Gas Drilling Is Up for Vote

Wheeling Intelligencer
13  November 2010
By Casey Junkins, Staff Writer

MOUNDSVILLE - Another local government is close to signing a natural gas drilling deal, as Moundsville's coffers could soon swell by $206,500 in lease revenue from AB Resources.

Residents won't be seeing any drilling rigs in the city, however, as the contract between the city and AB stipulates that the Ohio-based company must initiate its wells from outside the city limits.

"There will be no rigs on city property - they will drill horizontally under our property," City Manager Allen Hendershot said. "That was really important to City Council."

If council passes the resolution during its 7 p.m. Tuesday meeting in council chambers at the municipal building, 800 Sixth St., Moundsville will join several other local municipalities and public bodies in gaining a gas revenue windfall.

The city of Wheeling (in coordination with the Wheeling Park Commission), the Ohio County Commission, the Marshall County Board of Education and the Marshall County Parks and Recreation Board have already finalized Marcellus Shale drilling contracts.

Drilling Plans


Hendershot said the 59 acres to be leased to AB Resources - at $3,500 per acre - are located in the Valley Fork Property on 12th Street. This city-owned land features facilities for baseball, softball and soccer, as well as walking trail.

"There will be no interruption of the field usage," Hendershot said of the park.

Unlike many other local elected officials who signed drilling deals with Oklahoma City-based Chesapeake Energy, Hendershot said Moundsville leaders liked AB Resources' deal better.

"We were also negotiating with Chesapeake. They wanted the ability to run pipes across our property," Hendershot said. "AB Resources agreed not to run any pipe on our land."

Revenue


Hendershot said city officials would like to repair the municipal garage and purchase new equipment with the anticipated natural gas money.

Initially, Chesapeake offered Moundsville officials lease payments of $2,800 per acre, with 18.75 percent production royalties on any gas or oil the company pumps from the ground. However, since Chesapeake's first proposal, the local leasing price seemed to increase. Recently, NPAR LLC, an affiliate of AB Resources, offered $4,000 in lease payments for land in the Stone Church Road area.

In addition to the lease revenue, Hendershot said Moundsville's AB Resources deal would grant the city 18.75 percent of production royalties.

"Prices go up and down," Hendershot noted. "This appears to be a good deal to council."

Several local property owners have signed drilling deals with AB Resources, including the New Vrindaban Hare Krishna Community in Marshall County. Members there are gaining $2,500 per acre in lease revenue for about 4,000 acres - and 18.75 percent for gas produced.

Comparison to Other Local Governments


Earlier this year, the Marshall County Board of Education signed 177 acres over to Chesapeake for $2,800 per acre and 18.75 percent production royalties. The Marshall County Parks and Recreation Board also reached an agreement with Chesapeake for drilling in Grand Vue Park. The park board got $2,900 per acre through its lease, also with gas royalties of 18.75 percent.

Chesapeake contracted the Ohio County Commission for drilling at The Highlands and other county lands. Leaders there are going to gain 18 percent production royalties for action on county property, as well as lease revenues of $3,600 per acre.

The Wheeling Park Commission and city of Wheeling each gained $386,629 in lease payments from Chesapeake as part of the drilling contract for the Oglebay Park land. Chesapeake also paid the park commission $100,133 to lease property at Wheeling Park.

Potential Problems


With natural gas drilling proliferating throughout the Upper Ohio Valley, especially in Marshall and Wetzel counties, there have been plenty of concerns regarding explosions, fires, gas leaks and chemical usage associated with Marcellus Shale activity.

In fact, it was an AB Resources well site about six miles outside Moundsville's city limits that exploded on June 7.

The blast occurred when workers encountered a pocket of methane in an abandoned coal mine. After injuring several workers, the charge ignited a large fireball that burned for several days.

Following the explosion, officials with the West Virginia Department of Environmental Protection's Office of Oil and Gas temporarily suspended all AB Resources operations throughout the state. The office cited AB Resources for failing to set casing at the permitted depth for the site, and for inaccurately reporting coal seam depth.

Then in September, a Chesapeake gas well on Pleasants Ridge near Cameron ignited. State environmental regulators cited the firm for "failing to prevent the release of natural gas and the potential pollution of waters of the state."

Jeremiah Magers previously reported that his water well near Cameron became contaminated with methane - and that natural gas began bubbling in Fish Creek - shortly after Chesapeake began its hydraulic fracturing process at a production site roughly 1,200 feet from Magers' water tank. Chesapeake officials previously confirmed the presence of methane in the water, but denied their work caused the gas.

"Council is aware of the safety concerns," Hendershot said. "I think they are comfortable with the situation."

Future


Hendershot said AB Resources has five years to begin drilling, or the city will have the option to renegotiate for drilling on its land. He said the city does not have any current plans to lease any other property for drilling.

"We were contacted about some landfill property," Hendershot said, "but we found out that we did not own the mineral rights."

Knowing that it is difficult to predict how the venture will ultimately work out, Hendershot added, "Assuming council gives the go-ahead Tuesday, we will find out over the next couple of years if this was a good deal."