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West Virginia Selects Winning Bids for Ohio River Leases

The West Virginia Department of Commerce has selected winning bids from three operators that want to develop valuable mineral rights below the Ohio River in Marshall, Wetzel and Tyler counties.

Josh Jarrell, deputy secretary and general counsel for the state commerce department, said lease terms are currently being negotiated with Gastar Exploration Inc., Statoil ASA and Magnum Hunter Corp. subsidiary Triad Hunter LLC.

Although conventional drilling has occurred near the river in the past, the bidding process was West Virginia's first for unconventional operators.

Under its terms, the state wants a minimum 20% royalty on production, and operators were allowed to submit bids for the per-acre bonuses (see Shale Daily, Oct. 3). Noble Energy Inc. also submitted a bid, but it was not selected.

"One thing we know for sure is that if we do finalize agreements, the lease would result in a 20% royalty on production for West Virginia," Jarrell said. "Other items are being negotiated, like the per-acre bonus. We'll be evaluating those, each company’s presence in the state, if any, and all the various factors that go into responsible development of these leases."

Jarrell said the state commerce department expects to finalize the lease agreements by the end of the year or sooner. Initially, a 22-mile tract of river, divided into three segments, was available to bid on, but the state later discovered that eight miles of that interfered with a parcel of land held by legacy production. Additionally, Triad Hunter bid on another eight miles and eventually withdrew its bid. Jarrell said the state will likely put that eight mile stretch back up for bids, but he didn’t know when that might happen.

Of the remaining six miles that are currently available, Gastar won a bid for two of them at  $3,500/acre, while Statoil won a bid for one mile at $8,125/acre and Triad Hunter won two segments. The first consists of one mile, for which Triad bid $7,100/acre, and another consists of two miles that it bid for $6,000/acre. Jarrell couldn't say for sure exactly how many acres are in each segment.

The state wants operators to sign leases with a three-year term, but Triad Hunter, for example, has already said it wants a five-year term. Jarrell said state officials are planning to meet with both Triad and Gastar next week and added that a meeting has not yet been set with Statoil.

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