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Newfield, Hess Terminate Leases in Pennsylvania

Newfield Exploration Co. and joint venture (JV) partner Hess Corp., have terminated about 1,500 leases in northeastern Pennsylvania, dashing hopes that landowners could earn about $187.5 million in royalties.

Newfield spokesman Keith Schmidt told NGI that The Woodlands, TX, operator began notifying affected leaseholders about the terminations by mail in early July. About 1,500 leases were being terminated, most of them in Wayne County.

"[It] was a business decision not to continue development due to low gas prices, and a dedication on our part to increasing production of oil and hydrocarbon liquids production," Schmidt said. "We've got other parts of our portfolio in proven oil reserves areas of the country. It just makes good business sense for Newfield and its shareholders to direct our efforts toward those oil reserves."

Peter Wynne, spokesman for the Northern Wayne Property Owners Alliance LLC (NWPOA), told NGI that it would be a "mild understatement" to say the Delaware River Basin Commission's (DRBC) moratorium on oil and gas drilling in the basin was also a factor in the decision. The DRBC "certainly [was] a very important factor in it, and we know that. We're in constant contact with these people [Newfield and Hess]. While nobody said it directly, we all know what the game is."

Wynne said most of the NWPOA's leases, which were signed in 2009 (see NGI, Oct. 19, 2009), had a primary term of three years with an option to extend it for another five years. However, Newfield and Hess declared a force majeure several months into the primary term, after the DRBC enacted its current moratorium.

Wynne added that another landowner group, the Susquehanna Wayne Oil Gas Group (SWOGG), has since folded. It had similar leases that did not permit force majeures. According to Wynne, former SWOGG members started receiving notices this spring that their leases were being terminated.

"There had been rumblings for awhile that this was a possibility. We certainly weren't taken completely by surprise by this happening," Wynne said, adding that letters from the NWPOA, Pennsylvania Gov. Tom Corbett, U.S. Sen. Patrick Toomey urged the DRBC to take action resulted in "just one more reiteration of the same sorry story we've been hearing for three years."

Wynne confirmed that about 100,000 acres were being leased to Newfield and Hess, with landowners receiving $100 million total up front. Some of the leases paid $1,100/acre, he said, while others were for $1,500/acre. Had the leases gone into production, landowners could have expected another $187.5 million in royalties.

Earlier this month, the NWPOA threatened to file a lawsuit against the DRBC if it did not schedule a vote to consider revising its water quality regulations, or or allow member states to regulate shale development in the basin (see NGI, July 8). Wynne said the NWPOA is still considering a lawsuit.

At a meeting earlier this month, DRBC Chairman Michele Sierkerka said the interstate compact is working to advance gas regulations in the basin, with "thousands of hours" logged so far by staff and members since November 2011.

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