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Gas-leasing boom leads residents to fend for themselves



Published: Sun, November 14, 2010 @ 12:01 a.m.

photo

Bob Rea, a farmer in Salem Township in Columbiana County, has helped form a group of landowners who are negotiating with drilling companies for rights to natural gas on their properties.

By GRACE WYLER

gwyler@vindy.com

SALEM

The natural-gas boom sweeping the Appalachian Basin has hit Columbiana County in full force, with gas producers moving to snap up mineral-rights leases in the area’s lucrative shale formations.

But the land rush has left many property owners overwhelmed by the leasing process and concerned they might not be getting a fair deal for their hydrocarbons.

Bob Rea, a farmer who owns 40 acres south of Salem, has taken matters into his own hands. Rea and several of his neighbors have formed a land group to educate themselves on an industry that has the potential to make them overnight millionaires.

“We are trying to address the issues from the standpoint of how we can best protect ourselves,” Rea said. “These are capitalists, and they want to make money. The way you make money is you buy low and you sell high — there is nothing wrong with what they’re doing; it just feels wrong when you are on the low side.”

The group, which began as an informal collective of about 65 families from the Salem area, has exploded in both size and scope.

The Associated Landowners of the Ohio Valley, as the group is now known, represents more than 200 landowners in Columbiana County, who together own about 20,000 acres of unleased land.

“All we want to do is try to level the playing the field a little bit,” Rea said. “We want to make it so that those of us who aren’t educated in this new technology at least have a chance to defend ourselves in the negotiations to get the best that we can.”

Across Columbiana County, leasing agents have been working aggressively to persuade landowners to sign over their subsurface mineral rights.

The county recorded 556 leases in the first 10 months of 2010, compared with 196 leases signed in the same period last year, according to the Columbiana County recorder’s office.

Every day more than 20 leasing agents duke it out over the office’s two microfilm machines, said deputy recorder Diana Reiter.

“You usually can’t move back there,” Reiter said. “The companies call every day to see how many more people we can handle.”

As competition for land has escalated, so has the price companies are willing to pay.

Mineral-rights leases are now worth upwards of $2,000 per acre, up from about $750 per acre earlier this year.

“I have been in this business 37 years, and I have never quite seen the feeding frenzy that I have seen here in the past few months,” said Ben Funderberg, vice president at Ohio Valley Energy, an oil- and gas-leasing company based in Austintown. “It really is a land grab.”

MARCELLUS SHALE

Drillers were initially drawn to the region by the Marcellus Shale, a massive natural-gas formation that stretches across New York, Pennsylvania, West Virginia and parts of Ohio. Marcellus wells are thought to be more productive in the northeastern part of the formation, where the shale is thickest.

But leasing and drilling activity has been moving west across the Appalachian Basin, Funderberg said. While a moratorium on shale drilling in New York could play a minor role in the westward shift, geology is usually the primary decision-making factor in the oil and gas industry, he said.

Producers are likely looking at the Utica Shale, an Ordivinian formation below the Marcellus, Funderberg said. The Utica is thought to contain oil as well as natural gas.

Small, independent gas producers such as Ohio Valley Energy have been drilling conventional natural-gas wells in the Clinton sandstone for several decades, Funderberg said.

But the recent activity is driven by the biggest players in the energy industry, which have the resources to drill the more expensive and technologically advanced shale wells.

Chesapeake Energy, an Oklahoma-based gas producer, is responsible for most of the leasing in Columbiana County, Funderberg said.

The company, one of the largest operators in the Marcellus Shale, recently spent about $850 million to buy leasehold and option rights to 500,000 acres in the Appalachian Basin from Anschutz Corp.

Other major companies, including Royal Dutch Shell and ExxonMobil, have bought up gas assets in the region. Chevron acquired Atlas Energy, a Pittsburgh-based independent producer with nearly 1 million acres in the Marcellus and Utica shales.

“Everything is totally dependent on geology,” Funderberg said. “I don’t think that [gas producers] would come in here and spend this much money without drilling.”

So far, there have been relatively few shale wells drilled in Ohio. Of more than 64,000 oil and gas wells in the state, only about 30 are tapping into shale formations.

