ALOV Plans to Exit Role as Drilling Lease Negotiator

SALEM, Ohio – The nonprofit organization that's helped leverage more than 180,000 acres in leasehold agreements between landowners and energy exploration companies in eastern Ohio will end its role as a bargaining agent later this year, a senior board member says.

“It never was built or intended to go for a long period of time,” says Bob Rea of the Associated Landowners of the Ohio Valley, or ALOV. "ALOV as a negotiating unit will be finished up this year.”

Over the last 12 months, ALOV has helped property owners negotiate leases that encompasses about 189,000 acres in Mahoning, Columbiana, Harrison, Carroll, Belmont, Jefferson, and most recently, Trumbull counties.

Yesterday, ALOV volunteers and officials from BP America were on hand at the Salem offices of the organization to sign up individual landowners related to the latest lease agreement – an 84,000-acre deal expected to bring $331.5 million of up-front cash to 1,900 landowners in Trumbull County.

Rea says the group still has acreage in and around Portage County and is negotiating a package deal for landowners there with “two or three entities.”

By 10 a.m., some 60 landholders were on hand and crowded on the floor of the former South Range Middle School, since converted into a multipurpose center that houses small businesses and nonprofits, including ALOV's offices.

BP officials, notaries and other personnel set up tables in the gym to guide the process. Landowners will be able to sign leases between 9 a.m. and 7:30 p.m. today through April 16 in ALOV offices.

Rea says that individuals are to bring a copy of their deed, and the lease would be constructed on-site. The lease includes all the provisions agreed upon between ALOV and the company. “Memorandums of these leases will be filed in the courthouse,” he adds, and then BP will begin its due diligence to determine whether the mineral rights are even leasable. “After that is completed, then the person will receive a payout check for their bonus monies.”

Alan Wenger, an attorney for ALOV, says that he and the group dissected the new agreement thoroughly, and he feels that the terms are “very reasonable” for all parties.

“We went through every line of that lease,” he says. “I think both sides feel pretty comfortable with the document that we've reached, but it was a long, pretty hard negotiation.”

According to sources who didn’t want to be identified, the deal BP signed with ALOV's Trumbull County group secured $3,900 in signing bonuses per acre and 17.5% royalties based on well production for landholders.

“It’s an opportunity,” says David Bush, who with his wife, Patty, attended to sign a mineral lease for 25 acres they own in Fowler Township. “I feel good about it. I think BP is a responsible company and I believe they’re going to be held to a higher standard."

Many landholders are in northern Trumbull County where there is an abundance of large farms, Rea says. The lease signings Monday are a culmination of “several months’ worth of negotiations” between ALOV, BP and other energy companies that placed bids on the package.

“We’ve picked out what we think is the best partner for our Trumbull County group,” he says. “We think we’ve got great terms. Hopefully, the next thing they’ll be signing is the back of a check.”

ALOV was born nearly two years ago as energy giants began to canvass eastern Ohio in search for new land leases that granted them rights to drill in the Utica shale, Rea says. Initially, the group was formed to negotiate leases in behalf of a pool of landowners in Columbiana County who collectively own 35,000 acres. He says that he and other neighbors were concerned, not just about compensation for landowners, but also the language in the leases that others signed early in the process.

Rea notes that the industry started to sign some of his neighbors in Columbiana County in mid-2010 – some of whom agreed to as little as $75 an acre. As he and others examined some of the lease agreements, they found that the proposals were very much tilted toward the oil and gas companies and offered the landowners few safeguards.

“I was aghast at some of the language that was in there,” Rea recalls. “I started reaching out into the professional world,” and contacted accountants, attorneys, engineers and drillers – anyone who had solid firsthand experience in dealing with the industry.

General informational sessions and meetings followed and numbers in the group swelled. A new negotiating unit was formed and the group used its collective punch to effect change in the lease language and draw new bidders – that is, other energy companies -- to the area.

“The success that we had quickly ballooned to an 85,000-acre project on our first deal,” Rea recalls.

That bulk agreement was signed with Chesapeake Energy Corp. in April 2011 with 2,000 landowners in Mahoning, Columbiana, Carroll, Belmont, Jefferson and Harrison counties.

Last October, ALOV negotiated another 20,000 or so acres for 900 landowners across those six counties.

“We think that this is the best one we've done so far,” Rea says of the BP deal.

By the end of this year, ALOV is likely to play an advocacy role rather than a point-of-contact for lease negotiations, Rea reports.

The group, he says, will act as a nonprofit community development agent that could use funds for local development purposes. “This is a charitable organization that entities can give to,” he says, that would fund projects in the donor's immediate community. “We're hoping that people who get a windfall are willing to invest it back into the community and get a tax deduction for doing it.”

The group, for example, is providing funding for the Trumbull County recorder's office to digitize its records, Rea notes.

He emphasizes that ALOV has emerged as a vocal lobby in Columbus, a role that Rea says will continue. One issue on the table is the severance tax Gov. John Kasich proposes and how it could affect the industry. “We need some input there,” he says. “I have a connection with the National Association of Royalty Owners, and that brings to the table a lot of help from other states.”

Copyright 2012 The Business Journal, Youngstown, Ohio.