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Home My WebLink AboutResolution 4053-11-2011A Resolution NO. 4053 -12 -2011 AUTHORIZING THE EXECUTION OF AN AMENDMENT TO A MINERAL LEASE FOR PROPERTY LOCATED AT DALLAS /FORT WORTH INTERNATIONAL AIRPORT WHEREAS the Cities of Fort Worth and Dallas, together with the Dallas /Fort Worth International Airport Board, entered into a mineral lease (the "Lease ") with Chesapeake Exploration LLC, for the production of natural gas at Dallas /Fort Worth International Airport; and WHEREAS the Lease provides that beyond the primary term of the lease, the lease will remain in force only as long as there is no lapse in drilling of more than 90 days, and provides further that once drilling ceases, leased acreage is retained ( "Retained Tracts ") by continuous production; and WHEREAS Chesapeake ceased drilling at least as early as May 2009, and a dispute has arisen whether drilling ceased earlier, what obligations each party had for identifying Retained Tracts, and how the Retained Tracts are to be configured; and WHEREAS the parties are also in dispute as to the contractual measure of royalties payable to the Dallas /Fort Worth International Airport Board, which is not part of the settlement authorized hereby, and which remains set for trial; and WHEREAS litigation of both disputes is pending in District Court in Tarrant County, and the parties have tentatively reached a settlement of the issues pertaining to Retained Tracts; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF FORT WORTH, TEXAS: SECTION 1. That the City Manager is hereby authorized to execute an amendment to the Lease necessary to effect the following partial settlement and providing for the following: (a) The parties will establish a demarcation line bisecting Dallas /Fort Worth International Airport generally from southwest to northeast. If Chesapeake drills 14 additional wells in the northwest sector by the end of 2014, Chesapeake will have all the acreage in the northwest sector as Retained Tracts, containing approximately 10,000 acres, for as long as it continues to produce minerals from that sector. ORT WORTI ki _ i No. 4053 -12 -2011 (b) Chesapeake shall also have the opportunity to earn additional Retained Tracts in the southeast sector by drilling additional wells in that sector by the end of 2014, and shall be obligated to do so if and when the price of gas at Carthage exceeds $6.00 per mcf for three consecutive months. If Chesapeake fails to meet that drilling obligation, it shall lose the opportunity to earn additional Retained Tracts. The amount of the southeast sector that becomes Retained Tracts depends on where Chesapeake drills in that sector. (c) The deadline to drill wells in the northwest sector, and the opportunity to drill wells in the southeast sector, shall both be extended by any such three -month periods of gas prices reaching or exceeding the target of $6.00 per mcf. Also, Chesapeake may purchase an additional one -year extension of that deadline in the southeast sector for a price of $1,000 per acre. SECTION 2. That the approvals and authorizations contained in this resolution are further conditioned upon Chesapeake reimbursing the Dallas /Fort Worth International Airport Board for $110,000 of attorney's fees, which represents the approximate amount of fees attributable to the issue being settled. SECTION 3. That the approvals and authorizations contained in this resolution are further conditioned upon similar approvals and authorizations by the City Council of the City of Fort Worth. SECTION 4. That this resolution shall take effect immediately from and after its passage in accordance with the provisions of the Charter of the City of Dallas and it is accordingly so resolved. Adopted this 13`h day of December, 2011. ATTEST: r f) By: ----- - - - - -- --------------- Ronald P. Gonzales, A stant City Secretary ORT WOI T Z City of Fort Worth, Texas Mayor and Council Communication COUNCIL ACTION: Approved As Corrected on 12/13/2011 - Resolution No. 4053 -12 -2011 DATE: Tuesday, December 13, 2011 REFERENCE NO.: G -17473 LOG NAME: 12CHESAPEAKE PARTIAL SETTLE SUBJECT: Authorize Execution of Partial Compromise Settlement and Release Agreement in PAZ Energy, LLC, vs. Dallas /Fort Worth International Airport Board, et al, Cause No. 153 - 237052 -09, Tarrant County, Settling the Dispute Between Dallas /Fort Worth International