination of all or the encumbered part of this Lease, notwithstanding that Lessor may have expressly or impliedly consented to the assignment or the instrument in which such interest, lien or obligation was reserved or created. It is expressly understood and agreed that no lien or encumbrance securing payment for goods or services delivered to Lessee, or its heirs, successors, assigns, agents or employees, in connection with operations on the Leased Premises shall attach to Lessor’s interests in this Lease or the Leased Premises nor shall such lien or encumbrance survive the termination of all or the encumbered part of this Lease or the Leased Premises."

Any help understanding what may happen if lease terminates would help me decide what my next step may be. Thanks.

11

The Lesssor has to clear any liens, but mineral liens do not attach to the landowner anyway.