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Transfer of mineral rights may mean windfall for Valley property owners



Published: Wed, August 1, 2012 @ 12:08 a.m.

Valley landowners stand to make more in royalties from Chesapeake Energy

By Ed Runyan

runyan@vindy.com

WARREN

For 7,000 property owners in Mahoning County, 7,000 in Trumbull and 450 in Columbiana whose “deep” mineral rights were transferred June 26 from Everflow Eastern of Canfield to Chesapeake Energy of Oklahoma, the result could be — eventually — higher royalties for the property owners than they now receive.

But having Chesapeake in possession of rights to the Utica shale formation won’t be as lucrative for the property owners as those who sold their mineral rights to BP America this spring, said Atty. Mark Finamore, who represents several townships and villages as well as private-property owners.

Rights to the Utica shale are sometimes referred to as “deep rights” because the Utica shale formation is lower in the ground than the Clinton shale, which Everflow has been mining in the Mahoning Valley for several decades.

Chesapeake bought the deep mineral rights to 28,000 acres for about $35 million from Everflow in February, according to a filing with the U.S. Securities and Exchange Commission.

It is not known how many of those 28,000 acres are in Mahon- ing, Trumbull and Columbiana counties. Calls to Everflow regarding the leases were not returned, and Chesapeake declined to comment.

“There’s no negative impact, no disadvantage to them for their rights being assigned” to Chesapeake, Finamore said of the property owners.

In fact, the transfer will be a “windfall” because if and when Chesapeake begins to drill on that land using horizontal fracturing, it’s likely that the company will be able to extract a much larger amount of gas and oil than Everflow could using the older vertical form of drilling, Finamore said.

The terms and conditions in the original leases with Everflow transfer to Chesapeake, Finamore said, including the percentage of royalties being paid — in most cases 12.5 percent.

The Everflow property owners won’t get a signing bonus such as the BP owners got, Finamore said. They received their signing bonus when they signed their lease — typically $100, Finamore said.

BP, conversely, is paying its property owners a signing bonus of $3,900 an acre on the 84,000 acres it has leased in Trumbull County. BP is paying its property owners royalties of 17.5 percent.

Those people who signed leases with Everflow didn’t know at the time that technology would make it possible for drilling companies to use horizontal fracturing to extract oil and gas from the much deeper Utica shale layer, Finamore said.

They made the best deal they could at the time, but their leases — some as old as 25 years — will prevent them from getting the kind of money the BP property owners are getting, Finamore said.

Two of the leases for the Everflow property owners obtained at the Trumbull County Recorder’s Office gave Everflow and any company buying the lease the right to extract minerals “for five years and as long thereafter as operations are being conducted on any such unit or oil or gas can be produced in paying quantities.”

If a property owner wishes to, he can try to argue that his lease should be canceled on the grounds that the well is dormant. Short of that, the lease allows the drilling company to keep the mineral rights for an indefinite period of time, Finamore said.

“As long as operations are being conducted and gas and oil can be produced ... their lease goes on in perpetuity,” Finamore said.

Trumbull County Recorder Diana Marchese said most of the leases transferred to Chesapeake June 26 involved Everflow but possibly not all.

The recorder’s office reported that the title work on the leases produced the largest single fee ever charged in Trumbull County for a title transfer — $34,159 — and took several employees two weeks to complete.

In Trumbull County, most of the leases are for land in the townships of Warren, Weathersfield and Howland, but there are some in Bazetta, Champion, Liberty and Lordstown. Many of the parcels are small — in many cases only a quarter of an acre, records show.


Comments

1UticaShale(854 comments)posted 2 years, 4 months ago

In the private sector and in business, if one enters into a contract and agreed to the terms that was the fair market at that time, if the value drops, the one party loses, if the value rises the other party wins. This is what you call free enterprise, it made the Valley great at one time until the dependent class all but killed America.

Neverthteless, as was written and revealed on GoMarcellusshale.com
The Energy companies who above purchased the rights of the old Clinton well units in the Valley may find their new leases void. Apparently, many of the smaller lots in the City of Youngstown were wantonly forced pooled and royalties, albeit miniscule were never escrowed nor paid to the estate of the owners for decades, thus voiding a lease to a 40 acre unit. I was involved in this study first hand and the company I work for discovered that many parcels we manage have this cloud. The Energy companies know this and apparently will have to address this in the near future.

Suggest removal:

2BIGDRILL(36 comments)posted 2 years, 4 months ago

The control and ownership of mineral rights under any city should be owned and controlled that city. Monies generated by drilling in the city could then be put to good use. If the residents don't desire drilling then just up the taxes to take the place of that revenue. Squabbling with small lot owners is non productive.

Suggest removal:

3AnotherAverageCitizen(1175 comments)posted 2 years, 4 months ago

drill.

Just the big money attitude.
""Squabbling with small lot owners is non productive.""

Suggest removal:

4BIGDRILL(36 comments)posted 2 years, 4 months ago

EMINENT DOMAIN exists so that a few can't stop progress for the majority.

Suggest removal:


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