Efforts that began last year to lease state-owned land on the Ohio River and elsewhere in West Virginia have practically stalled with the sharp decline in oil and natural gas prices, compounding the downturn’s impact on state revenues as severance tax collections have fallen this year, too.
The state began opening up land to competitive bids last year at the request of operators that nominated property for development and approval by Gov. Earl Ray Tomblin (see Shale Daily, Oct. 3, 2014). The West Virginia Department of Commerce, through land controlled by the state’s Division of Natural Resources (DNR), started poring through bids as those approvals came in.
While several operators submitted bids for mineral rights along and underneath the river and for tracts in wildlife management areas, not all of them followed through after they were awarded the property, backing off when it came time to enter lease negotiations with the state.
“The budgets for these guys are tanking, and I think money is very tight,” said Josh Jarrell, general counsel for the commerce department.
While West Virginia has executed a series of leases in the wildlife management areas and others with Statoil ASA and Noble Energy Inc. along the river, many are still pending, Jarrell said, with little or no communication from some operators about moving forward. Last year, Gastar Exploration Inc. bid $3,500/acre for two miles on the Ohio River, while Noble bid $3,500/acre for an eight-mile segment and another $5,125/acre for the rights to a creek that bisects some of its existing assets in the region. All of those parcels are in Marshall, Wetzel and Tyler counties.
Gastar has not finalized its lease. The state notified the company last January that it had been awarded the property it bid for. Shortly after, the state entered negotiations with the company regarding language in the proposed lease that was unresolved. Department officials said there’s been no contact with the company for several months. The state is likely to soon rescind its offer to lease the land after waiting nearly a year to complete the deal.
In October, though, Gastar announced that it was selling its 19,600 net acres in the Marcellus and Utica shales to focus on its assets in the Midcontinent (see Shale Daily, Oct. 15). Noble Energy, meanwhile, has backed off its bid for the eight mile stretch of river and instead leased Fish Creek, which runs into it, and another 134-acre tract that runs along the river. Jarrell said he was told that those properties fit better with Noble’s current operations, but added that the company has not started producing them and the state has received no royalties from the land.
He said the department also has leases pending with Ohio pure-play Eclipse Resources Corp., but noted that those negotiations have slowed as well. Eclipse would drill from Ohio, but it needs the mineral rights in West Virginia to extend its laterals. Eclipse nominated the property — located in Wetzel County — earlier this year, but it has had setbacks with the land, some of which is overseen by the U.S. Army Corps of Engineers, Jarrell said.
In March, the state finalized a four-year lease with Statoil for $8,125/acre along the river and another for $9,000/acre (see Shale Daily, March 25). But the overall stall in negotiations for the land comes at a time when severance tax collections have declined with the slowdown in drilling and lower prices (see Shale Daily, Dec. 14). As a result, Tomblin earlier this year announced across the board spending cuts for state agencies (see Shale Daily, Oct. 6). Revenue from oil and gas development on state-owned land goes to DNR to cover environmental management, wildlife conservation and recreational opportunities.
The state has recently executed a series of subsurface leases for land on various wildlife management areas. All of those agreements, Jarrell said, have been signed with Appalachian pure-play Antero Resources Corp. They include a small tract of property on the Jug Wildlife Management Area in Tyler County; a 13-acre tract in the Underwood Wildlife Management Area in Marshall County; a 50-acre tract in the Burches Run Wildlife Management Area in Marshall County, and a 500-acre tract in the Conaway Run Wildlife Management Area in Tyler County.
The state has two other properties pending for oil and gas leases in the Middle Island Creek area of Doddridge and Tyler Counties. Antero nominated about 77 acres of land there and bids for those properties closed on Thursday.
“It’s an interesting time to take bids when gas prices are depressed,” Jarrell said. “There’s a lot less going on than even what we had six months ago. Sometimes, I have operators nominate properties and they won’t bid on them. These guys are overextended. Their debt-to-equity is taking a bath, and we’re monitoring it all pretty closely. We will include those concerns in any bid evaluations, should we get any,” he added of the bids that closed Thursday.
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