The West Virginia Department of Commerce is evaluating bids from several exploration and production (E&P) companies interested in valuable mineral rights below the Ohio River in the northern part of the state.
Josh Jarrell, deputy secretary and general counsel for the state commerce department, told NGI's Shale Daily that a bid evaluation team is expected to make a decision on which companies could be awarded leases in the next two weeks. That committee, made up of individuals working for state agencies impacted by oil and gas development, such as the state Department of Revenue and the West Virginia Department of Environmental Protection, will make a recommendation to the director of the commerce department's Division of Natural Resources (DNR) based on which bids are most competitive.
The move to open up a 22-mile tract of the river is the first in more than two decades and comes at a time of rapid development in West Virginia's Marcellus Shale. The last time the state leased a parcel of land along the river was in 1991 to a conventional operator. That acreage is still held by production, Jarrell said.
"West Virginia has been leasing minerals for 100 years, so it's not new to the state," he said. "The state code provides for it and it's been DNR's hook for a long time. This specific play on the river, though, raised the industry's interest. They were interested in developing it probably a year and a half ago.
"It's a different dynamic now with the nature of these interests in developing the resources with what's going on up there with this unconventional drilling."
The state reviewed its options for about 18 months, Jarrell said, and ultimately decided to have operators bid based on the terms of a lease drafted by the commerce department. Three segments of the river, one 10 miles long, another eight miles long and a third four miles long, are up for grabs in Marshall, Wetzel and Tyler counties -- some of the basin's most prolific areas. Under its terms, the state wants a minimum 20% royalty on production and operators were allowed to submit bids for the per-acre bonuses.
Bidding closed on Sept. 26, and bids were received from Magnum Hunter Resources Corp., Noble Energy Inc., Statoil ASA and Gastar Exploration Inc., Jarrell said. He said when the state opened bidding, it was not aiming to generate a specific amount of money. How many parcels and how many operators will win the bids is still unclear, he said, adding that those details are dependent on the E&P’s plans for the available land.
"One company only bid on one mile of a four mile segment because that's what makes sense for them and their drilling units," Jarrell said. "Another company wanted every part of it."
He added, however, that just one operator receiving mineral rights to all the available acreage would be unlikely.
The 981-mile Ohio River runs from Pennsylvania to Illinois, while flowing through or bordering six states. According to the Ohio River Foundation, it provides drinking water for more than three million people. Plans to drill unconventional wells beneath it have raised serious concerns among environmental groups.
Several of them, including the West Virginia chapter of the Sierra Club, Concerned Citizens Ohio and the FreshWater Accountability Project, wrote a letter to West Virginia Gov. Earl Ray Tomblin asking him to stop the bidding process. In the letter, the groups said they have significant concerns that state regulations will not adequately safeguard the regional water supply.
"The exploitation of limited natural gas resources under the river could degrade our water quality, reduce the recreational and aesthetic value of the river and cause health problems for millions of people," they wrote. "Therefore, we believe you have a duty to current and future generations to withdraw the proposed land for leasing."
Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association, said drilling for hydrocarbons under the river is nothing new.
"I can only tell you there has been some drilling that's been done under the Ohio River, certainly directional drilling under there, as there has been under the Great Lakes and other bodies of water," he said. "It's not something that would cause a problem because it's not something that we don't know how to do or haven't done before. The concern is it's under a body of water.
"The Marcellus, which is being targeted, is somewhere between 6,000 and 8,000 feet below the river bottom. Any chance of communication with that river bottom -- and I'm not saying it's impossible -- is highly unlikely."
When asked, DeMarco also said that any unconventional well below the river would likely perform at, or above, the production of those drilled on dry land. He said the wells will likely gush natural gas given that the tracts are in Wetzel, Tyler and Marshall counties, in an area where he said the pressure regime is particularly high.
Although fees collected from any potential river drilling have been floated as a way to help fill a $100 million state budget gap next year, Jarrell said that West Virginia law requires all revenue from oil and gas development to go toward DNR. There are no stipulations on how that money should be used by the agency, he said, but it would likely go toward environmental management, wildlife conservation and recreational opportunities.