Shale drilling is not likely to have an impact on Ohio’s energy landscape in the immediate future, said Tom Tugend, deputy chief of the Ohio Department of Natural Resources’ Division of Minerals Management, which oversees oil and gas drilling. Horizontal wells have a much larger “footprint,” Tugend said, and it can take gas producers several months, if not years, to obtain all the leases required to get a permit.

“At this point, companies are in the exploratory phase,” Tugend said. “They are signing a lot of land, so we know there will be more [drilling], but how much more is hard to say.”

REGULATION

ODNR is responsible for regulating permitting and well production, Tugend said, but has “absolutely no involvement” in the leasing process.

In the absence of state oversight, landowners are left to try to defend their interests from major gas producers adept at getting what they want from a lease.

The Associated Landowners of the Ohio Valley is relying on strength in numbers. The land group voted to hire Youngstown law firm Harrington, Hoppe & Mitchell to draft an original lease that provides protection from possible environmental contamination and property damage.

Typically, landowners will make addendums to a standard company lease. But Rea is confident that the size of the land group will bring gas producers to the table and give landowners a stronger position in negotiations.

“I think that we can approach them as partners in this thing,” Rea said. “We aren’t here to be adversaries, but we have to protect people.”

More than 400 property owners gathered at Armstrong Saddlery & Trailer last Monday to view a copy of the lease. The association is asking the landowners to sign a letter of intent, committing their acres to the group.

A major provision in the lease would limit the size of horizontal drilling units to 640 acres. Drilling units are designated by the company in their permit application to denote where gas will be drawn.

Ohio, unlike other oil- and gas-drilling states such as Texas and Pennsylvania, does not put a maximum limit on unit size.

Unlimited unit sizes can dramatically curtail royalties for individual landowners, as these payments are prorated based on the amount of acreage one owns in a unit.

But the royalty checks are only part of the equation.

If a company does not own a well within the initial term of the lease, usually five years, a landowner will have the option to renew the lease for a second signing bonus. But once a well is drilled on a unit, all of the land in that unit is “held by production” — the lease is automatically renewed for as long as the well is producing gas or oil.

“They could literally control the whole region with only a few wells,” Rea said. “This has little to do with the size of the royalty checks — this is how they can control huge amounts of land.”


Comments

1timOthy(802 comments)posted 4 years, 1 month ago

Education about this is excellent,but there are so many groups with different ideas. One from Fair field twp. states the one's with the most acres will have more say in what's going on. Which I agree with wholeheartedly. Voting should be the same at election time,but that's another subject about property owners and welfare. I have 160 acres and haven't sign,but expect to this week at $2,000.00 an acre and 15% of said product. My stickler of not signing is the Surface mining clause and the Rigs on said land.People look out for you interest because as Mr. Rea has stated their Capitalist period. And the proof is proven by the shape the country is in period.It's all about them not you!

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2Maggie_Pentz(86 comments)posted 4 years, 1 month ago

I encourage your group to watch this movie at your next meeting to further your education about this process.

http://www.gaslandthemovie.com/about-...

It can be viewed for free online at a couple of websites - just search for it through Google.

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3Maggie_Pentz(86 comments)posted 4 years, 1 month ago

Here is a profile done on the film that can be watched for free online.

http://www.pbs.org/now/shows/613/inde...

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4howardinyoungstown(591 comments)posted 4 years, 1 month ago

People do your Due Diligence, do not sign anything with these companies, until you have checked with other people that they have already drilled on their property so you can truly find out what the consequences are. These companies do not give a hoot about your land and your quality of life on your property once you sign they will screw you over.

Gasland covers the more recent drilling in Pennsylvania
another good movie to watch is Split Estate which covers this type of drilling and the consequences in the Western states.
www.splitestate.com for info about the movie, I am sure you could find it online if you searched.

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5Springman(235 comments)posted 4 years, 1 month ago

1. The magic word is "lawyer." If a lawyer screws up, you have recorurse. If you screw up, you have no one but yourself to blame.