Airport Board and Chesapeake Exploration, L.L.C., Regarding the Acreage Earned by Production and Agreeing on a Mineral Development Plan for All Other Dallas /Fort Worth International Airport Acreage and Adopt Resolution (ALL COUNCIL DISTRICTS) RECOMMENDATION: It is recommended that the City Council to: 1. Authorize the City Manager to enter into a Partial Compromise Settlement and Release Agreement in the lawsuit styled PAZ Energy LLC vs. Dallas /Fort Worth International Airport Board, et al, Cause No. 153- 237052-09, Tarrant County; and 2. Adopt a Resolution Authorizing an Amendment to the Mineral Lease between the City of Fort Worth, the City of Dallas, the Dallas /Fort Worth International Airport Board and Chesapeake Exploration, L.L.C., partially settling the dispute between Dallas /Fort Worth International Airport Board and Chesapeake Exploration, L.L.C. DISCUSSION: The City of Fort Worth, the City of Dallas and the Dallas /Fort Worth International Airport Board (Board) are in litigation with Chesapeake Exploration, L.L.C. (Chesapeake), regarding two issues that arose under the mineral lease between the Cities, the Board and Chesapeake: the measure of royalties and the measure of Retained Tracts. The Lease provides that beyond the primary term, it will remain in force only as long as there is no lapse in drilling of more than 90 days, and provides further that once drilling ceases, leased acreage is retained (Retained Tracts) by continuous production. Chesapeake ceased drilling at least as early as May 2009, and the dispute arose as to whether drilling ceased earlier, what obligations each party had for identifying Retained Tracts and how the Retained Tracts are to be configured. The parties are also in dispute as to the contractual measure of royalties payable to the Dallas /Fort Worth International Airport Board, which is not part of the Settlement/Lease Amendment. This portion of the lawsuit remains set for trial. Litigation of both disputes is pending in District Court in Tarrant County and the parties have tentatively reached a settlement of the issues pertaining to Retained Tracts. An Amendment to the Lease is necessary to effect the partial settlement on the Retained Tracts issue. The parties have agreed to a line of demarcation (as shown on Exhibit A to the Resolution) with all acreage northwest of the line of demarcation constituting Retained Tracts on condition that Chesapeake Logname: 12CHESAPEAKE PARTIAL SETTLE Page I of 2 will drill at least 4 wells per year in that area, and a minimum of 14 new wells in total, to commence on or before June 1, 2012 and to be completed no later than December 31, 2014. As to the acreage southeast of the line of demarcation, Chesapeake shall be required until December 31, 2014 to drill at least one well for each period of three consecutive months in which natural gas prices on the first day of each month are at or above $6.00 per mcf at Carthage. Chesapeake will earn additional Retained Tracts for each such well, not to extend more than 330 feet from the furthermost well bore. For each well drilled, Chesapeake will gain an additional three months beyond December 31, 2014 in which to drill additional wells. After the last such period expires, Chesapeake may gain one additional year extension by payment of $1,000.00 per acre. In addition, as part of the partial settlement, Chesapeake will reimburse the Board for $110,000.00 of attorney's fees, which represents the approximate amount of fees attributable to the issue being settled. The approvals and authorizations contained in the resolution will be conditioned upon similar approvals and authorizations by the City Council of the City of Dallas. On May 5, 2011, the Board recommended that the Cities of Dallas and Fort Worth approve a partial settlement with Chesapeake. Staff recommends approval of this partial settlement. The City of Dallas is scheduled to vote on this item at its December 14, 2011 meeting. FISCAL INFORMATION / CERTIFICATION: The Financial Management Services Director certifies that this action will have no material effect on City funds. FUND CENTERS: TO Fund /Account/Centers CERTIFICATIONS: Submitted for City Manager's Office by: Originating Department Head: Additional Information Contact: Logname: 12CHESAPEAKE PARTIAL SETTLE FROM Fund /Account/Centers Tom Higgins (6192) Sarah Fullenwider (8006) Gerald Pruitt (7616) Page 2 of 2