Chesapeake Energy Corp. and the City of Salem, OH, have agreed to sign a three-year nondevelopmental lease, with an option for an additional three years, for 381 combined acres of land owned by the city. Chesapeake agreed to pay a signing bonus of $3,500/acre, plus 20% royalties on gross revenue on any production.

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

Ken Kenst, the city’s service and safety director, told NGI’s Shale Daily the lease is for 22 noncontiguous parcels, which are in rural areas but within the city limits. The largest parcel, about 112 acres, is home to the city’s reservoir. Another parcel is Covered Bridge Park, which totals about 80 acres.

“We have some land that we purchased many years ago, about 890 acres,” Kenst said. “But Chesapeake wasn’t interested in [urbanized] land; they were just interested in what was out in the country. They have a lot permits waiting to be applied for in our area.”

According to Kenst, if the lease is extended for another three years, an additional $3,500 per acre is be paid, for a total of $7,000 per acre.

Salem straddles the Columbiana-Mahoning County border, squarely in the Ohio portion of the Utica Shale. Records from the Ohio Department of Natural Resources (ODNR) 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).

“There’s a lot of permitting going on right now,” Kenst said. “Chesapeake doesn’t have all of the infrastructure, the pipelines, that they need. I know of one well that they’re pleased with, but they’ve kind of stopped it because there is no way to transport the gas and oil yet. But they said probably by the end of this summer they will be ready to go.” The transaction is to be signed by the middle of July.

Last month the Columbiana County, OH, board of commissioners signed a three-year oil and gas lease with DPS Penn for 548 acres at $5,850/acre plus 20% royalties on gross revenue (see Shale Daily, June 25).