Big frack-cashing day may be postponed for local landowners

A local attorney who has negotiated oil-drilling lease options for Athens County residents, which are potentially worth more than $100 million in up-front payments, started informing his affected clients Friday that they probably won't be able to close the deal on March 15, as had been anticipated.

However, attorney John Lavelle assured his clients, the company that signed the lease options is still actively trying to sell them to a big corporate investor, and has asked Lavelle to try to get the options extended by a little more than two months, to May 18.

In a confidential message, obtained by The Athens NEWS from one of the landowners, attorney John Lavelle informed the hundreds of people who have signed lease options with the West-Virginia-based Cunningham Energy that these options will probably expire on March 15. The message, which is apparently being sent to all those landowners who signed leases with Cunningham based on terms negotiated by Lavelle's firm, was not obtained by The NEWS through Lavelle or anyone in his office, but instead from one of its recipients. Lavelle himself has signed an oil and gas lease with Cunningham.

Though the current leases will probably expire, the message says, Cunningham "has presented the entire lease package, supported by the most up-to-date geological information available, to over 130 of the largest companies in the world," and is in "intense negotiations with a viable joint venture partner" to fund oil drilling in the Athens County acreage. This likely occurred at the huge NAPE exposition in Houston last month, though The NEWS couldn't confirm this. At least two other firms representing large Athens County landowner groups were present at the expo, shopping their acreage.

The negotiations with a "viable joint venture partner," claims Lavelle in the letter, are expected to result in a deal to buy the leases within seven to 10 days, followed by a closing within 45 to 60 days after that. The attorney declined comment Saturday.

Up till now, Cunningham has been saying that it had a big investor waiting in the wings ready to do a joint venture to drill in Athens County. If so, this apparently has fallen through. And early on, a Cunningham spokesman said the company never intended to do the drilling in Athens County itself. In the oil and gas business, it's common for big lease parcels to change hands at least once, and sometimes more than that, before any drilling actually occurs.

March 15 was the date that Cunningham had set for either finalizing or abandoning oil-and-gas drilling leases for more than 40,000 acres in Athens County. The terms of these leases were based on a lease template negotiated by Lavelle.

The terms Lavelle worked out called for a $2,500-per-acre signing payment, plus 16 percent royalties on gross oil production.

Cunningham has been the most visible player locking up acreage for drilling in Athens County. The target the company is interested in is the Utica shale, located about a mile-and-a-half underneath the county, and believed to contain oil that can be profitably extracted using the relatively new "horizontal hydraulic fracturing" method of drilling. However, what eventually happens will depend heavily on the results of wells drilled in counties to the northeast of here, and test wells drilled in this county. So far, the producing Utica shale wells closest to Athens County are in Monroe County, northeast of Marietta.

In his letter to his clients, Lavelle said he had good news and bad news.

The bad news was, of course, that the March 15 deadline was likely to see, not a huge money payout to the lucky local landowners, but the lapsing of the lease options.

The good news, Lavelle hastened to add, is that Cunningham tells him there's a particular company who's now talking seriously to Cunningham. Part of the need for delay, he said, is that this unnamed venture partner "wants to independently confirm title to the properties" and also do its own geological testing.

Lavelle told his clients in the letter that he has made clear to Cunningham it's a big task to get more than 500 lessors to agree to a time extension in less than a week. Therefore, he said, Cunningham has indicated it's willing to sweeten the terms of the leases to keep people on board.

The company, according to Lavelle's letter, is willing to up the royalty payments by one-half percent, to 16.5, for anyone who says by March 15 that they're willing to hang on until May 18 to finalize the deal.