Predatory oil and gas leasing--what it means for mineral owners and mortgages

We've blogged before about how oil and gas leases can put mortgages, title insurance, and homeowners insurance at risk. Journalists are conducting groundbreaking investigations and reporting on these topics. Among the most important findings in recent reports:

  • The New York Times reviewed more than 111,000 documents and found that fewer than half the leases require companies to compensate landowners for water contamination after drilling begins.
  • At least two-thirds of leases reviewed by The Times allow extensions without additional approval from mineral owners.
  • Some leases allow companies to leave toxic waste on the mineral owner's property.
  • Thousands of mineral owners have joined class action lawsuits claiming that they were paid less than they expected.
  • Banks have become increasingly reluctant to give new mortgages for properties with gas leases on them.
  • Leasing may violate the terms of current mortgages, and bank regulators from several state and federal agenies are discussing the implications.
  • The Times reports that Chesapeake Energy withholds royalty payments from mineral owners who have mortgages unless consent is obtained from their mortgage company.
  • A Reuters investigation found that more than 100 mineral owners in Michigan are suing Chesapeake Energy for breach of contract and defrauding them. According to Reuters, bonuses promised to mineral owners went unpaid, and many shell companies were set up to allow minerals to be leased from elderly farmers at very low prices.

"Predatory lending" is a term that was coined to describe abusive practices in mortgage lending that took advantage of unknowing homebuyers.

Now in the oil and gas industry there is "predatory leasing." Without any government protections, it is "leaser beware." We strongly recommend that anyone considering leasing their oil or gas resources consult with a knowledgeable oil and gas attorney who represents land and mineral owners. Mineral owners can also find resources on line, such as NRDC's Don't Get Fracked website, and the Landman Report Card.