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Belmont, OH Attorney Sues Hess to Dissolve Lease

An attorney in Belmont County, Ohio—Rebecca Bench—is suing to end a lease deal she and her husband signed in 2008, originally with Mason Dixon Energy for $100 per acre. Mason Dixon later sold the lease to Hess Corp.

The $100 per acre Bench and her husband were paid is a fraction of recent transactions, some as high as $5,900 per acre. Bench says Mason Dixon was never registered to do business in Ohio, meaning the original contract was fraudulent.

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CONSOL’s Plans for Ohio Utica Shale Have Begun

CONSOL Energy’s drilling in Ohio’s Utica Shale is now under way and ramping up rapidly, according to CONSOL’s Harry Schurr who spoke Wednesday at a workshop on the campus of Kent State University. They’ve already drilled their first Utica well in Tuscarawas County, and they plan to drill 15 more this year. CONSOL also has a joint venture with Hess. Hess plans to drill six Utica wells this year.

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Belmont County, OH Landowner Sues Hess Over $100/Acre Lease

Rebecca Bench, a landowner in Belmont County, Ohio is representing herself in a lawsuit she has brought against Hess. The lawsuit alleges that Mason Dixon Energy, whom she signed a lease with (that lease was eventually purchased by Hess) had no legal standing to conduct business in Ohio at the time they convinced Rebecca and her husband Kevin Bench to sign a lease in 2008 for $100 per acre. By comparison, recent lease agreements for Utica Shale leases in the county have gone as high as $5,200 per acre.

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CONSOL Completes Joint Venture with Hess for Ohio Utica Shale

A second joint venture that CONSOL has announced in recent months has just been completed. Yesterday, CONSOL received an initial $60 million of a total $594 million from Hess to develop 200,000 Utica Shale acres in Ohio. Previously, CONSOL entered another joint venture with Noble Energy for $3.4 billion to develop 663,350 acres in western Pennsylvania and West Virginia (see this MDN story). Why all the joint ventures? Money! CONSOL needs cash to develop its Marcellus and Utica Shale acreage, and in order to get the cash, they have cut (so far) two deals, granting their partners a 50 percent interest in each case.

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65 Marcellus Well Casing Violations in PA So Far in 2011

Recently released data on drilling violations from the PA Department of Environmental Protection show that problems continue with the cemented steel casings that are designed to protect groundwater from methane and the fluids used to frack wells. The violations do not mean methane or fluids escaped into local groundwater aquifers—but the potential exists when a well is not cased properly. So far in 2011, 65 wells have been cited for faulty casing and cementing. Out of the many thousands of wells drilled and fracked each year in Pennsylvania, that’s not a bad ratio, but it’s certainly nowhere near acceptable. As DEP Secretary Michael Krancer has said, “One case of methane migration or well contamination is one case too many.” The industry needs to do better.

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CONSOL Sells Ohio Utica Shale Rights to Hess for $593M

Consol Energy Inc. has sold exploration and development rights for natural gas in the Ohio Utica Shale to Hess Corp. The $593 million deal was announced yesterday. The agreement gives Hess 50 percent of Consol’s mineral rights to some 200,000 acres. Hess will pay Consol $59 million when the deal closes in October and invest an additional $534 million in the operation over the next five years.

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Hess Net Marcellus Shale Acreage 80K, Mostly in Wayne County, PA – Will Drill 5-10 Test Wells in Second Half of 2010

An update from Greg Hill, President, Worldwide Exploration and Production with Hess Corporation, about their activities in the Marcellus (from a recent earnings call):

“We’re continuing to build our position in the Marcellus. We’re at about 80,000 net acres now in the Marcellus, primarily in Wayne County, Pennsylvania. About 50,000 of that is Hess operated and the balance is part of this joint venture we have with Newfield. Our plan this year are to drill five to 10 wells during the second half of 2010 in order to evaluate the resource potential on the acreage.”*

*Seeking Alpha (Apr 29) – Hess Corp. Q1 2010 Earnings Call Transcript

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Delaware River Basic Commission Continues to Obstruct Drilling in PA

The Delaware River Basin Commission (DRBC) continues to obstruct drilling in the Marcellus Shale in Pennsylvania. The latest energy company to experience frustrations in dealing with the DRBC is Hess, which holds leases to 126,000 acres in Wayne County, PA:

“It’s a big issue,” said Gene Linscomb, a Hess Corp. business manager based in Honesdale. “We’re asking them [the DRBC] for input.”*

The thing is, the DRBC has not approved a single, solitary Marcellus shale operation in the watershed. Not one.

The commission, a West Trenton, N.J.-based regulatory authority that has jurisdiction over water resources in the 13,539-square-mile Delaware River watershed, has yet to green light a single natural gas production well.*

Hess has been asking the DRBC, repeatedly, what they want them to do so Hess can begin to drill.

The [DRBC] has stated it does not intend to be a roadblock to natural gas development – something many Wayne County residents who signed leases do not believe.*

So what is the DRBC doing? They’ve requested $250,000 to do a study about drilling in the Marcellus Shale in the watershed. They’re hoping to get federal money for the study “late this year.” In other words, they’re not doing anything. If you’re a landowner in the Delaware River Basin, or a drilling company, don’t hold your breath for drilling to begin any time soon.

*Scranton Times Tribute (Apr 17) – Hess to Wayne County: ‘(We’re) here for the long term’

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Newfield Exploration Set to Drill 10 Wells in Wayne County, PA This Summer

Drilling is coming to Wayne County, Pennsylvania this summer according to officials with Newfield Exploration. They are waiting for approvals from regulators to begin drilling up to 10 exploration wells. If those wells show promising results, they will likely be turned into full production wells.

