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Leasing remains contentious issue in East Palestine

February 11, 2014
By KATIE SCHWENDEMAN - Staff Writer (kschwendeman@mojonews.com) , Morning Journal News

EAST PALESTINE - A Village Councilman needs to stop making a "sales pitch" and let residents know exactly what is on the table when it comes to council discussions about oil and gas leasing, Councilwoman Ellen Beagle said.

Beagle, a Pennsylvania attorney, and Councilman Alan Cohen, a retired attorney, took Councilman Don Elzer to task over his community leasing proposal during the Monday meeting.

The council members were presented with an informational brochure discussed at the last meeting that would be given out to residents explaining the process, but Beagle and Cohen felt it presented a skewed picture of what is actually going on.

Elzer had suggested at the end of last year the village combine residential and municipal property to offer to oil and gas leasing companies in order to draw more interest to the area and boost revenue.

He believes companies would be more interested in leasing land locally if a larger acreage was offered. East Palestine has offered roughly 140 acres of the available municipal property to companies the last few years and has not received any suitable offers.

According to Elzer, the village could earn up to $8 million in signing bonus revenue alone by leasing the roughly three square miles at $4,000 per acre, should that be the offer. Of that, the village would get around $1 million, with the rest divided among property owners, he has said.

Recent discussions among council indicated residential property included would only be that of those landowners willing to do so, and each landowner would have their own individual contract with the companies, although Elzer did say on Monday that some stipulations would be based on the village's negotiations.

Cohen said, "I think people have a right to know that there could well be drilling inside the village limits of East Palestine."

He also said, referring to the brochure, the village is "trying to hide the facts."

The brochure stated the village intends to negotiate a lease for sub-surface rights only, which would permit drilling under the land from sites outside of East Palestine.

Cohen and Beagle argued what Elzer is trying to do will allow for unitization, a legal process that allows companies drilling for oil and gas in Ohio to force unwilling or reluctant property owners to become part of a drilling unit.

"Once the gas companies have 65 percent of the property, they file the application with the Ohio Department of Natural Resources (ODNR) to unitize the entire town - even if people don't want it," Cohen said.

Unitization specifically applies to horizontal drilling while mandatory pooling applies to vertical drilling. In Ohio, a company must have 650 acres leased to form a drilling unit. Landowners with acreage that joins the unit through this process receive royalty money only.

Cohen said once a piece of land is unitized there is nothing to stop any company from coming in and talking to a landowner about putting a drilling rig on their property, but Elzer countered landowners already have that option anyway.

Elzer then blamed Cohen and Beagle of trying to find reasons not to move forward with the process.

"The intent is to put everything together ... and to negotiate a contract. That contract we are talking about is a non-surface contract, so I don't understand where the problem is," he said.

Village Solicitor Dave Powers said most of the leases he has negotiated at the Columbiana firm he works for are for surface drilling rights.

He did say, however, there is the possibility that what Cohen is saying would happen - a company could solicit a landowner for a drilling rig in town. But he also said that could happen now, since nothing is keeping any landowner from leasing their property for that purpose without village help.

Beagle said some banking and loan entities are claiming unitization devalues property and PNC Bank is already in the process of trying to protect itself when it comes to mortgages.

Cohen said Wells Fargo in particular will not write mortgages on properties that have existing oil and gas leases.

That, and the fact that the property is already under lease, will make property less attractive to potential buyers, he argued.

Powers confirmed that if a landowner leases property and then moves away, that property cannot be leased again by the new resident as long a contract is in effect.

Typically, contracts are for five years, however they remain in effect as long as oil or gas are being recovered, he added.

"Do you know, do the people know, that as soon as a lease is signed every property, in effect, has a lien placed on it?" Cohen asked Elzer. "What happens when people try to get mortgages on their property?"

Cohen then asked Powers who would be responsible for negotiating with the oil and gas companies, and Powers said he would, to which Cohen argued he would then be serving as an "agent" for the landowners, which is something the brochure specifically stated would not happen.

"I'm not trying to say we shouldn't necessarily do this, I'm saying this is a lure, this is a bright shiny lure and I don't want to be any part of this," Cohen said.

Powers said he will not "sit down" with each individual property owner and negotiate leases, and according to the brochure each individual landowner will sign his or her lease directly with the company.

"This is a sales pitch. Just tell the residents, please see a realtor, find out for sure, call your mortgage companies and see what they say," Beagle said.

Council then voted 3-2 in favor of the resolution authorizing Village Manager Pete Monteleone to initiate action to determine if landowners are interested in a joint effort with the village to lease land for oil and gas production.

Cohen and Beagle dissented and Councilman Fran Figley was absent.

The resolution allows the village to gather feedback from residents and does not authorize any leasing activity at this point.

 
 

 

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