Bonus money being paid by a particular company or in a particular area is a frequent topic on the Mineral Right Forum. For many, the offer of a bonus payment to sign a lease is the first encounter with oil and gas development. For many in northern Michigan this first encounter with oil and gas activity was far from positive. While 2010 brought a flurry of leasing activity in northern Michigan, 2011 brought frustration for northern Michigan landowners who did not receive their anticipated bonus payments. According to a Reuters’ investigation, 97% percent of the leases with Northern Michigan Exploration, a Chesapeake Energy Corp. affiliated shell company, were rejected just prior to payment of promised bonuses. Reuters reports that more than 800 northern Michigan land and royalty owners were left empty handed or “cold drafted” when it came to bonus payments. According to Reuters, the actions by Northern Michigan Exploration vise-a-vie Chesapeake have resulted in over a hundred lawsuits in Michigan to date.
Postings on Colorado county pages indicate that Chesapeake is active in Weld, Lincoln, and Morgan counties, and that Chesapeake entered into leases in Elbert County through RedSky Land, LLC and Kiowa County through McDonald Land Service. With Chesapeake’s presence in Colorado one can’t help but wonder if the same is in the works for Colorado. If you leased in these counties (or nearby) have you received your bonus payment? What other leasing agents or entities associated with Chesapeake are out there in Colorado?
Has your bonus money gone missing? What reasons were you given for nonpayment?
Various reasons may be given for nonpayment. In good faith, a company may have found an error in their title report and decided you do not own the minerals. If you signed a lease with a warranty clause, you would likely be satisfied to simply part ways with the company amicably and without incident. The Reuters investigation suggests the rejection of leases in northern Michigan were in bad faith. Reuters reports that rejections began after a dry hole in July 2010 and that landmen were told to “flunk the title if there was a word misspelled.” Reasons for nonpayment appear to have ranged from the lack of signature from a deceased spouse to deadlines missed by landowners despite adherence to contrary directions from landmen to failure to subordinate a mortgage. Some of the same excuses may be creeping into Colorado. If you didn’t receive your bonus payment, what reason were you given? Are there companies in Colorado taking actions similar to Northern Michigan Exploration?
What did you do when you didn’t receive the bonus money when expected?
Perhaps you cursed or perhaps you took it with a grain of salt and trusted that the payment would come through. In any event, the frustration is understandable. The passage of time likely increases your frustration. How long have you been waiting for your bonus payment? You may have invested time and resources in signing a lease only to be left empty handed. Maybe you already booked a vacation or bought a new vehicle with the expectation of receiving those funds.
If you signed the oil and gas lease, but have not received the promised bonus payment, then you may need to take action to protect your rights. If you wish to pursue a claim against the company for wrongfully withholding payment keep in mind that a statute of limitations will apply to the time period in which you can bring a claim against the company. An attorney can advise you of the deadline for pursuing such claim based on the specific circumstances of your situation, and it is best to contact an attorney sooner rather than later to determine that time period—don’t wait for the lease to expire or you receive a new leasing offer. If you already have another lease offer and wish to sign with the new company, you will likely need to address the original signed lease before proceeding especially if it has already been recorded. While the original company may seem uninterested in paying or responding to you right now, that may change and you sure don’t want to create a dispute for yourself by having two signed leases out there.
If you signed a lease and were not paid, you likely need to address this frustrating and unfortunate situation. The mere fact that you were not paid is unlikely to make the lease magically disappear. Regardless of whether it seems to be a legitimate excuse, you may need to take action to protect your rights and to avoid problems later on—you want to avoid problems when development actually begins to occur or when you go to sell your property a few years later. In order to protect the title on your minerals or to seek the payment you feel you are owed, you likely need to take action rather than patiently wait or hope for the best.
Jenna H. Keller, Esq.
Attorney at Keller Law, LLC. (www.kellerlawllc.com)
Jenna H. Keller defends property rights and provides legal services to farmers, ranchers, rural property owners, and severed mineral interest owners in the areas of estate planning, natural resources (oil, gas, wind), real estate, and water.
DISCLAIMER: The information in this article is for general information purposes only. This article should not be substituted for legal advice and should not be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or reading this article does not constitute, an attorney-client relationship. You are encouraged to contact an attorney for legal advice concerning the information provided in this article
IRS CIRCULAR 230 NOTICE: This article may contain provisions concerning a federal tax issue or issues. Under recently issued IRS regulations, this article is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on any taxpayer by the Internal Revenue Service.