Mineral royalties fraud: A new legal frontier


This week I saw a story out of New York State, where officials are in the process of debating whether to allow hydraulic fracturing, or fracking, for natural gas in some areas whether thousands of acres have already been leased by the big gas companies. It turns out that thousands of property owners in upstate New York had leased their mineral rights to one of the nation’s biggest gas companies, Chesapeake Energy, at rock-bottom prices a number of years ago. When state officials imposed a halt on drilling in 2008, the company unilaterally decided to freeze the leases and push back the expiration date. Meanwhile, the fracking boom in Marcellus Shale country had caused a steep rise in prices for new leases — meaning that farmers and other landowners locked in at the old rate had been robbed of hundreds of thousands in dollars in additional income. The only way for these property owners to get any recourse was in the legal system. Finally, with help in this instance from the New York attorney general’s office, some 4,400 landowners won a settlement that will allow them to renegotiate their deal with Chesapeake, the gas giant.

With all the well-deserved publicity that America’s frackapalooza has brought to unsafe environmental practices that too often have poisoned the water below these once-pristine rural areas or fouled the air above them, there is another dark side to the natural gas boom that doesn’t get nearly as much attention. It’s called mineral royalties fraud: A catch-all term that encompasses the ways that Big Oil and Big Gas try to cheat property owners out of the fair and just compensation that they’re entitled to for drilling on their land. Some of the most common practices include companies underpaying landowners for the amount of oil or gas they’re extracting, or drilling underneath their land from a property next door or nearby, without obtaining the rights.

There are stories about these practices almost every day. A Pennsylvania couple that recently filed suit — also against Chesapeake — because it says the firm arbitrarily renewed its lease at 2005 rates and not the current, much-higher market rate. Meanwhile, a judge in Ohio recently issued a ruling aimed at stopping Chesapeake from drilling horizontally under other properties adjacent to a hunting club where it owns a lease. Elsewhere in Ohio, near Canton, scores of property owners are suing over what they claim were a number of deceptive business practices by the so-called “landmen” from the oil industry who showed up to negotiate their leases.

These cases are very different in nature, but they all trace back to one thing: Greed. These are too many representatives of the oil-and-gas industry out there cooking up clever ways to make money out of the natural resources on someone else’s land. On a daily basis, my law office in New Orleans gets phone calls from property owners trying to find out if they’ve been cheated in some way over the mineral royalties that should belong to them.

With the current fracking boom, the problem is so serious that my law firm, Smith Stagg LLC, has created a new website, seeking to make the process simpler. The address of the site is easy to remember: Mineralroyaltiesfraud.com. If you visit, you will not only receive basic information about royalty fraud, but there’s the latest news about cases as well as frequently asked questions, and even an online form for a free case evaluation. It’s our effort to offer some basic help for a very complicated and vexing problem.

We’ve seen too many cases in the last few years of Big Oil and Big Gas doing everything it can to squeeze every last dollar out of the earth — sometimes though environmental shortcuts but sometimes through old-fashioned fraud. Asking these energy giants to pay their fair share is the least we can do.

To read about the recent settlement involving natural-gas leases in upstate New York, go to: http://blogs.wsj.com/metropolis/2012/06/14/landowners-get-to-renegotiate-fracking-leases/

Visit our new website, mineralroyaltiesfraud.com: http://mineralroyaltiesfraud.com/home

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
Cooper Law Firm

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