Worth property owner wants out of 2005 gas lease
Mustafa Tayfur signed an oil and gas lease for his 107-acre property in Worth in 2005 that paid him just $3 an acre for drilling rights, but with the promise of 12 percent royalties on any minerals extracted from the ground.
The company never drilled for oil or gas, and Tayfur, now hundreds of thousands of dollars in debt, petitioned a federal bankruptcy judge to break the lease with SWEPI LP, a subsidiary of Shell Oil Co., so he can get a more lucrative deal to help pay off his debts.
A judge in February refused.
In Butler County, where drilling for natural gas through fracking is a growing industry, the Tayfur case could provide a valuable lesson to anyone considering an oil and gas lease, legal experts said.
“Unfortunately, (Tayfur) didn't have a bad contract, he had a bad deal, and you can't get out of a bad deal,” said Marcellus shale attorney Steven Townsend, a Downtown attorney not involved in the case,
In 2009, there were 79 well permits for so-called unconventional wells issued in Butler County and 19 wells drilled, according to the Pennsylvania Department of Environmental Protection. In 2013, the state issued 160 permits, and 92 wells were drilled.
Tayfur's attorney, Mary Bower Sheats, is appealing the bankruptcy judge's ruling, arguing that while Tayfur signed the lease, the company never did, and Pennsylvania landlord-tenant law requires both parties to sign.
“I think the oil and gas company should have to sign the lease if they want it to be binding,” Sheats said.
Tayfur did not return a message left for him through Sheats.
The company maintains that landlord-tenant law doesn't apply in oil and gas leases. The bankruptcy judge agreed. The company also argued that it paid Tayfur what the lease required.
“Mr. Tayfur was fairly compensated for his oil and gas lease,” Shell spokeswoman Deborah Sawyer said in an emailed statement, “Maintaining the valid, contractual rights of that lease is a priority for Shell. We have honored the contracts enforced by the bankruptcy court and will continue to do so. If the appellate process results in a different decision, we will honor that as well.”
In his Feb. 26 ruling, Chief U.S. Bankruptcy Judge Jeffery A. Deller for the Western District of Pennsylvania called Tayfur's lawsuit a case of buyer's remorse “as a result of the recent Marcellus shale activity in the Western Pennsylvania region.”
According to court documents, Tayfur, 61, signed a lease on Dec. 28, 2005, with Central Appalachian Petroleum. The following July, the drilling rights were transferred to East Resources. Royal Dutch Shell bought East Resources in 2010.
Tayfur received annual payments of $321 from the drilling companies, as called for by the lease. He could have made about $300,000 had there been drilling, but none of the companies drilled on Tayfur's property, according to court documents.
“It is low, but it was not uncommon back then,” said Downtown attorney David Zimmaro, referring to contracts signed between 2005 through 2008. “A lot of people signed at this low-ball number.
Zimmaro has represented landowners in Marcellus shale cases but is not involved in the Tayfur case.
“Just because they underpaid you — you didn't get what is considered a fair market value — you're never getting out of that,” Zimmaro said.
Pine Attorney Harry Klodowski, who is assisting with Tayfur's case, said that today's standard lease agreements usually pay $3,000 an acre over a five- or 10-year lease.
Klodowski admitted that Tayfur “really didn't think about what he was doing” when he signed the lease in 2005.
“Gas leases were selling for peanuts back then.”
In his Chapter 13 bankruptcy filing in 2011, Tayfur said that if he could get out from under the SWEPI lease, he could get a better lease to make more money.
SWEPI attorney Kirk Burkley, of Pittsburgh, wrote in an October court filing that the company has leases on all properties surrounding Tayfur's, except for property that borders Moraine State Park.
“No other parties will lease the oil and gas rights from (Tayfur),” Burkley wrote.
To successfully break a lease outside of a bankruptcy, property owners have to prove fraud in the initial lease, Zimmaro said. And courts have only ruled on that about a half-dozen times, he said.
Bill Vidonic is a staff writer for Trib Total Media. He can be reached at 412-380-5621 or email@example.com.