Former mayor sells drilling rights he owns under Clairton for $2.7 million

Lloyd H. Fuge, mayor of Clairton from 1973 to 1977, purchased the oil and gas drilling rights under 506 acres in that Mon Valley mill town and seven surrounding municipalities 2½ years ago, for $1.

The retired attorney bought the rights from the St. Clair Improvement Co., a transaction signed off on by the company’s president, Lloyd H. Fuge.

Then, 4½ months ago, Mr. Fuge, who is 87 and in poor health, sold those same mineral rights underlying 2,360 homes, businesses and vacant lots — which include the rights to drill in the Marcellus and Utica natural gas shales — to EQT, a Pittsburgh-based natural gas drilling and development company, for $2.784 million.

Only the original owners of the local coke and steel mills, Henry Clay Frick and Andrew Carnegie, could have dreamed about turning that big a profit in that town, that fast.

Mr. Fuge said he first became aware of the SCIC in the “early 1960s,” before he was mayor, when he represented “individuals and corporations” that wanted to purchase property in Clairton. According to land deeds, he has held the title of company president since at least 1964.

Mr. Fuge said he owns almost all of the SCIC’s stock, but he declined to say how or when he became the majority stockholder. And he would not identify members of the company’s board of directors that, he said, approved the sale of the mineral rights to him for $1. He denied a request to view minutes of that meeting of the private company’s board.

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Mr. Fuge said EQT, which contacted him about buying the mineral rights, conducted a thorough review of the mineral rights deeds involved in the transactions. EQT declined to comment on the purchase, which significantly increases the gas company’s already considerable mineral rights holdings in the Mon Valley, and enables it to drill horizontally under Clairton.

“[EQT’s attorneys] are convinced of the integrity, the legality, of it,” Mr. Fuge said. “Integrity is not the right word because that conveys a moral judgment, and I don’t think it does that, addresses that.”

But Clairton’s city manager, Howard Bednar, and Lee Lasich, the deputy mayor, still have questions about whether the mineral rights were Mr. Fuge’s to sell. They also want to know if the town Mr. Frick built around the world’s biggest coke-making facility should get more than the $13,920 in real estate transfer taxes those transactions generated, and whether extracting the gas will damage surface properties, homes, roadways and businesses.

“There’s no doubt [EQT] could drill under Clairton horizontally from drill pads in Jefferson Hills,” Mr. Bednar said. “A lot of Clairton has already been undermined and we’re not sure if extracting natural gas will have an impact on surface structures.”

The history

The search for some of those answers will take them back to Jan. 1, 1901, when Mr. Frick established the St. Clair Improvement Co. to lay out streets and build residences for his workers and their families in the valley and on the slopes adjacent to his steel mill along the Monongahela River.

According to the original property deed, written in elegant longhand, Mr. Frick spent $90,000 to acquire land in the area in the 1890s. He turned it all over to St. Clair Improvement Co. to sell to developers and individuals for housing and commercial operations. A state incorporation document shows the company was run by a board of three directors, hand-picked by Mr. Frick. It had five stockholders, with Mr. Frick controlling 1,990 shares, and four shareholders holding the remaining 10 shares.

When the lots went on sale in July 1901, St. Clair Improvement Co. advertisements promoted Clairton as “the ideal home of the man of moderate means ... (and) for everybody who wants a home away from the smoke and dirt of Pittsburgh.”

But the big draw was work in the mill, and according to historical summaries produced by the University of Pittsburgh Library System archives, the early 1900s were years of rapid growth for the company town.

During that period, the St. Clair Improvement Co., in which Mr. Frick maintained his initial large majority interest, sold many of its properties. But through a deed mechanism known as a “split estate,” the development company retained the mineral rights — including oil and natural gas — under those surface properties.

