January 3, 2012
By Joshua Schneyer and Brian Grow
(Reuters) - Late in the summer of 2010, hundreds of farmers in northern Michigan were fuming.
All had signed leases with local brokers permitting drillers to tap natural gas and oil beneath their land. All were demanding thousands of dollars in bonuses they had been promised in exchange. But none knew for certain whom to go after.
That's because the company rejecting their leases hadn't signed them to begin with. In fact, the company issuing the rejections wasn't much of a business at all. It was a shell company - a paper-only firm with no real operations - called Northern Michigan Exploration LLC.
One jilted land owner, Eric Boyer-Lashuay, called to complain to the broker who had handled his lease. Northern, he recalls saying, is "a shell company ... a blank door with no one behind it." . . .
Others, including Chesapeake, defend the need to use shell companies and front companies - contractors with local ties who do business on behalf of a larger corporation. John Lowe, a professor of energy law at Southern Methodist University, calls it "business as usual."
"Shells aren't just a device to pull the wool over land owners' eyes," Lowe says. "You have to weigh some of the unfortunate cases against the fact that these companies can facilitate doing business, making it easier and probably cheaper to obtain leases. If I were a regulator, I'm not sure I'd change anything or try to limit the use of shells."
Read the full story.
# # #