Another chapter has started in the drama that opened last fall when a West Virginia oil and gas company came into Athens and started throwing theoretical money around.
A local attorney who has negotiated a lease for deep-shale drilling for hundreds of Athens County landowners with Cunningham Energy of Charleston has informed his remaining clients that the company is now proposing a significantly less lucrative lease.
The new, scaled-down lease deal, according to attorney John Lavelle of Athens, will enable Cunningham to drill five test wells in different parts of Athens County. Without test wells showing promise, no oil and gas development will occur in Athens County.
The company doesn't have the financial wherewithal to drill the test wells as well as honor the $2,500 per acre signing bonuses with numerous Athens County property owners. Moreover, it can't find a joint partner to fund those leases at the $2,500 amount.
The new lease terms, Lavelle wrote in a letter to landowners who had extended their leases with him in March, are based partly on a state geology report indicating that Athens County lies to the south of the prime Utica shale play.
Under the newly proposed lease terms, Lavelle wrote, Cunningham Energy, LLC, is ready to commit to drilling five vertical test wells into the Utica shale formation in Athens County by the end of January 2014. If the wells don't show that the deep-underground Utica shale layer will be productive here, Cunningham (or whatever company it's working with, or flips the leases to) won't proceed with production wells.
In the meantime, Cunningham Energy is willing to pay landowners a nominal sum to keep their leasing options alive, with a much bigger payout years in the future if the company's wells become productive.
Rather than paying the $2,500 per acre signing bonus it had earlier been willing to pay, according to a letter Lavelle sent to his clients Friday, the company is now willing to pay the far more modest amount of $125 per acre to keep the already-signed landowners under contract while the company investigates the geology of the county.
Under new terms worked out by Lavelle, Cunningham may eventually pay landowners much more, $5,700 per acre, if the Utica actually produces here and Cunningham and/or its venture partner ends up drilling production wells. (This prospect depends on the company finding an investment partner, which according to Lavelle it's in the process of locating.)
Lavelle said the decision by Cunningham Energy appears to be based in part on information released by state geologists, indicating that Athens County is outside of the richest part of the Utica shale formation for oil and/or natural gas.
After the Ohio Department of Natural Resources' state geologist released a map indicating that Athens County may be 20-30 miles south of the high-potential part of the shale play, Lavelle said, a number of major industry players dropped their interest in investing in drilling here.
"The big companies are using that map as a bludgeon," he said. "Basically, they just left the table."
Other sources, however, have pointed out that the big companies have their own geology reports, much more sophisticated and complete than anything Ohio's state geologist has to go by. In fact, state Geologist Larry Wickstrom has readily conceded that the newest report is just a best-case guess about where deep-shale drilling will bear fruit in Ohio. The report depends on scanty test-bore evidence, especially in our area, he said, also agreeing that the big oil companies have much better and valuable information.
Wickstrom made special pains to point out that being placed outside the best-case Utica map doesn't necessarily mean successful oil and gas development can't happen in Athens County.
As the drilling inches farther south in search of oil and liquid natural gas, production in nearby areas will have more bearing on what happens here. So far the closest oil and gas deep-shale wells are in Noble and Muskingum counties, but plans are afoot for wells in Morgan and Washington counties, two counties adjoining Athens to the north and east.
Another source familiar with the oil and gas industry and market noted that Cunningham's difficulty in finding a venture partner may be because the big players in the oil and gas industry are busy developing deep-shale prospects elsewhere. With fully committed materials and crews, they can't commit too early to an uncertain play, since most leases have a five-year production window.
CUNNINGHAM HAD SIGNED LEASE options with many local landowners agreeing to pay a $2,500-per-acre signing bonus, plus royalties on any oil or gas drilled from their land.
Lavelle said Friday that with the current uncertainty about whether drilling in Athens County will be profitable, he felt the best move for his landowner clients was to work out a deal to keep their drilling leases with Cunningham viable, and get the company to commit to gathering some hard scientific data.
"It's basically allowing us to keep our landowner-friendly leases alive," the attorney explained. The reduced per-acre payment, he said, "is basically pocket change (landowners can collect) while they're drilling the wells."
Lavelle, who will still receive $25 per acre for providing "landowner-friendly" leases to his clients (with the potential for an additional $25 an acre later, if the play proves out), said Cunningham is now aiming to put together about 40,000 acres in Athens County to drill.
The Athens NEWS will provide a much more detailed account of this development in Monday's edition.