Mr. Frick sold the Clairton Works to the Carnegie Steel Co., and its successor, United States Steel Corp., in 1904. And in March 1914 he sold the improvement company to the son of a prominent Uniontown banker, Josiah Vankirk Thompson, who, despite his large inheritance, went bankrupt in 1916. His holdings, valued at $50 million including the SCIC, were sold to cover debts.

After that, SCIC records are very spotty in the university archives and various Mon Valley libraries. Information pieced together through deed searches shows Robert Woods Sutton was company president in 1917, W. A. Seifert was president in 1933 and Harvey R. Worthington was president in 1944 and through at least October 1958. Mr. Fuge said he succeeded Mr. Worthington in the early 1960s.

In December 1964, however, a deed shows his Mr. Fuge’s wife, Dorothy, as the SCIC president who signed off on a transaction in which Mr. Fuge paid delinquent local and corporate taxes totaling $144 to acquire three properties on the east side of Miller Avenue in Clairton from the St. Clair Improvement Co. An “N.R. Fuge,” Mr. Fuge’s mother, Nancy, is listed as company secretary.

According to the deed, the sale was approved by “resolution of the board of directors” that was “passed at a regular meeting” of the board.” An easement granted in 1967 is signed by Mr. Fuge as president and N.R. Fuge as secretary.

There are a handful of St. Clair Improvement Co. property sales recorded in the county deeds office between 1967 and 2013. Mr. Fuge as company president approved one in 1989, with Dorothy Fuge listed as secretary.

Fast-forward to Aug. 18, 2014, when an oil and gas deed recorded in the county’s Real Estate Department memorialized the sale of all of the St. Clair Improvement Co. property rights — that is the mineral rights, including the shale gas formations — to “grantees” Lloyd H. Fuge and Dorothy M. Fuge for a dollar.

The deed is signed by “grantor” Lloyd H. Fuge, “who acknowledged himself to be the president of St. Clair Improvement Co., a Pennsylvania corporation,” and authorized to do so. The deed was attested to by Dorothy M. Fuge, identified as company secretary.

According to the document, in language similar to that found in the deed conveying three properties to Mr. Fuge in 1964, “This conveyance is executed and delivered pursuant to resolution duly adopted by Grantor’s board of directors, subsequently ratified at a duly held shareholders meeting.”

“That’s what happened,” Mr. Fuge said in a phone interview three weeks ago.

Asked the names of the board members, he said, “I don’t think that’s relevant.” He acknowledged that by not naming, or even confirming there are other board members, “That puts the target on me.”

In response to a question about how many board members voted to approve the sale, he again said, “I don’t think that’s relevant, and I’m not sure how much I want to discuss that with you.”

Asked why the board and shareholders would agree to sell him valuable mineral rights for $1, he said, “Because it was aware of how many services I performed for the company over the years. Fifty years ago I took that company out of the garbage and preserved its ability to do business. I paid a dollar, but provided other valuable considerations. I saved it from the trash.”

Asked to name the improvement company’s other shareholders, Mr. Fuge declined, and noted that he practiced law in and around Clairton for more than 40 years and “knows how to avoid disclosing confidentialities.” He then said he owns “almost all of the company’s stock, ... 1,800 shares.” He said, “Only two shares are owned by others and no one has been able to find those owners.”

Those SCIC shares don’t quite add up to the number created by Mr. Frick in 1901, but the totals are close. It’s not clear, however, why the SCIC didn’t sell its mineral rights directly to EQT.

Conner M. Cogswell, a Pittsburgh attorney in private practice, prepared the $1 deed from St. Clair Improvement Co. to the Fuges, recorded it in August 2014, and prepared the statement of value, but declined to answer questions about St. Clair’s stockholders or board members, saying he was not authorized to do so by his client.

On March 5, 2015, the improvement company filed a “change of registered office” form to the Pennsylvania Department of State, naming Registered Agent Solutions Inc., a national firm that handles legal correspondence for business entities, as its new office provider.

Registered Agent Solutions declined to identify SCIC’s board members or acknowledge the company is a client, citing a confidentiality policy.