2. The best website om Marcellus shale is at the University of Pittsburgh.

3. If I had 160 acres with proven shale below, I'd consider going into business for myself and/or partnering with someone who is in the business. 50% sounds a lot better than 15%. That's what I'd look into if I were a county commissioner!!

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6cambridge(3099 comments)posted 4 years, 1 month ago

Anyone thinking of letting these companies drill on their land has a decision to make. Before you make that decision watch the video in post #3 on in this thread and the video below. If HBO ever puts this documentary back up or you get a chance to see the entire film as I did your decision will be easy to make.

http://www.youtube.com/watch?v=TwT_H9...

The decision you need to make is, is it worth making some money now only to pollute a millions of years old water supply because Dick Cheney had the energy companies write Americas energy policy and exempt them from Americas clean water act?

Keep in mind, the land that these existing wells are on is also the land where Americas live stock graze and our produce is grown.

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7Stan(9923 comments)posted 4 years, 1 month ago

Right on cambridge ! Make your neighbors richer by not leasing your ground ! Remove your gas furnace and sell your car to further teach those Oil Companies a lesson !

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8cambridge(3099 comments)posted 4 years, 1 month ago

And the best argument that this is a bad idea is: STAN IS FOR IT! Thanks for the endorsement.

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9Stormieangel(136 comments)posted 4 years, 1 month ago

I only own 10 acres so I doubt I will be in a position of being approached by a gas drilling company. However, I have heard that if a gas company drills horizonitally on your neighbor's land, he could also be pulling gas from under your land also. Could this happen? It would certainly be good for those of who who border the big farms to know if our mineral rights could be taken without our knowledge. Does anyone have an answer to this? It scares me to think I could lose my mineral rights to a greedy gas/oil company....not that greed could ever happen in America!!!!!! I will check back to this site in the next couple days to see if anyone has any ideas on horizontal drilling sucking out gas or oil from a property where the owners have not signed away their mineral rights.

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10pindrop(21 comments)posted 4 years, 1 month ago

I enjoyed the article from a non-bias point of view. However I wish Vindy would quit placing adds smack dab in the middle of the actual column.

Also, I agree with cambridge's closing paragraph in comment #6... and take a look at this as well...

http://video.pbs.org/search/Fracking/...

... the first video result is not yet available but the rest are worth viewing. Fracking is a very undesirable type of mining.

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11Stan(9923 comments)posted 4 years, 1 month ago

Stormieangel :

Gas does not lie dormant but migrates as the pressure is dropped by the production at your neighbors . Your gas migrates from verticle as well as horizontal wells. If you choose not to be included in the pool you lose out on the financial benefits . Your neighbors will enjoy the extra money . Many get paid from leasing with no well being drilled on their property . Your ten acres would entitle you to a substantial amount of money .

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12Tigerlily(500 comments)posted 4 years, 1 month ago

Hmm, Stan sounds like a salesman for the companies.

Just sign on the dotted line and don't worry about the small print, everyone.

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13Stan(9923 comments)posted 4 years, 1 month ago

Tigerlily :

Just telling it like it is . There are many tales of those who wouldn't lease and their neighbors did . Today they are bitter over their neighbors wealth . There is no law that forces you to accept wealth . You can stay poor on your own volition . No one forces you to drive or to heat your house with gas either . Eskimos lived for many centuries without heat or transportation . We really don't need those luxuries . Who am I to condemn anyone wishing to live an austere life ?

RENEWABLE HOUSING , EXCELLENT COOLING

http://www.luxurylaunches.com/entry_i...

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14peacelover(791 comments)posted 4 years, 1 month ago

Come and listen to my story 'bout a man named Stan,
Said he had to get rich quick, and environment be da**ed,
Then one day, he was cuttin' up his food,
And up from his steak come a-bubblin' somethin' crude....

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15Stan(9923 comments)posted 4 years, 1 month ago

peacelover :

"Come and listen to my story 'bout a man named Stan,
Said he had to get rich quick"

If I had to get rich quick I would be selling crack cocaine ! That is where big money can be found . Yep and your health/life will be da**ed if you use it !

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16pindrop(21 comments)posted 4 years, 1 month ago

I think some people speak / write just to hear or see themselves in the proverbial mirror. Let's stay on topic, folks.

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