Replies to This Discussion

Permalink Reply by Nate on August 31, 2010 at 2:07pm

I know one of the things that you can negotiate with CHK is leasing them only your deep horizons, thus reserving the Clinton formation and shallower formations to yourself. And this is very sage advice because other producers can still come and lease with your for other formations, however if chk has your complete lease and some other oil and gas play gets hot in your region you can almost count on having your hands tied. I would even consider leasing only the Utica to CHK, though I don't know how they would handle that.

Permalink Reply by Al Cramblett on September 1, 2010 at 3:59am

Nathan,

The comment you provided above is very savvy advice. Please keep coming back to the Harrison County site to continue educating us.

Perhaps you can save me some time by answering the following questions pertaining to Ohio:

1. Do you know the minimum acreage required for a drilling unit for a deep well?

2. How many different layers of hydrocarbons do you believe to exist under Harrison County? What are the names of these layers?

Permalink Reply by Nate on September 1, 2010 at 11:05am

In Ohio any well over 4000' needs 40 acres. As for layers, that's a tricky question. There are many horizons there now that because of technology of today we think nothing of. The Marcellus for instance was never considered to have much potential at all till horizontal drilling technology was available and the ability to do massive frac jobs. So I don't want to give you a number except. The Clinton is the old tried and true in Ohio. Especially western Harrison & Carroll counties, not to mention the old Berea wells drilled over 100 years ago. In summation, just reserve as much as you can.

Permalink Reply by Nate on September 7, 2010 at 1:05pm

I would even specify that you wish to only lease the Utica specifically in your lease. I talked with some other oil and gas companies that specialize more in the other deep horizons and it seems they are open to leasing specifically the Utica since that is their target zone.

Permalink Reply by Al Cramblett on September 8, 2010 at 4:12am

Thanks for the advice, Nathan.

Permalink Reply by Nate on September 2, 2010 at 4:56am

A couple other paragraphs to eliminate that are in all these leases is the paragraph that lets them put in an injection well if they wish.

Also in the royalty clause they want to pay you your royalty on gas on net after production costs. Unacceptable, you want your royalty on the gross proceeds.

Permalink Reply by Peter Schueler on September 4, 2010 at 1:43pm

I own 154 acres in Nottingham Twp and was contacted by a landman from Tri-Star Energy of Parkersburg WV who purports to be leasing on behalf of Enervest Energy Partners of Houston TX. He presented a lease with $500/acre for a 5 year primary term and 1/8 royalty and including pooling/unitization up to 640 acres. After some research on the Devonian Marcellus play in Ohio and neighboring states I have learned the following:
-The marcellus formation lies above the Clinton sandstone suggesting that existing Clinton wells might be used as kickoff points for going horizontal into the marcellus. I'm guessing its about 4000 to 5000 feet in Harrison County. see
http://www.cetconnect.org/OhioRocks/resources/docs/BedrockColumns.pdf
-Unit pooling of 640 acres would allow an operator to hold that much acreage under production from a single well that would most likely drain less than 100 acres. This is based on a horizontal reach of 4000 feet and a maximum frac radius of 500 feet, ie., an area of 4000x1000 or 91.8 acres (see) http://www.papgrocks.org/PCPG_MARC_SHALE.pdf. The dilemma for the landowner within a large unit is getting a smaller proportion of royalties than they would get for a smaller unit vs having a greater liklihood of having at least one well drilled on the larger unit. I would like to hear from others what strategy to pursue on this point. At any rate it would be sensible to have a provision that would release acreage that lies outside the drainage area unless the operator infill drills within a certain time period.
-Lease terms should definately be based on gross production revenues excluding production costs.
-The marcellus shale is not suitable for gas storage so these provisions should be eliminated from the lease.
- Another concern for landowners and operators is the fact that Ohio has no regs for horizontal drilling. I can envision some risk of having new regs that could adversely affect operations. For instance, New York State has imposed a moritorium on Marcellus drilling pending environmental reviews. http://www.pressconnects.com/article/20100903/NEWS01/9030399/1112/M...

I wish to thank Mr Cramblett for getting this discussion going and others who are contributing.

Permalink Reply by Nate on September 4, 2010 at 2:31pm

A couple ways to work with the unitization clause is to decrease the max unit size you are involved in. Personally, our lease clauses have up to 160 acres in pooling, however we don't drill horizontal holes and I can see the concern of the lessee to an extent. Another thing you want to tell them is you want all your acreage in the unit because a company could take your 154 acres but only unitize 10 acres or something along those lines and still hold your lease. I would try something along the lines of a max unitization of 300 acres.

If Envervest is interested in the Marcellus, then just lease them the Marcellus.

You can also put in your lease that the lessor has X months/years to drill another well on your lease or only X acres of your land will remain in the unit and the remainder of the lease is void.

Permalink Reply by Peter Schueler on September 6, 2010 at 10:48am

Nathan, Thanks for the advice. I agree that acreage outside the drilling unit should be dropped from the lease if it remains unused. My thinking is that this would happen after the primary term or one year after the last well is completed whichever is later.

Permalink Reply by Al Cramblett on September 6, 2010 at 5:31am

Peter,

Thanks for joining the Harrison County group. It is obvious that you have done some research and thanks for sharing your information with us. Please take the time to invite your friends and neighbors to join us on this website.

I was told by a fellow landlord in Harrison County that he negotiated a 15% royalty. He was also able to limit the target area for the drilling being done on his property.

In regards to Ohio's statutes which regulate oil and operations, Senate Bill 165 was passed through the Ohio legislature and signed into law by the Gov. on March 31, 2010. This legislation became effective June 30, 2010, and there are provisions that will regulate horizontal drilling in this statute. I have talked to several folks in the ODNR office and am considering establishing my own drilling unit for my parcels of land. One parcel is 100 acres and the second parcel is 300 acres. As I understand, 40 acres are sufficient to establish a drilling unit. I also learned that a tri-state meeting is scheduled next month; this may result in adoption of additional rules in the states of Ohio, Pennsylvania, and New York. One of the ODNR representatives indicated that they are expecting drilling rigs to be moving into Harrison County later this year.

Permalink Reply by Peter Schueler on September 6, 2010 at 12:47pm

Al,
I have three contiguous neighbors who own 170, 132 and 115 acres including mineral rights. I have contacted them and they are interested in leasing but none of them is connected online so I will keep them informed. There are others in the Deersville area who have been approached and I will try to get them in the loop for potential combining of acreage. I live in Richfield OH so I don't get down there often. Can you give me a contact for the folks in Stock Twp?
Concerning SB 165, I have searched through it and find no specific reference to horizontal drilling. The ORC paragraph 1509.24 (see pages 54-56 of http://www.ooga.org/docs/SB165-128th-AsEnacted.pdf ) shows the recent changes to the regs. It talks about drilling units, mandatory pooling orders and apportionment of royalties which seem to be case-by-case regs subject to rulings by the chief of the division of mineral resources management. The rules for well spacing have not changed. http://codes.ohio.gov/oac/1501%3A9-1-04
I'm not sure anyone could predict what rules will apply to horizontal drilling and fracking in Ohio.

Permalink Reply by Nate on September 7, 2010 at 1:45am

Peter, one of the purpose of 165 was to give ODNR Primacy over drilling, fracing, producing, etc. Horizontal drilling would be regulated by the Divisin of Mineral Resources Mgmt. Don't know if this helps or not.

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