Drilling Lease Control Crucial

Rea wants a ‘bidding war’ among drillers

Wheeling WV  Intelligencer
11 December 2010
By Casey Junkins

MORRISTOWN - When a landsman representing Chesapeake Energy approached Bob Rea about leasing his natural gas rights to the company for $500 per acre, he decided to take a closer look at the deal.

In addition to seeing that offer increase to $2,000 per acre, the Columbiana County, Ohio, resident crafted a lease that he believes will provide protection for his water, timber and crops. The lease has yet to be signed, though, as Rea hopes to create a "bidding war" between Chesapeake and other drilling firms.

"It puzzles me why this industry is allowed to operate the way it does - by swindling people out of money," Rea said when speaking to about 40 concerned property owners and other concerned parties during a forum at Union Local High School in Morristown Friday.

The forum was organized by Belmont County land owner Bruce Seabright and local attorney Ed Sustersic.

Rea's comments reflect his belief the land contractors working to lock up acreage for natural gas drilling should be regulated and licensed, much the way real estate agents are.

Dissatisfied with his initial Chesapeake contract offer, Rea eventually convinced 700 landowners - controlling about 25,000 acres in Belmont, Harrison, Carroll, Columbiana and Mahoning counties across eastern Ohio - to form the Associated Landowners of the Ohio Valley. In now presenting a united front, Rea said there are about 38 different companies interested in the acreage now, including Chesapeake.

There are two horizontal natural gas wells in various stages of the drilling process in Belmont County. One is located on Kirkwood Heights and is operated by David Hill Inc., while the other is near Barnesville, operated by Consol Energy Inc. The Consol well allowed the driller to tap the Utica Shale rock formation at 8,450 feet below the surface, proving that there is more shale available in the Upper Ohio Valley than the more famous Marcellus variety.

Rea said those in Belmont County still looking to sign leases would do well to join forces to harness their collective energy in dealing with the gas companies.

"It takes a body of voices to get this thing accomplished," he said. "If you are going to be a serious negotiator, you need to be serious."

In being serious, Rea and his associates have designed a lease they are looking for the gas companies to sign.

Instead of signing a typical drilling lease, Rea strongly believes landowners must be proactive to protect their rights by creating their own leases.

In the lease, Rea does not specify the dollar amounts the group wants per lease acre, or point out a particular percentage of production royalties. Instead, he wants the drillers to engage in "a bidding war."

However, the financial aspects are only one point of focus for this lease. With many recent concerns regarding the potential for water contamination, explosions and other issues natural gas drilling can cause, Rea's lease looks to prevent these problems before they start.

Under Article for "Impacts and Effects," there are several key provisions, including:

§     a provision for disposal, which forbids the driller from the "permanent disposal of any drill cuttings, or the storage of residual wastes;

§     a clause prohibiting the companies from storing gas, oil or brine, which is the wastewater drillers use in the hydraulic fracturing, or "fracking," process;

§     a provision forbidding the company from draining water from any streams, ponds or other bodies of water on the landowners property;

§     a clause requiring 45 days notice before timber is removed;

§     a provision for the protection of crops;

§     a requirement that all well sites, tanks and other drilling areas be fenced;

§     a clause preventing the driller from releasing a list of "hazardous materials" on the property;

§     a water testing plan to ensure drinking water sources are protected from contamination;

§     an indemnity clause that protects the landowner from any damage the driller may cause.

Rea said communications with at least one interested gas company have been positive.

"They said, "There is nothing in this lease that is unreasonable,'" he noted in expressing his optimism.

Another speaker addressed some of the widespread concerns about fracking. He emphasized that "thousands and thousands" of wells have been fracked across Ohio, noting the only time there should be any problem with the process is if a well is not properly aligned.