Oil, Gas Companies Bid for Drilling Rights Under the Ohio River

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Facing a possible budget shortfall for the 2015 budget, state commerce officials in West Virginia have accepted bids from oil and gas companies to drill about a mile under a 14-mile-long portion of the Ohio River that lies within the Marcellus shale.

“We received four bids on three different segments of the river. They were all portions of the river that were nominated by companies that were interested in developing those areas. They are already operating in those areas,” a spokesperson for the West Virginia Department of Commerce told Rigzone.

The four separate bids received by the Department of Commerce before the close of the bidding process were:

  • Noble Energy Inc. bid a 20-percent royalty payment and $211.11 per-acre cash bonus
  • Statoil ASA bid a 20-percent royalty payment and $8,125 per-acre cash bonus
  • Triad Hunter LLC bid a 18-percent royalty payment and a $7,100 per-acre cash bonus
  • Gastar Exploration Inc. bid a 20-percent royalty payment and $3,500 per-acre cash bonus

For a cash-strapped state, the bounty offered by energy companies is difficult to resist. It is well-known that money from oil and gas companies contributes to the economic development of municipalities. The Triad Hunter bid would provide the state with nearly $18 million up front for a five-year lease, as well as an 18-percent royalty on the resources extracted from the drilling process, according to the Associated Press.

“The leasing of minerals here is not new. We’ve been doing it for a hundred years. It certainly helps, and the state budget has been stressed recently, just like those in many other states. To the extent that we can reduce some of the pressure on the state budget with this resource, we’ll do it responsibly, and in a way that benefits the citizens of West Virginia,” the spokesperson said.

Allowing drilling under the river would bring in a significant stream of revenue, but some citizen groups have expressed concern about the prospect of drilling for oil and gas under their source of drinking water. Some 5 million West Virginia residents depend on the Ohio River as the source of their drinking water. Earlier in the year, 300,000 people were left without drinking water for several days following a chemical spill, the Associated Press noted.

The state of Ohio, which is across the river from West Virginia, has a monitoring system to detect any contaminants in the river before it reaches public water supplies. However, eight groups from West Virginia and Ohio have urged West Virginia Gov. Earl Ray Tomblin to reconsider the idea of drilling under the river, according to the WTRF news station.

The citizen groups also expressed concern about the possibility of seismic activity. A fault line, the Ohio River Fault, runs under the river, WTRF reported. In their letter to the governor, the groups noted that the Ohio Department of Natural Resources “determined that there was a link between the hydraulic fracturing operations at a well in Poland, Ohio, and a 3.0 magnitude earthquake” earlier in the year, WTRF reported.

“Maintaining the safety of the resources is of paramount concern. We haven’t executed any agreements yet, but the draft agreements that we’ve been looking at all contemplate an obligation on the part of the operator to indemnify the state for any claim or environmental damage that could happen. We think the risks of it are low or we wouldn’t entertain the idea at all. We have confidence that the State Department of Natural Resources is very competent and knowledgeable about how to manage those risks,” the spokesperson said.

Drilling under rivers is not unprecedented. In 2010, and then in March 2014, Chesapeake Appalachia paid the Pennsylvania $10.5 million for five-year leases, in addition to royalties, to drill under a portion of the Susquehanna River.

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