Is it possible to put into a lease that Chesapeake or any of its subsidiaries cannot obtain the lease by any means? Or, to put it another way, is there a way to prevent a lease from being flipped or sold/traded to Chesapeake Energy so I will not have to deal with the royalty payment issues that others are describing?
Years ago, some leases the old folks signed had a notation that "This lease shall not be sold, transferred or assigned to the Standard Oil Company." I am unsure of why that was inserted into the leases, nor am I sure that if would be legal.
We need an answer from a skilled oil and gas attorney.
Robert Gill
We used to have the "Jack Stanley" clause. The old times in the Fayette, Washington County areas may remember the reprobate.Jack Stanley and TransTexas. Many landowners demanded a "Jack Stanley" clause. It was perfectly legal.
Another way around the issue of CHK is to require consent to assign.
I'd push for the consent to assign before trying to exclude any one company.
You never know how things are going to play out and have to be careful about limiting the marketability (value) of your lease.
Hypothetically - If you really pushed the limits in regards to Standard Oil, your lease couldn't be operated by Exxon, Chevron, BP, Conoco, or Marathon today.....
WILSON, INC
If you have a lot of acreage, get a good, experienced manager that can farm out or lease your acreage to reputable companies interested in your area that is subject to your approval of assignment. Use a good simple lease that takes care of your needs and set a fair value.
If you have small acreage, solicit a lease from a reputable operator in the area under what you consider to be fair terms with a right of approval for assignment. That way, if CPK or anyone else force pools the acreage, you will have a buffer between you and CPK that will know how to take care of its interest as well as yours.
The operators in an area cross participate often and no one operator will want to take advantage of a co-venturor and not be allowed in the development of a field that they may have discovered..
Thanks to all who contributed answers. It's a great relief to know that a "reprobate clause" or consent to assign can be used so I will not have to deal with the CHK royalty payment issues that others are experiencing.
Be aware, however, that most lessees demand that any consent to assign clauses include language, "which shall not be unreasonably withheld." If it it comes to pass that your lessee wants to sell to CHK and you refuse to consent, your lessee may consider that to be an unreasonable basis.
I have a client with a lease executed in 2010 that excludes 3 different people and any company that they are affiliated with, of having any part of the lease. if they do the lease would become null and void. The lease was done by a Board Certified Oil and Gas Attorney.
Ben Elmore,
If my Lesssee considers my refusal to consent to selling/assigning to CHK unreasonable would they go ahead and sell my lease to CHK after I refuse to consent to it? And would their selling it void the lease?
Ben Elmore said:
Be aware, however, that most lessees demand that any consent to assign clauses include language, "which shall not be unreasonably withheld." If it it comes to pass that your lessee wants to sell to CHK and you refuse to consent, your lessee may consider that to be an unreasonable basis.
It is possible they would, and then you would have to go to court to get a declaration that the sale to CHK was void due to your refusal to consent. The reasonableness of your refusal would most likely be a fact issue for a jury to decide.
That is why I do not include the words "which shall not be unreasonably withheld"
As you should, but my experience has been the lessees demand that language be added back in. Unless they just miss it altogether.
Buddy Cotten said:
That is why I do not include the words "which shall not be unreasonably withheld"
Well, when you have a major client like mine, not much negotiating is done.
X. CHANGE OF OWNERSHIP
"10.1 The rights and obligations of Lessee under this Agreement cannot be assigned without the prior, express written consent of Lessor, which shall not be unreasonably withheld. However, an assignment to Chesapeak Exploration, or its subsidiaries or affiliates shall be ipso facto deemed unreasonable...."
This went into a lease today.
Ben Elmore,
Then there must be a sufficient penalty stated in the lease for assigning to CHK to deter the Lessee from doing so when I refuse to consent to it and cover the cost of going to court if it comes to that. Would $250,000 and my royalty on any production from the lease increasing to ½ (50%) be a sufficient penalty/deterrent?
Thank you.
Ben Elmore said:
It is possible they would, and then you would have to go to court to get a declaration that the sale to CHK was void due to your refusal to consent. The reasonableness of your refusal would most likely be a fact issue for a jury to decide.
Wilson, I really don't have any idea what a sufficient penalty would be. Whatever you can get them to agree to, but they might not care too much if you put the CHK specific restriction in there such as the one Buddy recommended above.
Wilson Inc said:
Ben Elmore,
Then there must be a sufficient penalty stated in the lease for assigning to CHK to deter the Lessee from doing so when I refuse to consent to it and cover the cost of going to court if it comes to that. Would $250,000 and my royalty on any production from the lease increasing to ½ (50%) be a sufficient penalty/deterrent?
Thank you.
Ben Elmore said:It is possible they would, and then you would have to go to court to get a declaration that the sale to CHK was void due to your refusal to consent. The reasonableness of your refusal would most likely be a fact issue for a jury to decide.
I guess it is a question of how much one does not want to do business with Chesapeake or any other questionable operator. Do you really think they would take you to court? It seems to me that this is a decision everyone has to make for themselves. Make your choice and take a chance.
Robert Gill
What they would likely do if they are intent on selling, is ignore your refusal to consent, go ahead and sell and assign and wait for you to sue them.
Going to court is expensive and at this time I could not afford a large upfront payment to an attorney. So, would the possibility of a $250,000 penalty be sufficient encentive for an attorney to take the case on a contingency basis?
I just addressed this issue in a recent lease. The lessor leased other minerals a few years ago, and his lease was assigned to Chesapeake. His experience with CHK was dismal on a variety of fronts, so he swore to never do business with them again if he could help it. So the provision without the "unreasonably withheld language" was requested. Deleting that one little phrase was the most contentious part of the negotiations!
This is just my opinion, but the identity of a party to a contract can be a very important consideration. It seems to be highly reasonable to withhold consent to an assignment based on the identity of the assignee, if one had no faith that the assignee would properly steward the development of your resources.