Aug 25 2010

‘White Hat’ Gas Guys

Range Resources Claims It ‘Overpaid’ Royalty Checks,

Will Take Money Back from Leaseholders;

Plus Range Welshes on Agreement to Pay Nearly $500K

To A Leaseholder Due to ‘Drastic Drop

In Oil & Gas Prices’

Take Note if You’re Thinking About Leasing!

It is endlessly entertaining to watch the gas guys fall in love with themselves.

In Range Resources’ Annual Report, the company swells with pride that, “At Range, we like to call ourselves ‘the white hat guys,’ not because we are perfect, but because we are committed to doing things right.”

Really?  Experience with gas companies suggests there are two possibilities here:  Twelve-year-olds wrote this; or these folks have forgotten how to blush out of embarrassment.

But let’s say we’re property owners thinking about leasing our mineral rights with Range or a similar company.  We want to believe that they are the “white hat guys … committed to doing things right.”  So how are the “white hat guys” doing?

Not well.

Broken Promises to Property Owners

If you are thinking of signing a lease with a gas company – always understand the risks and rewards of the “bet” you are placing with a gas lease on your property.  As we have said repeatedly on this blog, talk with, or at least research what has happened to, other property owners with shale gas leases.

What would you do if any of the following happened to you or to your property?  Here are three real-life examples:

  • Range Resources is welshing on an agreement to make a bonus payment of nearly $500,000 to two of its leaseholders in Western Pennsylvania.  The leaseholders sued.  And the judge denied Range’s motion to dismiss the suit, which means this case is headed to trial – unless it gets settled.  (For details, see first footnote below under “Links & Resources.”) 1
  • In addition, Range is sending letters to leaseholders in Western Pennsylvania telling them that the company overpaid them in recent royalty checks over “several production periods.”  As a consequence, “the white hat guys” will begin deducting the alleged overpayment from future royalty checks.  This raises lots of questions including the competence and financial reporting accuracy of a company known as “King of the Marcellus.”  (To see a copy of Range Resources’ letter to leaseholders, see the second footnote below under “Links & Resources.) 2
  • And take a look at the high-tech repairs and maintenance of the plastic liner on Range’s 4-acre frack water impoundment located next to Steph and Chris Hallowich’s property in Washington County, PA.  (See photo.)

‘White Hat Guys’ on Frack Water Impoundment?

Let’s begin with the Hallowich’s.  Some of this family’s experience with the gas industry was shared in the previous post titled NIMBY Gas Execs at this link: http://www.spectraenergywatch.com/blog/?p=720

They live on 10 acres in Washington County, PA, not far from Pittsburgh; and they are nearly surrounded by the shale gas industry.  The aerial photo in the previous post must be seen to be believed.  (Click on it to enlarge.)

Today, next door to their property, there are four gas wells, a 12-million-gallon water impoundment (covering about 4 acres), a cryogenic gas processing plant, compressor station, meter station and numerous pipelines and access roads.

Three different gas companies are involved:  the “white hat guys” at Range Resources (4 wells & 12-million gallon water impoundment), Williams (gas processing plant & meter station), and MarkWest Energy (compressor station).

In theory, the 4-acre frack water impoundment, operated by Range Resources,  is supposed to be fresh water.  “It was used for the initial frack of all four wells nearby,” Steph Hallowich told this blog.  “Then it was used to refrack one of these wells.”

Somewhere in the process – perhaps the re-fracking – the impoundment apparently became contaminated.  Test samples of the water taken by the Pennsylvania Department of Environmental Protection came back with acetone and ethylene glycol included in the results, according to Hallowich.

‘White Hat Guys’ Drained 12 Million Gallons onto Ground

Early one foggy evening, Steph discovered Range pumping water from the contaminated impoundment onto the ground and spraying it into the air.  “This is the same water found to contain acetone and ethylene glycol,” she said.

