BY JAMES LOEWENSTEIN

TOWANDA - Chesapeake Energy Corp. recently mortgaged the mineral rights on over 1,000 properties in Bradford County, which in at least a couple of cases has prevented property owners from taking out a mortgage on their homes, a former Standing Stone secretary/treasurer said.

Diane Ward, the former secretary/treasurer of Standing Stone Township, brought up the matter at the most recent meeting of the Bradford County commissioners.

Chesapeake has mortgaged the mineral rights on over 1,000 properties on which it has a gas lease in Bradford County, in order to fund its drilling operations, Ward told the commissioners.

"The mortgage is technically on the mineral rights, but it has to be filed on the property," Ward said. "In the courthouse, there is no separation (between the mineral rights on the one hand, and the land and buildings on the other). So unless you've separated your property, it's just one deed."

She said that many local property owners aren't aware that Chesapeake can mortgage the mineral rights on their properties.

"For some people, it has started to cause some issues, because, for one, they were not notified of this, so the first time they find out about it is when they go to the bank because they need to put a mortgage on their home to get a little cash, and the bank says to them, 'By the way, you are fully mortgaged to the hilt. There is no way we can give you a mortgage.'"

She said that local banks need to realize that the mortgages are only on the mineral rights, so that the banks will continue to give out mortgages to local residents.

Brian Grove, senior director for corporate development at Chesapeake Energy, said its practice of mortgaging mineral rights should not affect property owners' ability to get a mortgage on their homes.

"As part of the mineral-leasing process, Chesapeake takes ownership of a percentage of the mineral rights. As the owner, Chesapeake has the legal right to mortgage its leased interest in the minerals," Grove said. "Because Chesapeake cannot mortgage any property interest other than what it already owns, this action should have no effect on any other property owner's ability to act on their own property interests."

Ward said that Chesapeake began mortgaging the mineral rights on local properties in October.

Most of Chesapeake's mortgages did not involve many properties, until the company mortgaged the mineral rights on over 1,000 properties in May in order to use a revolving line of credit with the Union Bank of California, Ward said.

According to a copy of the May mortgage that has been filed in the Bradford County Register & Recorders Office, Chesapeake's revolving line of credit with the Union Bank of California is for $5 billion.

After the meeting, Ward said that she has heard second-hand that two local residents were unable to get a mortgage on their properties after a gas company mortgaged their mineral rights.

In addition, on July 15, Appalachia Midstream Services, which is a subsidiary of Chesapeake Energy, mortgaged the pipeline rights of way on over 2,000 properties in Bradford County in order to tap a revolving line of credit with the Wells Fargo Bank, Ward said.

Grove also provided the following written statement to The Daily Review about its practice of leasing pipeline rights of way:

"Leasing and mortgaging of rights of way occurs in a process similar to residential utility-line easements, in that such rights of way potentially restrict surface use but have no impact on the landowner's ability to make financial decisions regarding the property," Grove wrote. "However, unlike utility easements, property owners are compensated when rights of way are obtained from the owners, presumably for the inconvenience that any future surface use restriction may create."

Grove also wrote:

"Chesapeake takes very seriously its responsibility to its lessors, stockholders and the communities in which it operates. Through sound financial practices such as this, Chesapeake continues to fulfill its obligations for natural-gas production under lease agreements with landowners and to provide a stable supply of cleaner burning, affordable natural gas that Bradford County and the nation require to meet our energy demands."

James Loewenstein can be reached at (570) 265-1633; or e-mail: jloewenstein@thedailyreview.com.