Chesapeake Starts Re-Signing Leases in Columbiana

LISBON, Ohio – Significantly lower oil and gas prices haven’t yet altered Chesapeake Energy Corp.’s designs on Columbiana County, as evidenced by its willingness to renegotiate leasehold agreements that expire this year.

“I’ve heard from different landowners that Chesapeake has released property and paid bonuses again,” reports Columbiana County Commissioner Tim Weigle. “They’re back in, and that’s a good sign.”

According to the Columbiana County recorder’s office, Chesapeake has to date re-signed 63 leases set to expire this year. The bulk of them – 23 — were renegotiated with landowners in Wayne Township in the southern tier of the county. The second-largest concentration of newly re-signed leases thus far – 11 – are in Salem Township in the north. Center Township, which borders Wayne to the north, recorded nine newly re-signed leases with Chesapeake.

The number of leases extended is small compared to the total number of leaseholders in the county because the majority of these landowners didn’t sign on until 2011. Many won’t be up for extension until early next year when their five-year terms expire. However, the fact that Chesapeake is willing to pay additional bonus money to hold its position is good news for Columbiana County, Weigle says.

“We’re glad they’re not packing up and walking away,” Weigle says.

Chesapeake was the first major energy company to canvass eastern Ohio in search of oil and gas deposits in the Utica shale. In 2010, the company began signing lease agreements with landowners, most of them in Carroll, Columbiana and Harrison counties, offering upfront bonus money based on a landowner’s acreage. As word spread, landowners in the region held out for more money and lucrative royalty rights, some realizing nearly $6,000 an acre in bonus payments.

Many leasehold agreements stipulated that Chesapeake would have the option to renew the lease after five years should the company not drill. Once the company began construction on a well pad, or started drilling at the site, the lease was considered active and nonrenewable.

Infrastructure and pipeline work related to the oil and gas industry is where most of the development will occur in the near term, Weigle projects.

The pathways of two major pipeline projects planned for the Utica – the Nexus pipeline and the Open venture – run through parts of Columbiana County, Weigle says. Construction is yet to start on both lines, but both will tie into UEO Buckeye’s Kensington cryogenic plant in Hanover Township. The Nexus pipeline, for example, will start at Kensington and angle northwest, transporting natural gas from Columbiana County through Michigan and into Ontario, Canada.

“The proposal is to put a large compressor station at Kensington,” Weigle says. “I’ve been told that the station would be 15,000 horsepower and a turbine-driven station. It would be a big facility, but very quiet.”

Another major pipeline, the Open project, comes from the south and passes through Yellow Creek and Franklin townships in Columbiana County before tying into the Kensington plant, Weigle says.

Still, oil and gas development in Columbiana County has ground to a screeching halt in terms of new rigs moving into the county, Weigle says. “It’s been a little quiet in terms of development,” he says with conscious understatement. “We’ve got infrastructure that still needs to be developed, and gas and oil prices are down.”

The county commissioner believes that many energy companies are waiting out the sluggish prices before investing in any new oil or gas operations in the northern tier of the Utica. Over the last few months, Weigle, a pilot who flies over the county regularly, has seen little evidence of new well sites. “To the best of my knowledge, there’s no new rigs in Columbiana County,” he says. “I think a lot of drillers are waiting for infrastructure to catch up since the oil and gas market is down.”

Underscoring this slowdown is the anemic rate of new well permits awarded to drillers this year in Columbiana County. According to the Ohio Department of Natural Resources, just 16 new horizontal well permits this year have been approved for sites in the county.

Almost all of these permits – 14 — were awarded to Hilcorp Energy Co., the most prolific driller active in the northern tier of the Utica. Hilcorp and Columbia Pipeline Group are partners in Pennant Midstream LLC, a 55-mile gathering and processing system that stretches from Columbiana County, through Mahoning County and north into Lawrence and Mercer counties in western Pennsylvania.

Hilcorp has throughout the year secured permits in western Pennsylvania and started gathering permits in Columbiana County. Although ODNR lists one well in production – the Salem-Grubbs well – in the county, the company has drilled and has at least one other producing today.

Hilcorp recently placed one well pad in particular, the Nolker near the intersection of state routes 558 and 164, in production, according to residents of that area.

“I don’t know much about the industry, but I do know that the well makes a lot of noise,” said one neighbor who declined to identify herself. Over the last week, Hilcorp has flared gas from a second well at the site, the neighbor notes. Another Hilcorp well has been drilled near the intersection of state routes 7 and 14, while the company has produced gas from its Salem-Grubbs unit much of 2015.

Hilcorp has taken the lead among energy companies interested in developing this section of the Utica, even though permitting activity has all but dried up for now in Columbiana County. The Ohio Department of Natural Resources has issued just 16 new horizontal well permits in the county between Jan. 1 and Oct. 21, 14 of which are Hilcorp wells. The remaining two are Chesapeake Energy pads.

The Houston-based energy company has targeted an area in Fairfield Township to start its Utica development program, and the Nolker well is part of the recent cluster of wells for which it issued permits.

“There are a lot of permits for this pad,” says Jeffery Dick, chairman of the geological sciences department at Youngstown State University. According to ODNR, 10 wells are slated for the Nolker pad.

Overall well production in Columbiana County is solid, but not spectacular, Dick adds. “It’s a lot of dry gas, there might be some liquid, but not much,” he says. “The wells here aren’t overall as productive as Harrison County or the others in the southern tier.”

During the second quarter of 2015, 47 wells reported collective production of 9.2 billion cubic feet of gas. All except one were Chesapeake wells. Hilcorp reported production at its Salem-Grubbs unit.

“The wells in the southwestern part of the county aren’t bad, but they don’t stand out,” Dick says, noting that the next step is transporting the gas from these wells via pipeline networks. “The whole name of the game now is to get the gas out and get it to the Gulf Coast.”

Pictured: The Nolker well is Fairfield Township, Columbiana County, is permitted for 10 wells on a single pad.

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