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American Energy Affiliates Under Fire Over Millions Owed For Ohio Oil/Gas Leases

Nearly 60 landowners in southeast Ohio have filed a lawsuit against American Energy Partners LP (AELP), one of its affiliates and a land services company that worked on its behalf over claims that the companies owe more than $9.2 million in overdue lease signing bonuses and attorney fees.

The plaintiffs, including a school district and five towns, filed the lawsuit in Jefferson County Common Pleas Court. It is seeking payment of the $9.2 million, plus $25,000 or more for each plaintiff in compensatory and punitive damages for breach of contract and unjust enrichment.

The complaint alleges that shortly after AELP was formed in 2013, it contracted with land services company Great River Energy LLC to acquire leasehold for its Appalachian affiliate American Energy Utica (AEU) LLC in southeast Ohio, including Jefferson County. Acting as a land agent for AEU, Great River entered into leases for the company that were then assigned to it, according to the complaint. 

The leases in question were signed in 2013 and 2014 for a five-year primary term. Their order of payment required Great River to pay lease signing bonuses and fees within 120 days of the signing or identify title defects. According to the lawsuit, Great River could only surrender the lease upon existence of a title defect and the lessor's inability to cure it within 90 days.

Certain plaintiffs, the lawsuit says, did not receive payment within 120 days and were not notified of any title defects. Another group did not receive payment within 120 days and the lawsuit alleges that afterward, Great River tried to identify title defects later than what was required under the lease agreements.

State records show that Great River was established to do business in Ohio in June 2013, roughly two months after AELP was formed by former Chesapeake Energy Corp. CEO Aubrey McClendon (see Daily GPI, April 17, 2013). The lawsuit claims that "almost immediately after its formation, [Great River], as the agent for AEU/AELP, began contacting southeastern Ohio landowners with the intention of leasing their properties on behalf of AEU/AELP.

"AEU/AELP intentionally procured the breach of plaintiffs' contracts by [Great River] when it instructed [Great River] not to pay the plaintiffs order of payment despite [Great River's] contractual obligation to tender the order of payment to plaintiffs in accordance with the contracts." 

Although some landowners in the case have received partial payments for the leases they signed, the lawsuit claims none have received full payment.

Formed in April 2013, AELP is an operating and asset management company. Instead of obtaining assets as a single company, it develops affiliates with basin-specific strategies. AEU was combined with its Marcellus counterpart earlier this year and has since been renamed Ascent Resources LLC and is in the process of transitioning to a standalone company (see Shale Daily, June 10; Jan. 5). It has about 190,000 acres under lease in Ohio and some of the top-producing wells in the state.

Great River could not be reached to comment. When asked about the lawsuit, an AELP spokesman said the lawsuit involves Ascent and not AELP and added that it was important to note that distinction.

"American Energy Utica LLC and American Energy Partners LP deny the allegations and should not have been named as parties in this meritless lawsuit," the company said in a statement.

Some plaintiffs in the lawsuit claim they are owed nearly $1 million in lease signing bonuses for more than 100 acres. One landowner, who signed a lease in August 2013 for more than 505 acres in three Jefferson County townships, claims he's owed more than $3 million.

Joshua O'Farrell, an attorney at Canton, OH-based Tzangas Plakas Mannos Ltd., which represents the landowners, said that while many of the leases have been released, some remain on record and are preventing the plaintiffs from capitalizing on their mineral rights.

"[The companies] would say that's not accurate. All the land was certainly tied-up for a certain time, some were recently released," he said. "So you have different categories. There was a long period of time when the memorandum of oil and gas leases remained on the record and precluded [landowners] from doing anything with their mineral interests; some still remain recorded."

Most of the plaintiffs had negotiated lease agreements with Great River as part of a negotiations group, which in some instances have amassed up to 10,000 acres in the Utica Shale to better market their land. Similar claims have been raised against Great River in online forums over past due lease signing bonuses and fees for land acquired in Belmont County. Those claims could not be independently verified, however.

The lawsuit was filed earlier this month, but O'Farrell said he doesn't expect the companies to file a reply for several weeks.

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