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West Virginia Landowners Want Range to Pay for Voided Leases

A group of West Virginia landowners have filed a lawsuit alleging that Range Resources Corp. and Duncan Land and Energy (DLE) breached the terms of leases for natural gas drilling in the state's Marcellus Shale area two years ago.

In a complaint filed in U.S. District Court for the Northern District of West Virginia, Backwater Properties LLC and Vance River Terminal Inc., on behalf of several other small landowners in Monongalia, Preston, Marion and Harrison counties in West Virginia, allege that Range and DLE's actions caused them to lose the value of lease and bonus contracts signed between June 1 and Nov. 30, 2008. After Range and DLE backed out of the contracts, some of the landowners signed lease contracts at lower prices, according to the complaint.

The landowners asked the court to award them statutory damages and court costs. Range has asked the court to give it until Nov. 8 to respond to the complaint. Range has indicated that it will ask the court to dismiss all nine counts in the complaint.

Natural gas prices "were unusually high" when the leases were signed two years ago "and natural gas became a highly sought-after commodity, particularly the Marcellus Shale gas reserves," according to the complaint. Officials from Range and DLE -- which Range had contracted to secure oil and gas leases -- "were concerned that a free bidding process would result in the leases selling for such a high price as to be unprofitable to the producers, or at least less profitable than they desired." The companies "formulated a plan by which to exclude other competitors from the West Virginia markets for oil and gas leases and also to obtain oil and gas leases from land owners at below market prices," according to the complaint.

The alleged "bid rigging plan" allowed Range and DLE to "effectively have an option contract to lease the land, without having to pay the landowners for the option," according to the landowners. At the time, Range and DLE offer $3,500/acre and 17% production royalties. According to the complaint, the landowners turned down subsequent offers from Chesapeake Energy Corp., CNX Gas Corp. and other companies to lease the property for oil and gas production for $1,000/acre and 15% royalties because they believed they had contracts with Range and DLE.

The lease offers and signing bonuses were subject to 90- or 180-day "approval periods," according to the complaint, which alleges that Range voided contracts "or claimed that the leases were lost and/or never processed" as oil and gas prices tumbled in fall 2008. Some of the landowners eventually signed new leases for $1,000-1,500/acre and a 15% production royalty.

The lease proposals and their approval periods aren't unusual, according to Range spokesman Matt Pitzarella.

"All of our leases require final management approval to make the leases final," Pitzarella told NGI.

A combination of factors, including geologic conditions, geographic concerns and a dramatic drop in gas prices, led to Range's decision not to approve leases mentioned in the complaint, Pitzarella said.

"Before we finalize any leases, we really have to think about where we want leases and where we don't, and we determined that a number of those we did not want to go forward with and finalize."

Landowners that held proposed leases from Range were "free to go then, as they could now, to sign leases with other companies," Pitzarella said.

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