The rights are sold

On Sept. 9, 2016, Lloyd and Dorothy Fuge sold the oil and gas rights they’d acquired to EQT Production Co. for $2,784,100. Ira Weiss, a former law partner and longtime friend of Mr. Fuge, represented him in the transaction.

Asked how the sale to EQT came about, Mr. Fuge said the company approached him, but declined to speak of it further.

“They asked me to not discuss this,” he said. “They feel that they’re in business, and if I divulge things their competitors may have a better idea how to approach leasing and compete more efficiently.”

In response to detailed questions about the sale and its gas development plans, Linda Robertson, an EQT spokeswoman, issued a statement saying its land dealings with individual landowners, associations and organizations are confidential, and its well development and drilling plans for the area “have not been determined.”

In addition to the purchase of mineral rights from Mr. Fuge, EQT since August 2009 has bought or leased mineral rights under more than 4,000 parcels of land in Forward, Jefferson Hills, Elizabeth, West Elizabeth, Lincoln, Dravosburg, Liberty, White Oak, Plum, West Mifflin and Churchill.

In its 2017 “Operational Forecast,” a public document on the gas company’s web page, EQT said it plans to drill 119 Marcellus Shale gas wells with an average lateral (horizontal) length of 7,000 feet this year, 76 of those in its “core” Pennsylvania acreage. It already has drilled wells on three pads in Forward and has a permit for a fourth pad but has drilled no wells yet. The company also has permits to drill on pads in Jefferson Hills and Elizabeth.

The state Department of Environmental Protection has approved 11 as-yet-undrilled wells for EQT’s Bickerton well pad, located near a residential Jefferson Hills neighborhood and the Tepe baseball and soccer field. The pad, which could eventually contain up to 16 wells, is just 1,300 feet from Clairton’s western border

Officials saw it in the newspaper

Notification of the big mineral rights purchase under Clairton first appeared on the Pittsburgh Post-Gazette’s “Real Estate Transfers” list on Oct. 2, with a 10-word notice: “Lloyd Fuge to EQT Production Co., property, Shaw Ave., $2,784,100.”

“We found out about it in the newspaper’s deed transfers listing. We really didn’t know of any property on Shaw Avenue that was worth that much, or any 10 properties for that matter. Then we went and got the deed and saw mineral rights under more than 1,500 Clairton properties listed,” said Mr. Bednar.

“My main concern is that it will lead to gas development under homes and the city,” said Ms. Lasich, Clairton’s deputy mayor. “Clairton’s all undermined and if the drillers hit something there could be subsidence and worse. I don’t need to see any explosions in my ward of the city.”

Mr. Weiss, who grew up in Clairton where his father owned a butcher shop and grocery, said he wasn’t involved in Mr. Fuge’s mineral rights purchase. He added that records of a board vote approving the sale by the privately held company to Mr. Fuge aren’t part of any public record, and he doesn’t know who else is on the board of directors, saying, “That’s his personal business, and I wasn’t part of that.”

But Mr. Weiss confirmed that EQT “landmen” and deed researchers identified the improvement company as the owner of the mineral rights under Clairton and the surrounding area, and EQT attorneys approached Mr. Fuge, “several years ago” about acquiring those rights.

“All the title work was done by EQT. It’s a billion-dollar corporation and its lawyers did an exhaustive review of the titles and records, was satisfied with what they found and they paid him. That’s the long and short of it.”

Mr. Weiss defended Mr. Fuge, who lost his sight in a chemicals accident when he was a boy, as “an accomplished lawyer, one of the brightest I’ve known,” and said the mineral rights sale, except for its size, is no different than the thousands of others that have occurred since the shale gas boom began a decade ago.

“Whether people like this or are jealous, it doesn’t matter,” Mr. Weiss said. “He owned the property and he sold it. EQT is not complaining.”

Don Hopey:, 412-263-1983, or on Twitter @donhopey.

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