Mahoning and Trumbull counties lead the state in the production of natural gas

By Don Shilling

Area residents are sitting on top of a gold mine — of sorts.

It’s actually a large supply of natural gas, and it pays quite nicely.

Land owners in Mahoning and Trumbull counties received $22 million in royalties from gas wells and $7.7 million worth of free gas in 2007, according to industry estimates.

Each year, the wells produce that type of money, much of which is spent at local stores and restaurants, said Les Dundics, leasing manager for Everflow Eastern, an oil drilling company in Canfield.

“The impact is great, and people don’t even realize it,” he said.

The payouts are large because Mahoning and Trumbull counties make up the best area for natural gas production in the state. Ohio Department of Natural Resources statistics show the local counties ranked No. 1 and No. 2, respectively, in production in six of the seven years that ended in 2007.

The region produces more gas than other parts of Ohio because the sandstone rock formation about a mile underground traps a large amount of gas, said Ann Harris, professor emeritus in the geology department of Youngstown State University.

“We just have good geology here,” she said.

Jim Hartshorn is glad about that. In exchange for three wells on his four-acre property on Fairground Boulevard in Canfield, he’s had no heating bill for 20 years and receives monthly royalty payments from Everflow Eastern.

“I’m very happy with it. It’s the best thing that I every did,” he said.

In a typical arrangement, the drilling company agreed to provide Hartshorn with free gas as long as the wells are producing. He figures the wells are saving him hundreds of dollars a month in heating costs, and he’s hoping for 20 more years of production.

Plus, Hartshorn and his neighbors receive royalty payments from the wells. Hartshorn didn’t want to reveal how much money he has received, but he said the monthly payments “have helped out over the years.”

On average, the 4,100 active wells in Mahoning and Trumbull counties each produced $5,100 in royalty payments and $1,900 in free gas in 2007, industry estimates say.

Typically, the owner of the property with the well receives the free gas, but the royalty payments are split. The drilling company must lease the mineral rights for either 40 acres or 20 acres, depending on the depth of the well. So, the owner of a one-acre parcel receives one-fortieth of the royalty payments on a deep well.

The total royalties for a well usually equal 12.5 percent of the market value of the gas produced.

Bill Siskovic, Everflow Eastern vice president, said the royalty payments depend on the production of the well and size of the landowner’s property, and the payments usually decline over time because wells are most productive in their early years.

The company waits until a property owner has earned at least $50 before sending out a check. Some people receive a check every month, while those with older wells and small parcels might receive a check once a year or once every other year.

Dundics said locally produced gas also helps keep down the costs for homeowners and businesses that use gas.

Gas drilled in Ohio can be sent directly from the well to the distribution lines of gas companies, which helps marketing companies avoid the expense of processing and transporting gas from other areas.

Gas from some other areas has so many impurities it has to be cleaned, which removes all the odor, Dundics said. Additives are then needed to provide an odor in case of a gas leak. Ohio gas, however, keeps its natural odor because it has only a tiny amount of impurities and doesn’t require processing.

Drillers in other parts of the state have noticed the strong natural gas fields locally.

Cedar Valley Energy, a Wooster-based company that has 140 wells in Ohio and Pennsylvania, has drilled 40 oil wells in Trumbull County since 1986.

Bill Bennett, company president, said he likes the area for several reasons.

First, the area still has a fair amount of open space, which makes it easier to drill wells and easier to obtain lease agreements, he said.

Second, the area has a lot of Dominion East Ohio gas lines so his company doesn’t have the expense of running long lines and leasing land to connect to a gas network, he said.

“It doesn’t do any good to drill if you can’t sell your product,” he said.

Third, the region provides relatively easy drilling, he said. Other parts of the state have unstable rock formations that increase the cost of drilling, he said.

And perhaps most important, the gas supply is abundant.

“Our most consistently good production is in Trumbull County. Those wells have been our best wells by a substantial amount,” Bennett said.

Harris said production is strong locally because of the structure of the sandstone formation underground. In local areas, the formation — known as the Clinton Sandstone — has arches that trap the gas within the rock.

“We think of Ohio as flat. But once you get a mile down, it changes totally,” Harris said.

Drillers inject water into the well to disturb the gas and to draw it out. The process, called fracing, works like a siphon.

The wells also bring up oil, which is separated from the gas and stored in a tank on site. Property owners also receive royalties for the oil, but local wells produce a relatively small amount.

Siskovic said the local oil is high-grade, however, so Everflow Eastern sells it to a refiner to make motor oil.

Even with a good local supply of gas, drillers have to be careful where they sink a well that can cost $500,000 or more.

Siskovic said Poland Township, for example, is known as a poor area for gas wells. But adjacent to it is Boardman, which is a strong area with 95 wells. Other good areas are Canfield, southern Austintown, the South Side of Youngstown, northwest Warren and Niles.

The best way to find a good area is to look at the production reports filed by drillers and follow the path until it runs out, Siskovic said.

Drillers can use seismic studies to find good drilling areas, but those aren’t practical in urban areas because they involve detonating dynamite, he said.

Both Everflow Eastern and Cedar Valley have more wells planned for the Mahoning Valley, but those are on hold. Everflow hasn’t drilled any wells this year, and Cedar Valley hasn’t drilled any since January.

