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Marcellus Driller Withdraws Lease Offer in West Virginia

Appalachian-based producer AB Resources on Tuesday withdrew an offer to pay the city of Moundsville, WV, at least $206,500 for the right to drill for natural gas on city property.

The privately held producer had proposed to pay Moundsville $3,500/acre for a five-year lease, with an initial payment of $206,500 and 18.75% royalty profit. Close to 60 acres of recreational property in the city had been earmarked for the transaction.

However, an official with AB Resources sent an e-mail to the Moundsville city manager prior to a regularly scheduled city council meeting indicating that a "drill site has not been secured...We are currently pursing a drill location and if secured, we would want to continue talks at that time."

The city council was expected to vote on a proposed drilling contract. Instead, a resolution to authorize the drilling was tabled.

Mayor David Wood said Wednesday he was caught off guard by the e-mail, but said Moundsville, which is in Marshall County, plans to invite other producers to make drilling proposals. The project "is not dead."

The drilling proposal wasn't the city's first. Chesapeake Energy Corp. last summer offered to pay the city $2,800/acre for a five-year lease and also said it would pay 18.75% in royalty profits. However, the producer has not made any further contact with city officials, said Wood.

AB Resources was contacted but it had no comment. An AB Resources well about six miles south of Moundsville exploded last June after workers penetrated a methane pocket in an abandoned coal mine (see Daily GPI, June 11; June 9). West Virginia regulators cited the producer for failing to set casing at the permitted depth for the site, and for inaccurately reporting coal seam depth.

The producer, which is headquartered in Brecksville, OH, maintains leaseholds of more than 90,000 acres, according to its website. The "prime" Marcellus Shale acreage in Pennsylvania and West Virginia "retains the potential for more than 1,000 horizontal well locations." At the end of 2007 the producer operated and owned more than 700 wells throughout Ohio, Pennsylvania and West Virginia, with 550 producing.

CEO Gordon O. Yonel formerly was CEO of North Coast Energy Inc., a subsidiary of EXCO Resources. Jim Wilson, the vice president of exploration, previously was Appalachian Basin geoscience manager for Chesapeake.

Last year AB Resources teamed with Caiman Eastern Midstream LLC to build and operate midstream pipelines and facilities in the Marcellus. Under the agreement AB Resources would have rights to up to 60,000 MMBtu/d of firm capacity with the capability to move larger volumes on the 30-mile-plus gathering system. A permanent 120 MMcf/d cryogenic processing plant is scheduled to be operational by the end of this year.

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