New Value for Land in Rural Ohio
By KEITH SCHNEIDER
New York Times
June 4, 2012
CALDWELL, Ohio — The energy boom has swept into the rural counties of the upper Ohio River Valley, producing a torrent of investment in mineral leasing that is jolting the economies of small towns and swelling the bank accounts of some working-class families.
Here in Noble County, where vehicle repair and convenience stores are economic mainstays, Eclipse Resources, a Pennsylvania company, mailed $16 million in oil- and gas-leasing checks last month to 70 households whose property has been found to sit atop oil and gas reserves. Working with a lawyer in nearby Marietta, the residents were able to band together to negotiate an unusually lucrative deal with the company that paid $4,000 an acre and 19 percent royalties on oil and gas production, and included safeguards to protect water and land. (The standard has been $20 to $30 an acre, one-sixth royalty rates, and no protections for water and land.)
In a region where median household income is less than $33,000, the first big flush of oil- and gas-related income produced leasing checks of six and seven figures — amounts the recipients say are a bit disorienting.
Arthur and Sharon Stottsberry, who are retired from inspector and clerk jobs with the State Department of Transportation, received $280,000 for the right to lease oil and gas reserves beneath their 70-acre farm. “It doesn’t seem real,” said Mrs. Stottsberry, 68. “We haven’t planned much about what to do. The most important thing is I want to make sure my grandkids do well.”
Tom and Cheryl Tonnous, who own almost 60 acres, deposited their $238,413.20 check for oil and gas rights at the credit union a day after it arrived. Mr. Tonnous, 58, spent most of his working life at a car parts manufacturer here that closed almost two years ago. Mrs. Tonnous, 59, is a part-time postal worker.
Mr. Tonnous said he is considering buying a new farm tractor to replace one that dates to 1951. Mrs. Tonnous mentioned a shopping trip to Kohl’s. Both said they wanted to take care of their family.
“It’s so foreign to us, having money like this,” Mrs. Tonnous said. “We just didn’t believe it was happening until the check actually arrived.”
More is probably on the way, potentially much more. Some 6,000 feet beneath Noble County and much of east and southeast Ohio lies the Utica Shale, a thick layer of oil- and gas-bearing rock that has attracted billions of dollars in energy industry investment in leases and infrastructure. Representatives of the nation’s largest energy companies — Chesapeake Energy, Exxon Mobil and BP, to name a few — crowd the recorder’s office at the local courthouse here and in a dozen other counties, scouring property records to identify landowners willing to lease their oil and gas rights.
The scale of the spending in the state — $4 billion in leasing so far, and more than $3 billion in the production and transport sectors — has generated the most significant surge in Ohio’s oil and gas development in decades, business executives and state energy officials say. In February, Chesapeake Energy of Oklahoma City reported that two of its new wells upriver from here produced 700 barrels of oil and three million cubic feet of natural gas a day. In April, Anadarko Petroleum of Houston reported that one of its new wells in Noble County produced almost 500 barrels of oil and 600,000 cubic feet of gas a day.
“The new oil and gas play in this region is big, and will get bigger,” said Robert W. Chase, chairman of the department of petroleum engineering and geology at Marietta College. “We’re only scratching the surface right now.”
Drilling through the solid rock for reserves a mile or more beneath the surface takes millions of gallons of water injected into wells to fracture the formations and release gas and oil, a process known as hydrofracking. Across the river, in the four-year-old shale gas fields of Pennsylvania and West Virginia, landowners have reported instances of water contamination near wells that have been “hydrofractured.” State regulators and the federal Environmental Protection Agency are investigating the causes.
This year, Ohio rewrote state regulations for wastewater disposal from oil and gas fields after earthquakes occurred around a deep wastewater injection well in Youngstown. The state legislature also approved a bill, which the governor is expected to sign this week, that strengthens standards for building oil and gas wells to prevent leaks into underground water supplies, requires companies to disclose the chemicals they use in every stage of production, and mandates that companies test water supplies close to new drilling sites.
The leases signed by the Noble County landowners were largely written and negotiated by Jennifer Garrison, a lawyer from Marietta and former three-term Democratic state representative. Until very recently most oil and gas leases in Ohio were a few pages long most often hammered out by energy companies working one-on-one with mineral owners, many of them unskilled in the back and forth of negotiation.
Ms. Garrison’s clients negotiate as an association of landowners controlling thousands of acres in a leasing block. In nearby Sardis, she helped a group of 200 households that own almost 10,000 acres negotiate a lease with Eclipse that pays $4,250 an acre for the first three years of the agreement, plus 20 percent royalties. If Eclipse — which declined to comment — or its successors do not start a well in that time, the Sardis landowners gain $1,000 more per leased acre or the lease expires and the mineral rights revert to the landowner.
Ms. Garrison’s leases also contain provisions for testing before and after drilling occurs to make sure that none of the chemicals used in the production process have contaminated drinking water. The leases bar energy companies from drawing water for hydrofracking from any water source on the leaseholder’s land — provisions that go beyond existing Ohio regulations.
“My job is to represent landowners,” Ms. Garrison said in an interview. “The mineral lease is the law of the land. We try to help landowners get what they want in their leases. And they wanted to make sure their water was safe.”
This month, Eclipse is scheduled to send $38 million in lease bonus checks to the landowners in Sardis, a river town of 1,500 residents that for two generations darkly illustrated the erosion in American industrial vitality in the upper Ohio River Valley. “I’m counting down the days,” said Frank Ellis, 51, a retired electrician who anticipates receiving $595,000.
Joel Davis III, 37, whose family owns Marv’s Place, a local restaurant, and more than 100 acres of mineral rights, said the new wealth was welcome.
“Of course it will change people,” he said, “but the amount of change will depend on the individual. It will change me and my wife, Danielle. We won’t have to live paycheck to paycheck anymore. It will mean having two vehicles that run. It will mean paying off debt and giving our parents back what they gave us, not that they ask for it. It is something we will do anyway.”
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