Drillers are reluctant to start new wells because natural-gas prices have fallen from a year ago, the recession has reduced demand and drilling costs have risen. Suppliers raised their prices significantly in recent years when lots of wells were going in.

At some point, Siskovic expects the economics to change. That will allow drilling to resume and drilling companies to make more offers of royalty payments and free gas to landowners.

shilling@vindy.com

Knox County benefits from oil and gas industry

The petroleum industry is one of the most volatile segments of the national economy. Subject to the law of supply and demand, it is also subject to trades in the commodities market, the health of the manufacturing industry and consumer behavior.

The price of the two products derived from petroleum, natural gas and crude oil, can parallel each other, or go in opposite directions. At the end of August, the price for natural gas fell, while the cost of gasoline and crude oil rose.

Knox County residents see this volatility reflected in the price at the pump and in their heating bill. What they may not realize is the effect this volatility has on the county as a whole.

Knox County is one of the top 10 crude oil and natural gas producing counties in Ohio, with 1,135 active wells.

“Knox County is ranked No. 4 in the state in the total number of new wells drilled last year,” said Rhonda Reda, executive director of the Ohio Oil and Gas Energy Education Program. “Knox County had 67 new wells last year.”

Statewide, 1,049 new wells were drilled, ranking Ohio fourth in the nation behind Texas, Oklahoma and Pennsylvania in number of wells drilled.

“The liquid form of petroleum is crude oil,” explained Reda. “The vapor form of petroleum is natural gas. In 2008, Knox County produced 567,418,000 cubic feet of natural gas.”

For crude oil, 162,452 barrels were produced in the county in 2008. There are 42 gallons in a barrel.

In Ohio, 85 billion cubic feet of natural gas was produced and 5.6 million barrels of crude oil.

“Ohio’s natural gas production, nearly all of which stays in the state, created enough energy last year to heat more than 1 million Ohio homes and businesses,” said Reda.

Many of the wells in Knox County were drilled by Knox Energy Inc. Based in Pataskala, the company has a field office in Utica.

“We’ve drilled 125 wells in the last five years in the area surrounding Utica, in Knox and Licking counties,” said Mark Jordan, president of Knox Energy. “We’ve invested probably $18 million.”

According to Jordan, it costs $150,000 to $175,000 to drill a well down to 2,500 feet, the average depth in the Knox County area.

“We have to raise that money, use our own money, or bring in partners,” he said. “When prices are low, drilling activity stops because the price drops.”

Last year, he said, the price per 1,000 cubic, or Mcf, was $13. Now it’s less than $3.

“People don’t realize how volatile it is,” he said. “The economy is down, factory usage of natural gas is down like 35 percent. There was a lot of drilling a few years before because of the high price. So we got the supply, and now the demand drops.”

Less drilling means less supply, which means higher prices, he said.

The number of wells in the county affects the economic picture because in addition to getting free natural gas to heat their home, the landowner is paid either a rental fee per acre, or royalties based on the well’s production. The amount per acre per acre can vary from $5 to $10.

“We tell the landowner we would like to drill on your acres, and we lease the property for so much per acre for say, three to five years,” expained Jordan. “If we get a succcessful well, then they’re entitled to free gas for their house, up to a certain amount. When we get the well drilled, we stop paying the lease rent and start paying a royalty, which is one-eighth off the top. If we make $5,000 in a month, [the landowner] gets one-eighth of that.”

That one-eighth, which equates to 12.5 percent, brought in $3,323,168 to Knox County in 2008, said Reda.

“That’s over $3 million that stays in Knox County, that people are hopefully spending right there in the community,” she said.

Statewide, Reda said, the royalty number is over $202 million, and $84 million in free natural gas.

The Knox County Airport is one business that will soon benefit from this free gas and royalty payment.

According to Marla Elliott, airport manager, the airport authority signed an oil and gas lease with Knox Energy in December 2006. Under a five-year lease, Knox Energy paid the airport $6 per acre.

“The well started producing July 21,” said Elliott. “The airport authority will get one-eighth of what is pulled off.”

Elliott said the first check should be received the end of this month, and monthly thereafter.

“We’ll get 250,000 cubic feet of free gas every year,” she said.

In 2008, the airport paid $1,500 for natural gas, although that was not for the whole year. Prior to switching to natural gas, the airport used propane.

“Since January of 2008 to now, we paid $3,013,” she said. “So for us, that is what we are going to save.”

“These wells don’t pay out overnight, but they are a good, long-term investment,” said Jordan. “Some of the landowners have done pretty well.”

http://www.mountvernonnews.com/local/09/09/07/knox-county-benefits-from-oil-and-gas-industry


About OOGEEP

The Ohio Oil and Gas Energy Education Program (OOGEEP) is an industry funded education program, established to promote a positive public awareness of Ohios oil and gas drilling and producing industry. OOGEEP will communicate information about the oil and natural gas industry, environmental and safety issues, and the vital contribution of oil and gas to Ohios economy. OOGEEP will send its message by cooperating with schools, by conducting and supporting education programs for teachers and the public, by utilizing media and marketing resources, and by supporting research activities.

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