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Bonus payments used for single-use costs

Burton Speakman | Youngstown Vindicator

Though a number of government entities were able to lease land and earn significant money early on during the Marcellus and Utica shale boom, statistics show it hasn’t led to significant changes to their operating budgets.

The mineral rights were leased a couple of years ago when oil and gas prospecting was going full-bore in Columbiana County.

A few of these government entities used the money to purchase new equipment; some paid off debts; and one chose not to do anything with the funds.

East Liverpool elected to provide most of the funds back to whatever city division was responsible for the land where the mineral rights were sold, said Mayor James Swoger. The city received more than $1.3 million for its oil-and-gas rights.

“You can’t hire someone when you only get the funds once,” Swoger said. “The city has had to reduce employees’ pay, and I would have liked to have done something about that, but we just couldn’t.”

It was understood this one-time payment would not be followed by royalties at least in the next five years, he said.

The city of Salem received more than $1.85 million from leasing rights on city property, said Mayor John Berlin. Salem used $650,000 to pay down debt from the city’s efforts to revitalize the downtown and improve roads for economic development.

“Some of those projects were done during the recession on 2008-09 with the anticipation that more community development would take place,” he said.

The community development has been slow to materialize, but the city recently added a hotel project on one of the roads that has been improved, Berlin said.

Salem put $630,000 into its capital fund and the remaining funds were placed into a fund divided evenly among the council members to use for projects at their discretion, he said.

The goal was to spend the money for one-time uses, Berlin said.

In Madison Township in Columbiana County, the $40,000 bonus was used as matching funds for a grant to build a new garage, said Trustee Gary Williams. The garage remains in the planning stages.

“Once that money is gone, it’s gone,” he said.

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Unity Township used the $18,000 it received to buy a new truck and skidder, taking the opportunity to replace old equipment, said Trus tee Brian Anderson.

“It would have been nice to replace some of the $30,000 the township lost in state funding,” he added.

Columbiana County hasn’t spent any of the $3.2 million the county received for leasing 550 acres for drilling to Chesapeake Energy, said Mike Halleck, county commissioner.

“We’re saving it as a rainy-day fund,” he said. “We understood that this money might be on the only money that we got.”

The commissioners have looked at the shale industry in a “cautiously optimistic” way,” Halleck said.

“We went into this well aware that the bonus money might be the only money that we get,” he said.

Bonus money, however, doesn’t seem likely at least not anytime soon. Production reports from the Ohio Department of Natural Resources showed that there were individual wells in Belmont, Guernsey, Monroe and Noble counties that produced more natural gas than all 22 active wells in Columbiana County.

Analysts are dismissive about the potential for sizable continued development of the northern part of the Utica Shale including Columbiana County.

Several of the Columbiana County officials, however, remain optimistic the leases eventually will yield royalties.

Berlin said he believes Salem will see royalties after pipelines and other infrastructure is completed in the county.

The issue is there are three phases of oil-and-gas development, Halleck said.

The first is the initial euphoria, then comes the pipeline and infrastructure, then finally there is the last step of production, he said.

During the final stage, a much-smaller percentage of those who signed agreements will receive royalty checks, Halleck said.

 

(c)2014 Vindicator (Youngstown, Ohio)

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Distributed by MCT Information Services

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