Athens County residents eager to lease their drilling rights could see vertical test wells on their property and earn money via a different payout plan than they originally thought.
Athens attorney John Lavelle negotiated a new batch of drilling-rights leases with Cunningham Energy after the original set of leases fell through in March after Cunningham failed to pay bonuses set out in the agreements.
The new lease proposal would allow Cunningham to build vertical testing wells — which, Lavelle said, have less negative environmental impact than horizontal wells — in Athens County, and lessees could receive a larger payoff in the long run if production is successful, Lavelle said.
Previous leases with the oil and gas company were more front-loaded, with a $2,500 signing bonus and $5,700 per acre paid throughout a 10-year period, Lavelle said.
Lessors will receive a total of $5,700 throughout an 11-year period, but instead of a lump-sum payout at the beginning of the lease, payouts will increase during the course of the lease.
The new lease calls for a $125 bonus during each of the first two years of the lease but will increase incrementally during the next four years to total $2,700.
Lessors will be paid an additional $3,000 throughout another five years if the lease is renewed.
Cunningham also will build five drills to test the viability of Utica Shale development in Athens County during an 18-month period. If the company fails to do so, all of the leases will expire, per the new agreement.
The new back-ended lease agreement was drafted after the Ohio Department of Natural Resources released a revised map indicating that Athens County is not in the “core play area” of the Utica Shale formation for oil and gas development, Lavelle said.
“The state map that was released in March basically gave big companies pause,” Lavelle said.
Large joint-venture companies that would partner with Cunningham as a source of funds declined to participate after the map was released, Lavelle said in a letter sent to potential lessors, resulting in the company’s failure to pay the agreed-upon bonuses.
Despite the state’s findings, Lavelle said drilling tests to determine the economic viability of Utica Shale formation in Athens County are necessary before any large companies make significant investments in the area.
It is for this reason that the payouts are back-loaded, Lavelle said.
“We wanted to come up with an agreement that allowed vertical test drilling to take place,” Lavelle said. “Cunningham has agreed to build five different vertical test wells throughout the county where geology says we have the best shot at production.”
After the 18-month period, even if the vertical test wells prove that Athens is not a producing county, landowners will still get the first two years worth of payments for leasing their land, Lavelle said.
“Even if Cunningham’s wells aren’t successful, the landowners get paid and nothing happens on their land,” Lavelle said. “They keep the money and the oil company leaves.”
In addition to those payments, the lessor will receive 16.5 percent in royalties on any profits from oil and gas production that Cunningham makes. Lavelle will earn $25 per acre for the first two years of the lease as lawyer fees for negotiating the agreement with Cunningham.
The deadline for signing the new lease agreement is May 18.
ls114509@ohiou.edu