The “white hat guys” emptied the 12-million gallon water impoundment.  Is it possible that, with all the water gone – spread over the ground – no more water samples can be tested?  Only rain water collects in the plastic-lined, 4-acre hole now.

Videos showing the release of water from the impoundment can be found on YouTube at these links:

YouTube gas OU812s Channel -

Marcellus Shale Intentional Release of Impoundment Water

http://www.youtube.com/user/gasOU812#p/u/11/HxONQ4yXf8M

Marcellus Shale Impoundment Release

http://www.youtube.com/user/gasOU812#p/u/7/1DjO3xOdhFk

Torn Plastic Liner – Secure?

If Range Resources can't count production volumes, how can they be sure that its plastic frack pond liners don't leak?

Click on photo to enlarge.

Next, check out the above photo of the “white hat guys” repair of the torn plastic liner for this frack water impoundment.  What are the odds that the liner is, or was, secure?

In addition, the Hallowich family well water is contaminated with acrylonitrile, toluene, ethylbenzene, tetrachlorethylene and styrene, according to Hallowich.

They now have the burden of paying to have water delivered to a 1,500-gallon tank in their garage.

Range Can’t Count – Incompetence or Worse?

Now about those inaccurate production volumes and royalty payments:

So “the white hat guys” of the gas industry can’t track their own production volumes and can’t correctly manage leaseholder – not to mention company – finances.

Sounds like a firing offense for more than one executive.  This is a big deal in a publicly held corporation with shareholders.  No doubt CEO John Pinkerton will announce an investigation.

This blog twice contacted Matt Pitzarella, Director of Public Affairs at Range Resources, to ask how many leaseholders are affected, and what is the dollar amount of the allegedly overpaid royalties?  We will report his response if and when we receive it.

Perhaps an inquiry may be warranted by the Securities and Exchange Commission (SEC), IF it is suspected that material information was presented in a misleading way to investors.  After all, this is real money and the company allegedly miscalculated both production volumes and royalty payments.

Legally, leaseholders might have a beef with such “broken promises” from Range Resources.

If you have received one of these letters, check your lease.  Many leases say that leaseholders have the right to audit the production reports at any time, if the request is in writing.

Shouldn’t be a problem.  After all, the folks at Range are “the white hat guys … committed to doing things right.”

Really?

Links & Resources

1 Valentino versus Range Resources – Lawyer Cliff Tuttle writes in Pittsburgh Legal Back Talk:  “Joseph and Donna Valentino signed an oil and gas lease with Range Resources-Appalachia LLC, together with a side agreement calling for a $456,800.00 bonus payment.”  Read his article at this link: http://www.pittsburghlegalbacktalk.com/2010/08/16/case-of-the-week-valentino-v-range-resources/

Or the pdf file:  case-of-the-week_-valentino-v-range-resources-_-pittsburgh-legal-back-talk

Then read Chief Judge Gary Lancaster, US District Court of the Western District of Pennsylvania, decision and order to deny Range Resources’ motion to dismiss the Valentino’s case: http://scholar.google.com/scholar_case?case=11223618135741252600&q=Valentino+v+Range+Resources&hl=en&as_sdt=800000000002&as_ylo=2010

Or the pdf file:  valentino-v-range-resources-appalachia-llc-dist-court-wd-pennsylvania-2010-google-scholar

2 Overpaid Royalties? – Range Resources’ letter to leaseholder stating that the “King of the Marcellus” can’t do arithmetic, and alleging that royalties were overpaid for “several production periods.”  Range wants the money back.  Will the company also report that it’s made drilling & operating errors that contaminated water on leaseholders property?  After all, if it can make an alleged accounting error that is fundamental to its business, how many other operational errors has it made?  Time for an investigation.  Pdf file:  range_ltr_081910

Thinking about leasing? Get as much information as you can – Marcellus Powerball: http://www.spectraenergywatch.com/blog/?p=494

Leave a Comment

Please note: Comment moderation is enabled and may delay your comment. There is no need to resubmit your comment.