What is Force Majeure and how does it help ensure I receive my future royalty payments?
Chesapeake works diligently to drill natural gas wells in a timely manner in order to develop the minerals, and ultimately generate royalties, for area residents. Unfortunately, there are circumstances when this cannot occur due to delays beyond the control of the natural gas operator or the mineral owner.
These situations can include acts of God as well as delays caused by permits not being approved by city councils or other governmental authorities. It can also arise if a city changes its drilling ordinances and inhibits our ability to commence operations.
In these cases, Chesapeake is committed to taking any necessary steps to obtain the required permits and continue its work to bring royalty payments to mineral owners. We do sometimes, however, have to invoke a clause in the lease that allows us more time to pursue our efforts during these unavoidable delays. This clause, known as “Force Majeure,” serves to extend your lease for an indefinite period of time until the event of Force Majeure can be resolved. Often this involves redoubling our efforts to obtain necessary permits from a municipality.
From a legal perspective, the Force Majeure provision of a lease conditions Chesapeake’s obligations on compliance with all applicable laws, rules, regulations and orders of any governmental authority having jurisdiction to regulate gas well drilling and production. It excuses performance when compliance is being delayed pending governmental approval. Under this provision, the denial of the necessary variance by a city constitutes Force Majeure because Chesapeake is prevented from conducting drilling operations by that city. As a result, Chesapeake must declare and invoke Force Majeure, as authorized by the lease, to extend the lease indefinitely while Chesapeake continues to pursue any alternative strategies and efforts to produce your minerals.
Sample of a Force Majeure clause contained in a lease
Force Majeure. Should Lessee be prevented by reason of Force Majeure from complying with any express or implied covenant of this Lease (other than a requirement to pay money), from conducting drilling or reworking operations on the Land, or from producing oil or gas, then while so prevented, that covenant will be suspended; Lessee will not be liable for damages for failure to comply therewith; this Lease will be extended so long as Lessee is prevented from conducting drilling or reworking operations on, or from producing oil or gas from, the Land; and the time while Lessee is so prevented will not be counted against Lessee. “Force Majeure” means any Act of God, any federal or state law, any rule or regulation of governmental authority (specifically including any municipal permitting requirements, provided that due diligence is employed in requesting and obtaining such permits), or other similar cause (other than financial reasons). This paragraph is, however, in all things subject to the limitations of time during which this Lease may be continued in force by the payment of shut-in gas royalties.
During a Force Majeure suspension, we will continue to work hard to produce your minerals and issue your royalty checks
Declaring Force Majeure is not always necessary, and we try hard to avoid asserting it. There are times, however, when it is unavoidable. Due to the unique nature of urban drilling, delays in permitting can happen. Operators and city governments are always striving to improve current systems and processes so that all parties are in mutual agreement and able to function efficiently and effectively, in the interest of a city, the leased mineral owners and the operator. At Chesapeake, our ultimate goal is the successful production of natural gas, which will lead to economic benefits for the mineral owners and the community.