Natural gas could bring riches to Panhandle

WHEELING - Natural gas from the Marcellus Shale formation is a hot commodity in the Northern Panhandle.

Members of the New Vrindaban Hare Krishna Community in Marshall County can attest to that, as they are set to gain roughly $10 million in lease payments from AB Resources.

With Ohio-based AB Resources set to pay the community a lease rate of $2,500 per acre for about 4,000 acres - and 18.75 percent production royalties if the company begins pumping natural gas - community member Gabriel Fried said he believes now is the time to sign.

"We could wait two years to see if the price goes to $5,000 per acre. But we wanted to get the production going because the royalties are the real source of revenue," Fried said.

AB Resources, Chesapeake Appalachia, Trans Energy Inc. and CNX Gas Corp. are just some of the companies sending representatives throughout the Northern Panhandle in efforts to lock up land for gas exploration and drilling. These companies have signed landowners to contracts for wide-ranging lease and royalty payments.

Current lease contracts range from as low as $5 per acre to as high as $2,800 per acre, with production royalties ranging from 12.5 percent to 18.75 percent. Landowners are being urged to think carefully before signing any contract.

Per acre lease amounts are paid even if no drilling occurs; percentage royalties kick in only if natural gas is produced.

The wide range of lease and royalty rates being offered to landowners has led to some concern, particularly among those who signed for lower rates.

One example is Oglebay and Wheeling parks. Last year, the Wheeling Park Commission got Chesapeake to pay $750 per acre and 14 percent production royalties for drilling at the two parks.

To date, the park commission and the city of Wheeling each have received $386,629 in lease revenue, as the two entities split all lease and drilling profits on land within Oglebay Park. Chesapeake also paid the park commission an additional $100,133 to lease property at Wheeling Park.

At the time, Oglebay Foundation President G. Randolph Worls believed he was getting a good deal from Chesapeake for the city and its park commission.

"When we got $750 (an acre) from Chesapeake, they told us that would be their highest offer in Ohio County," Worls said. "We are locked into this for five years. Chesapeake said they cannot change the contract."

Worls' concerns with the lease and royalty rates rise, in part, from news that Ohio County commissioners expect to gain significantly more revenue from proposed drilling near the Highlands and the Ohio County "poor" farm near Roney's Point.

"We are not going to settle for any less than $2,000" per acre, commission President Randy Wharton said, adding that commissioners want "15 to 20" percent on royalties. He declined to identify the companies the county is considering for drilling, but noted the commission would need to vote on the matter in a public meeting before signing any contract.

"It seems like the market has gotten a little better since the city signed," Wharton said. "They did the best they could at the time."

Last month, the Marshall County Board of Education signed rights to 177 acres in Sherrard to Chesapeake for $2,800 per acre and 18.75 percent production royalties. That's $495,600 coming to the board, without even producing any gas.

Chesapeake is "offering more in Marshall County because it is a proven commodity down there," Worls said.

Chesapeake spokesman Matt Sheppard confirmed that gas production in Ohio County is an unknown at this time. "We've not drilled any well as of yet to provide any data which would suggest that the leases we have acquired will generate any return on investment or produce any commercial quantities of natural gas," he said in reference to Ohio County.

"Without specific well production data, it is impossible to know precisely what the value of these leases might be in Ohio County," Sheppard added, noting the company has 11,000 acres under lease throughout the county.

In Marshall County, however, Chesapeake has drilled 26 Marcellus Shale wells, with 45,000 acres under contract.

"These wells are providing us, and our competitors, the necessary data that continues to drive leasing efforts throughout the county, and has recently increased the market value of this acreage," Sheppard said.

Michael D. Schriml, an independent contractor for A B Resources, did not know the exact number of active wells his company has in Marshall County, but said the number was "several."

"I have worked on several 'major plays' in my career - Marcellus Shale is a very big deal," Schriml said. "The shale has been there, but new production technology has made it more profitable."

Schriml said A B has "slowly been moving into Ohio County," noting his company sees "great potential" there.

Worls said, "A B Resources changed the game plan in Ohio County."

Some examples of the wide range of lease rates include:

Marshall County resident John Regan said he purchased about 90 acres of property a few years ago. He said A B already had leased the land for mineral rights from the previous owner for $5 per acre.

Another Marshall County resident, Kerry Foster, has not yet signed with a company because he is holding out for better offers on his 69 acres.

"In 2008, CNX wanted to give me $5 per acre for it," he said of his land. "Now, the highest offer I have gotten is $2,800 (per acre) and 18.75 (percent).

"I am still holding out for more because I think these mineral rights are worth a lot more than some of these people say they are," Foster said.

A Weirton resident who owns about 50 acres in Marshall County requested to not be identified. He said a CNX representative initially offered him only $250 per acre for a lease.

"I don't think anyone oversees these so-called 'landsmen' that these companies send out here. At first, this guy wanted me to sign for $250. Then, he went straight up to $1,250. I asked him if he could leave me a copy of the lease before I signed it, but he didn't want to leave it with me," the Weirton resident said.

CNX officials did not respond to requests for comment.

The Marcellus Shale formation likely will have a positive impact on the local economy for years to come, as it is believed to hold enough natural gas to fuel the nation for decades. Experts believe this could help the United States alleviate some of its dependence on foreign oil.

Tim Carr, a professor of geology at West Virginia University, said, "People are drilling more and more wells and having success. Many people are trying to get in on this rush."

He said the Marcellus Shale has a "tremendous amount of gas" attached to it, noting that new technology has made the process of obtaining the gas profitable. St. Marys, W.Va.-based Trans Energy has been drilling into the shale to retrieve natural gas for two years, according to Land Department Manager Mark Woodburn.

"Right now, we own and operate over 300 wells in Marshall, Wetzel and Marion counties. We have about 40,000 acres under lease," he said.

With Trans Energy looking to broaden its operations, Woodburn said the run on shale "is a lot bigger than some people realize."

"Marcellus Shale will forever change the Northern Panhandle of West Virginia. It could lead to a major overhaul of our national energy policy," Woodburn said.

In terms of the different prices offered for mineral rights, Sheppard also notes that, "Competition drives pricing in every industry, and our industry is no different."

"At the time a mineral owner leases to Chesapeake, they can be assured they are paid the market rate at the time. Whether or not mineral owners choose to wait on a 'better' price is ultimately up to them," he said.

But landowners who sign for a certain per-acre price and then realize they could have received more money have few options. West Virginia Assistant Attorney General Doug Davis said Mountain State property owners should "be careful" when signing away their mineral rights.

"I got a call from a consumer claiming they got ripped off. In my opinion, the attorney general's office plays no role in the transaction between a company and a landowner," he said. "If a property owner signs a contract and feels they have been ripped off, they will need to find private counsel."

Though Worls is a little disappointed in the park commission's deal with Chesapeake, he noted, "At the time we signed the contract, we felt it was fair."

"Marcellus Shale is hot right now. It is really hard to say what the final value of properties will be until someone actually drills," Worls added.

He noted Chesapeake officials have decided on the site - about 1,300 feet southwest of the Oglebay Stables and 600 feet north of the main park entrance road - they would most likely drill on first. The park commission approved five other sites for potential drilling, though Worls said the action would be limited to three total sites.

Chesapeake officials plan to "work with Oglebay Park on hosting an informational meeting in order to inform residents about the process," though no specific date has been set, he said.