The village council of Carrollton, OH, has voted in favor of a nondevelopmental oil and natural gas lease agreement with Rex Energy Corp. that was valued at $938,000 on Monday.

As opposed to a development lease, which allows for encroachment on the surface of the land for drilling and operating the well, the nondevelopment lease allows subsurface mineral drilling only with no surface trespass involved.

Carrollton is the county seat of Carroll County and lies at the heart of Ohio’s portion of the Utica Shale, a play where State College, PA-based Rex has been increasing its presence (see Shale Daily, May 3; April 17).

Village Administrator Denny Roudebush told NGI’s Shale Daily the agreement with Rex still faces several hurdles before it takes effect. He said the deal must be presented at a future council meeting in the form of an ordinance followed by three public readings. “If after the third reading there’s been no objection, it will sit for 30 days before it’s signed into law,” Roudebush said Wednesday. He added that it could be six weeks to two months before the deal officially takes effect.

Under the terms of the agreement, the village would lease 268 acres, which includes water well properties, to Rex in exchange for a $3,500/acre signing bonus and 20% royalties on gross revenue from any production, minus deductions.

The agreement passed on a 4-2 vote, with council members Christopher Barto, Andrew Gonda, Wilma Lambert and Mary Ann Miller voting in favor of the deal. Luke Grimes and Dan Locke cast the dissenting votes. Grimes and Locke told local media they voted against the agreement because they felt there were inadequate protections for the village’s water supply.

“It’s debatable,” Lambert told NGI’s Shale Daily on Wednesday after being asked if the deal was good for the village. “We didn’t want to take a chance on anything affecting the village’s water supply, so we were uncertain whether we wanted a lease or not at the beginning. But we have been advised by more than one legal counsel that signing a lease would be a good idea. Rex Energy’s terms were favorable for the village.”

Lambert said the village and Chesapeake Energy Corp. had discussed a lease in the past. She said the company had submitted a proposal for $5,800/acre, but the offer was eventually withdrawn because “we didn’t act on it.” Lambert said the village’s decision to sign with Rex over Chesapeake, the largest leaseholder in the Utica, was not affected by criticisms leveled by landowner groups over Chesapeake’s tactics in the play, such as attempting to renegotiate lease terms to benefit the company (see Shale Daily, July 20). “That wasn’t discussed,” she said.

Drilling activity in the Utica has skyrocketed in short order. Records from the Ohio Department of Natural Resources Division of Oil and Gas Resources show the permitting of horizontal wells in the Utica has grown more than eight-fold in one year (see Shale Daily, July 9).