Chesapeake renews Salem gas well lease for $1.25M

Mayor finds check in mail, didn’t expect action on lease before summer

January 6, 2015
By LARRY SHIELDS Salem News

SALEM - Mayor John Berlin said he was surprised.

Monday's city mail included a $1,252,903 lease obligation bonus check from Chesapeake Operating LLC ... more than six months early.

The money is to re-lease 211 acres of city land for gas/oil production from July 4, 2015 to July 4, 2018 at the amount of $3,500 per acre "for all lands previously leased less the 28.33 acres currently under production," and generating royalty money, Berlin said Monday.

The producing wells pay between $8,000 and $10,000 per month to the city.

All the property is in Center Township and the current three-year lease expires on July 4.

Berlin said they were anticipating negotiations but instead the money arrived.

"I didn't expect it," he said, "it was out of the blue. They didn't have to renew. It came in Monday's mail."

He added, "We anticipated a renewal but weren't sure. Weren't sure they would want to lease again. The check confirms that. We probably would have wanted to talk to them in May or June, but they sent the money."

The city received about a $1.3 million bonus on the current 2012 lease that was split between debt payment and capital improvements, a large chunk of which went toward a new firetruck.

He said the amount was less because Chesapeake Energy Co. has two producing wells that royalties are paid on that are deducted from the bonus amount.

One they started producing, the area is no longer covered in the bonus, he said.

Asked about the early payment, Berlin said Chesapeake "probably wanted to get it in the 2014 budget."

When the city first leased the land the price had dropped from about $6,000 to $3,500 an acre with five-year contracts the norm, but Berlin said he asked to work under a three-year contract at $3,500 per acre and they did.

How the money is used is up to council and Berlin said "it would be nice to see" the same split again.

"There's a lot of streets to pave ... and sidewalks to repair," he said, noting the city contracted with Howells and Baird to assess the sidewalks in the downtown area and other sections.

"We wanted to review all the areas to be fixed, "he said, adding they have no idea what the repairs will cost.

The money has "really helped," Berlin said, "it's helped form proposals for council to approve."

lshields@salemnews.net

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2 wells paying $8,000 to $10,000 per month on 28.33 acres.
=$141.00 to $176.00 per acre per well in royalties.
Why is it that when I divide $1,252,903 by 211 I get $5938/acre?

Todd, Me too....... Can you help us Trapper ?   Where are we going wrong ?   Thanks !

I think maybe the lease is for 5 years instead of 3 either someone made a mistake or Chesapeake trying to pull a fast one.Think I did the math right for 5 years it comes out to a little over 3500 an acre.Just a thought.

Brad, Thank you for your input !   Many Thanks, Nancy

Maybe Salem should check this out before cashing the check?

All the ALOV leases were 3 year Secondary Terms. I would bet that Salem has an ALOV lease.

Guess why they are getting money early?  Chesapeake is stealing all of our Natural Gas Liquids.

Prove me wrong and I'll give you my last 6 months of Royalty income. It's not much since the NGL deductions were as high as 176% which means CHK took our NGLs free then subtracted 76% of our NGL value from our oil and natural gas royalties.

See you all in court when your Royalty Payments start.

Ron Hale, So Sorry !   

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