Drilling Down

Some Columbiana Drilling Leases Renewed, Some Not

YOUNGSTOWN, Ohio – A survey of oil and gas leases up for renewal in 2016 across Columbiana County shows that energy companies are still interested in developing this portion of the Utica shale, but not quite as enthusiastically as they were five years ago when these leases were first signed.

According to data provided through the Columbiana County recorder’s office, 535 oil and gas leases were listed as extended during 2016, most of them with Chesapeake Exploration LLC.

During the same period though, 612 leases in Columbiana County were released during the year and allowed to expire, according to county records.

“Lease expirations are happening daily,” observes Alan Wenger, an attorney for Harrington, Hoppe & Mitchell Ltd. who directs the law firm’s oil and gas division. “We’re now approaching the second wave, and a lot of people are watching this.”

Energy companies – led by Oklahoma City-based Chesapeake Energy Corp. — moved into eastern Ohio beginning in 2010 in search of securing leasehold agreements with farmers across the Utica shale, which was then an untested rock formation believed to hold trillions of cubic feet of untapped natural gas and millions of barrels of oil.

Initially, leases signed with landowners came at a cheap up-front bonus price – some as low as $50 an acre. By late 2011 and 2012, however — once word of the Utica’s potential leaked out and landowners organized to improve their negotiating positions — companies were shelling out between $2,000 and $6,000 per acre and promising healthy royalty payments, depending on the location of the property.

These leases came with an option for the companies to renew after five years if the terms of the agreements were not executed.

Hundreds of landowners in Columbiana County fall into this category – they signed leases with energy companies and were paid bonuses, but no well was drilled on the land nor was there an effort at new construction. That left the company the option to renew the leases or let them expire.

“In some of the northern parts of Columbiana County, nothing is being renewed,” Wenger says.

That’s because oil and gas companies have figured out just where the most productive geology is across the play, and it’s not in the section that includes northern Columbiana, Trumbull and Mahoning counties. After more than five years of exploration, it’s been determined that the more powerful gas wells are in the southeastern sector of the state, such as Belmont and Monroe counties.

Exploration companies are thus more discerning this time around in the northern tier when it comes to renegotiating an oil and gas lease.

In between the less productive regions of Trumbull and Mahoning counties and the high-pressured shale of Belmont County is Columbiana County, which is home to both relatively strong and weak wells.

Most of lease extensions in Columbiana County were granted in the southern and west central section of the county, according to recorder office records. A large number of renewals, for example, were issued in Hanover, Wayne, Franklin, Washington, Center, and Madison townships, areas of the county where the producing wells are strongest.

Columbiana County’s most productive well during the third quarter was the Paige 5H in Franklin Township, which produced 758.4 million cubic feet of gas over a 92-day period.

The majority of leases not renewed were located further east or north, in Middleton, Elk Run, and Salem townships, where wells aren’t as strong.

And, those who have signed lease renewals most likely received much lower bonus payments than they did five years ago, Wenger adds.

Terms of the Columbiana County lease renewals were not available in the county documents, and many landowners have signed non-disclosure agreements with energy companies, Wenger says.

Renewal rates for landowners in the southern part of the play can still hit between $5,000 and $6,000 an acre. “In the south, companies such as Gulfport and Rice Energy are coming in and paying up,” he says. “Landowners can negotiate better because there are world class wells down there.”

Not so much in the northern tier. Chesapeake, for example jettisoned 24 leases in Mahoning County between 2015 and 2016, but also extended nine leases in 2015.

Still, interest in drilling is still alive in parts of Columbiana County, records show. Houston-based Hilcorp Energy Co. has a sizeable stake in Columbiana County since it acquired acreage in the Brinker Storage Field from Chesapeake last year. Two of its wells during the third quarter at the Fairfield-Nolker well pad in Fairfield Township each yielded a better-than average Utica output of more than 330 million cubic feet over a 92-day period.

Moreover, Hilcorp was the sole energy company last year to secure permits for new horizontal wells in the northern section of Ohio’s Utica. In November, Hilcorp received 11 permits to drill 11 new wells in Fairfield Township.

“There could be more activity should gas prices keep steady – or rise,” Wenger says. “There are still landmen out there looking.”

Published by The Business Journal, Youngstown, Ohio.