Hundreds of Athens County residents who had some level of interest in leasing their mineral rights to Cunningham Energy for the extraction of oil and gas turned out for a landowners meeting organized by local attorney John Lavelle Tuesday evening at the Athens County Fairgrounds.
According to Lavelle, he and his wife Lora have negotiated an oil and gas lease with Cunningham Energy, a company based in Charleston, W.Va., for property they own in Waterloo and Lee Twps. in Athens County. He drafted what he called a “landowner friendly” lease for himself and is offering to draft the same lease — for a legal fee of $50 per acre — for those interested in contracting with Cunningham Energy.
During the meeting, landowners were given packets of information, including a copy of the lease drafted by Lavelle.
Dozens of landowners opted to sign leases with Cunningham following the meeting on Tuesday.
Lavelle said he knew he couldn’t stop drilling in the area even if he wanted to, so he decided to be proactive and share information and ideas with his neighbors and clients to help them make informed decisions.
“My whole interest in this was to draft a lease that I felt comfortable signing for my own property,” Lavelle said. “If I was successful in coming up with terms that were satisfactory to me on my own property in Waterloo Township, I would then offer that same opportunity to neighbors, family, friends and clients.”
Cunningham Energy has agreed to offer the same terms outlined in Lavelle’s lease to any of Lavelle’s clients. Those terms include a one-time $2,500 bonus payment for each acre leased to be paid by March 15, 2012. Also, lessors would receive $50 per acre in rent payments from Cunningham each year for the term of the lease, which is five years. If a well is drilled on property, those who own the mineral rights or are part of a larger drilling unit would receive 16 percent in royalties from any natural resources obtained from the well.
As part of the lease drafted by Lavelle, legal fees to his law firm would be deducted from the lessor’s bonus payment and be paid to his office directly from Cunningham Energy. Lavelle said his legal fee would be contingent on Cunningham’s payment to the lessor, meaning if the lessor doesn’t get paid, neither will he.
According to Lavelle, Cunningham has already obtained leases for 64,000 acres in Athens County and is hoping to secure another 10,000 to 20,000 acres in the county to present its entire package to a “reputable engineering firm” in early December for review to select potential well sites.
If Lavelle’s clients lease 10,000 to 20,000 acres to Cunningham, Lavelle’s law firm could bring in $500,000 to $1 million in legal fees.
Joseph Blackhurst, a land manager with Cunningham Energy who was at Tuesday’s meeting, said his company has only conducted vertical drilling in the past. Because Utica Shale in Athens County is deeper in the ground than the Marcellus Shale formation which is found in the northeast portion of Ohio, horizontal drilling may have to be utilized to reach the resources. Blackhurst said a joint venture partner working with Cunningham would be the one doing any horizontal drilling.
“We wouldn’t venture partner with anyone who hasn’t done this 1,000 times,” Blackhurst said.
He said the partner that would be doing the horizontal drilling is funding a majority of the drilling. Blackhurst would not disclose the name of the joint venture partner but said it is a well-known publicly traded company.
One man at Tuesday’s meeting asked Blackhurst, “Isn’t that kind of like not knowing who we’re doing business with?”
“You could take it that way,” he replied. Blackhurst said he couldn’t say if Cunningham has worked with the joint venture partner in the past, but said he feels very comfortable with the partnership.
Austin Babrow of Peach Ridge Road in Athens said he had concerns about what his neighbors may be doing regarding leasing their mineral rights. He asked Lavelle if all his surrounding neighbors decided to form a drilling unit if his land could be taken by eminent domain or be drilled under despite his wishes.
Lavelle said the oil and gas board could schedule a hearing to determine if that single landowner is preventing the drilling process from taking place, which could result in that property being “force pooled.” He said the landowner would be compensated, but Lavelle advised Babrow to seek legal counsel if he had concerns about his rights as a property owner.
“They’re not going to hold up the progress of the many for the isolated wishes of the few and you might get forced pooled,” Lavelle told Babrow.
Some people at Tuesday’s meeting expressed concerns about possible water contamination caused by horizontal hydraulic fracturing, or fracking. Lavelle said as part of the terms of the lease, Cunningham has agreed to conduct water quality testing to Ohio Environmental Protection Agency standards for potable water at the company’s expense.
“However, several expert hydrologists and water quality testing professionals have indicated this type of testing does not include certain substances that could cause health or safety problems,” Lavelle wrote in information provided at the meeting. “Attorneys highly recommend that landowners and clients consult their own expert if they have concerns about their drinking water.”
Lavelle also advised that landowners have their water tested for certain substances (including major ions, minor and trace elements, water quality parameters and organic chemicals) prior to any drilling taking place on their land.
“If testing is performed, this will help establish a baseline as to existing water resources, should the need arise to establish those facts after drilling commences,” Lavelle wrote.
Fred and Maurita Kisor, who reside in Lee Twp., said they decided to sign a lease because they trusted the terms Lavelle was able to negotiate with Cunningham Energy.
“We decided if John (Lavelle) did it, we’d be more apt to (sign a lease),” Maurita said. She said Lavelle purchased about 160 acres of land in Lee Twp. next to them.
When asked why he attended Tuesday’s meeting, Bob Preston, who owns land on the Meigs/Athens County border, quickly replied, “Money.”
“It might be cavalier, but if somebody ever wanted me to drill and they gave me $100,000, then I want to drill,” he said. “Look, we got to get (the natural resources). We got to get it out of the ground, we got to get down there.”
He said that Oxford Oil drilled a well on a piece of property that he owned and did a really nice job and he had no concerns if Cunningham Energy was willing to do the same.
“When (Oxford Oil) got done, they pulled the well, they cleaned it up. You couldn’t even tell they were there, so personally, I have no issues with anything they did,” he said. “If they want to give me $2,000 or $3,000 an acre, then Florida has another resident.”
Lavelle and Cunningham Energy will be holding a day-long lease signing session at the Athens County Fairgrounds from 8 a.m. to 5 p.m. on Tuesday.