The Herald, Sharon, Pa.

November 17, 2013

Firm agrees with lease holders

By Joe Pinchot
Herald Staff Writer

MERCER COUNTY — While one of the defendants in a lawsuit over gas and oil drilling says it did nothing wrong, it also accuses a drilling company of improperly reneging on leases to drill.

Meanwhile, the drilling company is attacking the lawsuit for perceived technical shortcomings.

The initial suit was filed Nov. 6, 2012, in U.S. District Court, Pittsburgh, by Jeffry S. Vodenichar of Butler, David M. King Jr. and Leigh V. King of Sandy Lake, and Joseph B. and Lauren E. Davis of Stoneboro, all of whom own land in New Vernon Township, against Halcon Energy Properties, which has leased property for gas and oil drilling.

The group, with additional plaintiffs Grove City Country Club of Pine Township and Richard Broadhead of Polk, who owns land in Sandy Lake Township, filed suit Feb. 22 in Mercer County Common Pleas Court against Halcon and Morascyzk and Polochak of Bridgeville, and Co-eXprise Inc., Wexford, both firms that market landowners’ interests to oil and gas companies in return for a fee from the bonuses paid to property owners.

A dispute over which court the suit should be heard in was ended in August by the U.S. Court of Appeal for the Third Circuit, Philadelphia, which ruled Mercer County court was the proper venue.

Earlier this month, Co-eXprise filed an answer to the suit, along with  claims against the defendants and Halcon.

Halcon filed preliminary objections to the suit alleging Co-eXprise and/or M&P altered documents and staged a full-court press that salvaged many more drilling contracts than Halcon wanted to honor.

In the suit, which seeks class-action status, the landowners allege Halcon entered into contracts to lease up to 60,000 acres of oil and gas rights in Mercer County, the so-called “Mt. Jackson 4 – Stoneboro Group,” agreeing to pay $3,850 an acre and a royalty of 18.5 percent on the fossil fuels pulled from wells.

As part of the agreement with landowners, Halcon had no discretionary right to refuse to lease unless there was a problem with the property’s title or specified “other defect,” the suit said.

According to the plaintiffs, Halcon rejected a large number of leases without specifying reasons and, in many cases, without even doing title searches.

“In short, Halcon improperly cherry-picked leases,” Co-eXprise agreed in its answer.

Halcon has flatly rejected the argument, saying it had “the absolute right to refuse to lease the plaintiffs’ properties.”

Halcon said in a statement it rejected the leases because the properties were not close enough together for horizontal drilling, also known as fracking, a process where water and chemicals are injected under pressure into shale rock to free up the gas stored within.

Halcon said Co-eXprise and M&P modified documents in a way that precluded Halcon from leasing land; lied to landowners about Halcon’s right to refuse leases; and recruited landowners it knew Halcon would reject.

In its answer, Co-eXprise said Halcon “wrongfully and without justification repudiated its agreement,” refusing to honor leases with owners of 2,500 parcels covering 30,000 acres.

At a mass lease-signing on June 12, 2012, a Halcon official asked another company official whether Halcon had “to take all this stuff,” a reference to a computer screen image of the Mount Jackson Group parcels. The second official answered affirmatively, Co-eXprise said.

Halcon did not tell Co-eXprise of title defects or claim that the leases had been altered in an unsatisfactory way, Co-eXprise said.

The suit said Halcon rejected leases because orders for payment drafted by Co-eXprise and M&P “fraudulently” omitted the word “geology.”

Co-eXprise responded that it was not aware that “geology” had been removed and did not consent to it. However, the omission was “immaterial” and was not grounds for Halcon to reject a lease, Co-eXprise said.

“Geology” was a reference to the Speechley sandstone formation, Co-eXprise said.

In its preliminary objections, Halcon said Co-eXprise and M&P knew that Halcon did not have to lease any of the properties, and tried to salvage deals by reaching a compromise: that Halcon would lease half of the 60,000 acres at issue.

The other owners were left with the ability “to lease their lands to other companies that were more able and likely to develop their land,” Halcon said.

Halcon said it agreed to the deal to avoid costly and time-consuming litigation, a plan that apparently backfired.

Co-eXprise filed a claim against the plaintiffs in order to recover the transaction fee – 6 to 8 percent of the bonus paid by Halcon to landowners – it would have received if the leases had gone through.

It would be “unjust and inequitable” for the plaintiffs to recover money from Halcon without compensating Co-eXprise, Co-eXprise said.

Co-eXprise also alleged that Halcon bypassed it and entered leases directly with some landowners, breaching the agreement the two companies had.