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Chief Oil Leases Nearly 6,000 Acres in Marcellus from Pennsylvania Game Commission

The Pennsylvania Board of Game Commissioners has approved an agreement to lease 5,870 acres of land in the northeastern part of the state to Chief Oil & Gas LLC, netting the agency a bonus payment of more than $14.6 million plus royalties and other fees.

The agreement was approved earlier this month, but the commissioners noted that it would do little to allay the agency's financial woes, which have resulted from low license fees that have not been adjusted for inflation in more than 17 years. The game commission had already anticipated the funds and included them in its fiscal year (FY) 2015-2016 budget. Chief won the oil and gas rights after the agency opened the land to a competitive bid in December.

The company was the lone bidder, agreeing to pay a one-time lease bonus of $2,500/acre for a five-year term and 20.55% royalties on oil and gas production. The bid also provides the commission with a $75,000/well pad fee, with a restriction that would limit Chief to constructing two. The commission would also receive an annual payment of $1,400 instead of free gas usage from the properties. Under the commission's standard restricted surface use oil and gas development cooperative agreement, the deal also includes a $50,000 performance bond.

The lease affirms comments Chief management made last year after it closed its Appalachian headquarters in western Pennsylvania (see Shale DailySept. 3, 2015). The Texas-based company said the closure would not affect its commitment to the Marcellus or the state. The private operator primarily is a pure-play in the Marcellus with more than 200,000 acres.

Commissioner James Daley, who works as a consultant for the oil and gas industry, said the kind of bonus payment and royalties negotiated with Chief have been less common during the commodities downturn.

Separately, the commissioners also approved an agreement with EQT Corp. to lease 306 acres in Washington County. EQT agreed to pay a $3,000/acre bonus payment to block up its acreage and secure the subsurface rights. The agency would receive a $917,000 bonus payment and 20% royalties on production. The revenue would be deposited into either the Game Fund or an interest-bearing account for future wildlife habitat purchases.

The commission manages the state's wildlife resources and the state game lands system currently contains about 300 separate tracts totaling more than 1.5 million acres. The agency earned nearly $26 million in FY 2014-2015 related to oil, gas and other mineral transactions, according to its 2015 annual report. About $12.3 million of that total was attributed to oil and gas lease bonuses, while $9.3 million was related to oil and gas royalties. 

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