Landowners say Delaware Company cheated them on oil, gas leases

7/23/2010 7:40 AM
By Kelly Holleran  – Monongalia Bureau

CLARKSBURG – A group of West Virginia landowners say a Delaware company cheated them out of thousands of dollars after reneging on an offer to secure oil and gas leases on more than 500 plots of land.

Backwater Properties and Aaron Johnson filed a putative class action complaint July 9 in U.S. District Court against Range Resources-Appalachia and Duncan Land and Energy.

Backwater and Johnson claim Range Resources and Duncan began approaching West Virginia land owners in obtaining oil and gas leases when oil and natural gas prices peaked at the beginning of 2008. The defendants, who had to compete with other companies to win the leases, devised a scheme to exclude competitors from the West Virginia market and to obtain the leases at below-market values, according to the complaint.

“On information and belief, Range and Duncan determined to prevent a ruinous bidding war for the properties by offering landowners above market signing bonuses and revenue percentages if they would sign oil and gas leases designating Range as the lessee,” the suit states. “The lease offer and signing bonus, however, would be designated as being subject to a 180-day ‘approval period’ by management (sometimes as little as 90 days if it helped get the offer signed by the landowner) where Range would purport to confirm the lessor’s title to the property and confirm that the correct parties did in fact sign the leases.”

Range and Duncan planned to honor the leases only if gas prices remained high during the 90- or 180-day period, the complaint says.

They beat out competitors for the leases by offering landowners $3,500 per acre and 17 percent royalty as compared to other companies that were offering $600 to $1,000 per acre and around 12.5 percent royalties, the plaintiffs claim.

Attracted to the offer of more money but not knowing of the 90- to 180-day delay, between 500 and 1,000 West Virginia residents agreed to the leases, according to the complaint.

Meanwhile, most of the putative class received other offers from similar companies to lease their property for $1,000 an acre and 15 percent royalty, but had to turn down the offers because of their lease with Range and Duncan, the suit states.

In the fall of 2008, oil and gas prices began dropping, and Range and Duncan realized they would lose money if they honored the leases, the complaint says.

“Pursuant to the Bid Rigging Plan, Range returned the oil and gas leases and the bonus contracts to Plaintiffs unsigned and stamped ‘void’ or claimed that the leases were lost and/or never processed,” the suit states.

The plaintiffs claim they notified the defendants that they were in breach of contract and demanded the bonus payments promised to them.

“Range refused to honor most contracts but offered to renegotiate some of the leases if Plaintiffs would accept the signing bonuses being paid over a 5-year period,” the complaint says. “Astonishingly, Range even failed to honor these renegotiated leases.”

Although most of the plaintiffs were unable to obtain new leases anywhere near the defendants’ bids, many of them later did sign leases for $1,000 to $1,500 per acre and a 15 percent royalty, according to the complaint.

The plaintiffs claim breach of oil and gas leases, breach of the bonus contract, fraud, interference with prospective contract, unjust enrichment, violation of the Sherman Antitrust Act and violation of West Virginia Code against Range. They allege violation of the West Virginia Code, violation of the Sherman Antitrust Act, interference with prospective contract and fraud against Duncan.

In their 10-count suit, the plaintiffs seek an unspecified judgment, punitive damages, statutory damages, pre-judgment interest and other relief to which they may be entitled. They also seek a judgment that bonus contracts are not a contract for more than one year after the lease, that the statute of frauds does not render either the bonus contracts or the lease unenforceable and to order Range to specifically perform the contracts.

Edgar F. Heiskell III of Charleston and J. Ryan Heiskell and J. Edward Bell of Georgetown will be representing them.