WHEELING, W.Va. — Some of the lease contracts Chesapeake Energy acquired for Marcellus and Utica shale drilling paid mineral owners as little as $5 per acre, but the Oklahoma City-based firm last week sold the West Virginia land for $13,015 per acre.
That is more than 10 times the amount Houston, Texas-based Southwestern Energy Co. paid for the 292,446 acres it already controlled in Pennsylvania, according to the firm’s website. West Virginia oil and natural gas industry leaders believe this proves the company has big plans for the Mountain State acreage it will control by the end of the year.
“This seems like the most effective way to enter this play. I think it is a positive sign that companies want to come here,” Charlie Burd, executive director of the Independent Oil and Gas Association of West Virginia, said. “I do not think it is unusual to see that we have these new companies wanting to come in here. These shales have proven to be very prolific.”
Last week, Chesapeake leaders announced plans to sell 413,000 Marcellus and Utica shale acres and 1,500 wells to Southwestern for $5.375 billion. The vast majority of this land is in northern West Virginia, including acres in Ohio, Brooke and Hancock counties, while the company maintains assets and operations in Marshall, Wetzel, Tyler, Pleasants, Monongalia, Marion, Doddridge, Ritchie, Harrison, Lewis, Upshur, Randolph, Barbour, Taylor and Preston counties.
“It is interesting, to say the least,” said Tim Greene, owner of Land and Mineral Management of Appalachia and a former oil and gas inspector for the West Virginia Department of Environmental Protection. “We were working through some issues with Chesapeake. Now, we are trying to figure out who these folks are.”
Greene said anyone who already has a lease agreement with Chesapeake should not see any difference if they are receiving royalty payments. Though he is unfamiliar with Southwestern, Greene said there is no reason to believe the company will shut down wells.
“I believe they are purchasing these properties to produce them,” he said. “What they are looking for is in this state. It’s just a new game in town where you have to learn the players again.”
According to the agreement, Southwestern plans to operate up to six drilling rigs throughout the acquisition area starting early next year, with plans to increase this to 11 active rigs by 2017. Company officials believe they can drill for “a minimum of 20 years” at this pace.
“We have been telling people that just because Chesapeake is here now does not mean they will always be here. This is another step in the game,” Greene said.
Chesapeake began drilling in Wetzel County in 2007-08 before gradually moving northward. The company made numerous acquisitions along the way, including some lease agreements that mineral owners signed years earlier that only called for payments of $5 per acre and 12.5 percent of production royalties.
Chesapeake also signed many new leases which paid anywhere from $500 per acre to $5,000 per acre, depending the location and the date of the agreement.
“Chesapeake has assets all over the county. The eastern assets are the farthest away from Oklahoma City,” Corky Demarco, executive director of the West Virginia Oil and Natural Gas Association said. “They probably want to get back closer to their home area.”
Although Demarco said he is unfamiliar with Southwest, he said there is no reason to have any negative thoughts about the company.