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Sunday, June 3,2012

Some landowners uncertain whether to stick with lease offer

By Jim Phillips
Photo Credits: Photo by Cayce Clifford.
Photo Caption: Athens County landowners met at America’s Choice Realty Tuesday for an informational oil and gas lease-signing event at The Market on State.

A representative of a company that has been competing to sign up Athens County landowners for oil-and-gas drilling leases acknowledged last week that the firm's latest lease terms are only an offer, and that if a landowner signs up, this doesn't commit a Pennsylvania real-estate company to accept the leases.

"What we're doing is, we're going back to the (landowners') group and saying, 'Hey, vote on this,'" explained Chris Herr of America's Choice Realty.

Last month Herr, along with Pennsylvania attorney Jake Polochak, hosted a public meeting in Athens. Herr and Polochak are part of a group that has been trying to organize local landowners into blocks to market their mineral rights to companies to drill for oil and gas in the shale beds that underlie parts of Ohio.

At the meeting, Polochak pitched a deal under which landowners could lease their drilling rights to Wishgard, a Pennsylvania-based real-estate firm.

With new drilling going on in counties to the north of Athens, and speculation at a fever pitch as to how much money can be made by drilling the Utica-Pt. Pleasant shale, local property owners in the last year have been faced with a variety of offers.

Athens attorney John Lavelle has signed up hundreds of landowners who are ready to allow the West Virginia-based Cunningham Energy to drill on their property. Initially, Lavelle's lease terms included a $2,500-per-acre signing bonus, plus 16 percent royalties on any oil and gas produced.

Last month, however, Lavelle informed those who had signed lease options that Cunningham had backed off on how much it was willing to pay. The company's latest offer is for an up-front payment of $125 per acre, but with an increased royalty payment of 16.5 percent if a well is productive.

According to Lavelle, if Athens County turns out to be a productive drilling location, landowners will be able to earn up to $5,700 per acre by the end of their 10-year leases.

The change in how much Cunningham is willing to pay, according to Lavelle, was largely driven by a state geologist's report released in mid-March, which suggested Athens County is outside of the richest part of the Utica shale play.

Herr and Polochak's group also cited the state report at their public meeting last month, to justify the lowered terms they were offering landowners.

Initially, Polochak had suggested county landowners could do better than $2,500 an acre for a signing bonus. At the May meeting, however, he said that the latest geological data makes this unrealistic. He offered a new deal, with a $250-per-acre signing bonus, and suggested that given the prospects of Athens County proving a dry hole as far as oil and gas, landowners would be wise to take this offer.

The $250 per acre, however, is not guaranteed. Herr acknowledged that if a landowner signs the sample lease distributed at the meeting, he or she is merely agreeing to make an offer of mineral rights to Wishgard, LLC, a Pennsylvania real-estate firm that has suggested it's ready to sign such leases.

Wishgard is not an oil-and-gas company and is not equipped to drill, and at the May meeting Polochak suggested the firm is likely to simply re-sell any leases it signs here.

Herr said last week that about 40 percent of the landowners who had been involved with his group have indicated they will stick with it. Another 10 percent have "flat-out said no," leaving about half of the group "on the fence," he said.

"Half of them want to do it (i.e., make an offer to Wishgard), but they just need to understand it a little bit more," Herr said.

Herr stressed that his company and Polochak's law firm are not trying to pressure anyone into making a decision; each landowner, he said, has to make up his or her own mind. However, he said, the whatever offer is made by the group will be made as a group.

"It's a work in process," he said. "We're giving the group a chance to voice their opinion."

Herr also emphasized that while the latest state geology report – which even state officials admit is based on sketchy data – seems to suggest that Athens County may not be the most lucrative place to drill, he can't know for sure whether intensive drilling will actually take place here.

"I'm not a geologist," Herr said. "The feedback that I'm getting (from the industry) is, that the geology doesn't support the (leasing) offers being made in other counties."

In an email message sent to group members last week, Herr suggested that the available data shows that "all the Utica activity is far north of Athens County." He adds that he has had discussions with officials of both Enervest and Chesapeake Energy, two significant players in the oil-and-gas field, and that "they are not interested in Athens County at this time."

Herr said last week that group leaders are revising the lease offer in response to member feedback. He said the new terms will probably add language providing free gas to landowners. Herr said group members seem to be divided on the question of whether they want to allow shallow drilling, or only deep drilling, on their properties.


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