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Big-money royalty ship may have passed EP

February 1, 2013
Salem News

EAST PALESTINE - The village was behind the curve on oil and gas leasing and that's why a lease hasn't been offered yet, Bob Rea of Buckeye Mineral Development LLC (BMD), told council this week.

He said that had the village been represented by his company earlier last year it would have been included in a group of more than 1,100 acres that were leased to Chesapeake Energy.

The village is looking to lease the surface rights of roughly 130 acres of municipal land, and Rea said companies aren't interested in leasing a small amount of land in the county right now.

"Everybody's leasing endeavor has diminished considerably. We have shown your parcels and it has had mixed reviews. Some said they are going to pass on this quarter. We are going to put it back in front of them," he said.

The village approved hiring the BMD to negotiate on their behalf last summer after discussing the possibility of leasing for several months. Village Solicitor Shirley Smith was initially negotiating for the village but council opted to move forward with BMD after time went by and no leases were offered.

Rea said the for-profit organization is an offshoot of the non-profit Associated Landowners of the Ohio Valley (ALOV) that operated out of Salem.

He explained the ALOV couldn't continue operating as a bargaining agent for landowners because of all the interest the volunteer organization generated. After forming in 2010, the group negotiated hundreds of thousands of acres in the county to oil and gas exploration companies.

The group also negotiated several thousand acres for landowners and municipalities in neighboring counties.

The development, he said, has the sustainability to continue, and isn't just about a securing a lease.

"What we wanted to do in the formation of this company is to realize we need to represent our mineral interests at large," he said.

He explained that most leases are for gas and oil exploration from the surface of the earth to the center, which can be a detriment to the landowner. Instead, landowners would benefit from leasing each shale formation independently.

"You don't want to sign away everything from the bottom of your foot to the center of the earth Potentially in this area right here you could have three producing zones, the Utica, Clinton formation and the Marcellus," he said.

Leasing in the Marcellus has not been done in the county. Its production is largely focused in the Pennsylvania area.

Rea said that unlike other parts of the county, some Marcellus exists under the East Palestine territory and the village could benefit from leasing that layer in the future.

"For you folks in East Palestine that Marcellus region has value," he said.

As for the Utica shale, the village is in a "sweet zone," but that is only a benefit if companies start showing an interest, he added.

"One-hundred-and-thirty acres is pretty minimum. If we could offer them 13,000 or even 15,000 acres it would be a different look because they have to develop the pipeline to get to it" and that takes money, he explained.

"The eastern side of Columbiana County is so leased up it's hard to bring a competitor here and put it in with everything we want to show them. We have to work at this," he said.

He added that because Chesapeake Energy already owns "the lion's share" of most of the leases in the county the company likely doesn't feel compelled to sign more at this time.

Council members questioned how much the village could earn through a lease, and like Smith had advised over several months, Rea indicated that disclosing that information wouldn't be prudent during negotiations.

The group signs confidentiality agreements with the exploration companies it negotiates with, and therefore, several things cannot be discussed in a public forum, he said.

"They don't want their competition to pick up in the newspaper what is being discussed ... We tell our landowners in the county we aren't going to bring you much of an update," he said.

A lease could be offered to the village within the next month, or a year, "I don't know," he said.

He added that benefits of a BMD lease include being paid on the gross and not the net, the inclusion of environmental clauses that protect water supplies and the Pugh Clause, which means that whatever leased acreage that isn't earning income for the landowner is no longer affected by that lease.

The BMD leases have a five-year initial term and three-year renewal.

 
 

 

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