A Houston-based natural gas production company is laying the groundwork to fulfill its promise to drill up to 10 exploration wells in northern Wayne County this summer, with permits now trickling into the state Department of Environmental Protection.

Newfield Exploration Co., which partnered with international oil and gas production firm Hess Corp. to develop a 140,000-acre leasehold in Wayne and Susquehanna counties, recently filed for its first four natural gas drilling permits in Damascus and Manchester Twps.

The company has three pending drilling permits in Damascus Twp. [Wayne County] and one pending permit in Manchester Twp. [York County], according to state environmental regulator records. These permits, filed in late February and March, are on track to be approved by late April or May.*

*The Scranton Times Tribune (Mar 24) – Gas driller seeks permits for Wayne County wells

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Millionaire Landowners – In New York State?!

Crain’s New York Business (Nov 1):
The new gold rush

With heavy dollops of anti-drilling sentiment (so the reporter keeps his job), this article is worth a read because of the fountain of good information about economics for landowners in the Marcellus Shale. The theme that runs through it is the story of a truck driver with 120 acres outside of Binghamton, NY who stands to become a millionaire many times over if and when drilling starts to take place in New York. The truck driver, Jeff Decker, is not allowed to divulge the terms of his upcoming lease, but it’s thought to be in the neighborhood of $700,000–and that’s just the signing bonus for his 120 acres. If they drill on his property and he gets, oh say a 20% royalty, he’s easily into millions of dollars.

This nugget of useful detail from the article:

An 80-acre swath of the Marcellus can eventually produce $42 million worth of natural gas, says Dean Lowry, president of Fort Worth, Texas-based Llama Horizontal Drilling Technologies. With drilling leases now giving landowners 20% royalties on productive wells, Mr. Decker could become a millionaire several times over.

Drillers, whose cost to develop an 80-acre parcel is about $4 million, would also prosper. “Fifty percent of the gas could be extracted in the first three or four years,” Mr. Lowry says. “You get your investment back in the first year to 18 months. Then you get seven to nine times your money over the next 20 to 25 years.”

I would also caution about what’s coming in the way of taxes when drilling finally does start in New York. This rather sobering paragraph from the article:

In New York the Paterson administration, heeding the cries of landowners and local officials in economically depressed upstate communities, has issued draft regulations to allow it here. Landowners are keen to lease their property. Cash-strapped municipalities are eager to tax the extracted gas. Business groups say drilling would bring jobs and jolt local economies. The state would collect more income tax and, if it imposes one, a tax on gas production.

You can expect local municipalities to not be able to resist putting their hands into landowners’ pockets to relieve them of some of their new found money. And New York State will undoubtedly not be able to resist either. Politicians are like drug addicts who need an economic “fix”. Just a warning so you’re not surprised when it happens.

We also have the obligatory couple of paragraphs on “don’t you dare drill in the Catskill watershed” for fears of contaminating New York City’s water supply. The stated reason is this:

New York is one of five big cities not required by the federal government to filter its water, and revocation of that waiver would necessitate a filtration plant costing $10 billion to $20 billion.

It seems Crain’s New York Business is a bit behind the eight ball. Chesapeake Energy, the only leaseholder with land in the Catskill watershed, has already said they won’t drill there. Makes no difference, this particular political issue is just too juicy to not use–even if it’s no longer an issue.

We learn from this article that Hess is New York’s largest energy company, and that Chesapeake Energy and Fortuna Energy are the most active leasing companies (so far) in the Marcellus Shale in New York.

Overall, some good info in this article, but as always with mainstream media, be sure to read between the lines.

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Hess Offering 20% Royalties and Deal Worth $66.5M to Conklin Landowner Group

Binghamton Press & Sun-Bulletin (Oct 16):
DEC hearings to allow public comment on natural gas regulations

In an article about the upcoming hearings being held by the New York DEC about draft drilling regulations, we have this tidbit of interest to landowners negotiating with drilling companies:

Others are eager for the state to complete its review so Marcellus permits can be issued early in 2010. Among them is Dan Fitzsimmons, an industry supporter and owner of about 180 acres in Conklin, who said extending the comment period would create unnecessary delays.

“They have to stick with their timetable, or they are going to have a lot of angry residents,” said Fitzsimmons, who leads a coalition of landowners in the towns of Binghamton and Conklin. Hess Corp. has offered the group a deal worth about $66.5 million, plus 20 percent royalties on production.

We also have this obligatory anti-drilling paragraph from the P&SB anti-drilling writer Tom Wilbur:

Marcellus development has the potential to produce several thousand wells in Broome County and change the physical and economic landscape. Unlike traditional wells, which are vertical, companies use larger equipment, more water and more chemicals to drill horizontally through bedrock to release gas in the Marcellus.

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Fortuna and Hess Royalty & Signing Bonus Numbers

Elmira Star-Gazette (Oct 17):
Slow down in gas drilling activity allows chance for consideration

A generally anti-drilling “article” by the business writer for the Elimra Star-Gazette. But he includes some helpful and interesting information for landowners:

I’m also watching how Fortuna and Hess are slugging it out for leasing rights in the counties to our east. What started here as a 12.5 percent production royalty and signing bonuses of a few hundred dollars per acre has morphed into the 20 percent royalty figure and signing bonuses of several thousand dollars per acre being offered in Broome and the surrounding counties on either side of the border.

Landowners and landowner groups take notice! Be sure you’re getting the best prices you can from your contracts.