NEW PHILADELPHIA: Landowners in eastern Ohio have cashed in on drilling on Ohio’s Utica shale.
But no one has benefitted financially as much as the Muskingum Watershed Conservancy District, Ohio’s No. 1 beneficiary of drilling.
The public agency that stretches from Akron south to the Ohio River is flush with cash after getting $171 million in bonuses from drillers for signing leases at four of its reservoirs: Clendening in Harrison County, Leesville in Carroll County, Seneca in Guernsey and Noble counties and Piedmont in Belmont and Harrison counties.
Those leases cover 23,665 acres with an additional 414 acres of leases pending.
It is likely that a fifth lease will be negotiated in the future to extend drilling to Tappan Lake in Harrison County. Additional leases beyond that appear unlikely, officials said.
The district, based in New Philadelphia, owns 54,000 acres of land in eastern Ohio.
The district has also gotten an additional $3 million in its first royalty payments for natural gas and liquids produced by wells on its properties.
Those payments, expected to grow sharply in the future, are from five wells at Clendening, although most of the royalties were derived from two wells there.
The district has also sold water to drillers for hydraulic fracturing or fracking and made more money.
Since May 2012, the district has sold 233 million gallons of water to drillers under strict rules from three lakes: Clendening, Piedmont and Seneca under strict rules.
The drillers paid from $4.25 to $9 per 1,000 gallons of water to frack their wells. The water sales earned the district another nearly $1.4 million, through late July.
Drillers need about 5 million gallons of water to frack a horizontal well, and wells may be fracked multiple times. That’s same amount of water that 48 4-person households would use in one year.
The district’s lakes typically contain 68 billion gallons of water at summer pool. That’s enough water to quench the thirst of Akron’s 300,000 water customers for more than 1,900 years.
The Utica shale income has quickly transformed the Muskingum Watershed Conservancy District from a bare-bones public agency that largely survived on recreational fees to one that can dream about the future, said executive director John M. Hoopingarner.
"It’s a game-changer, no doubt," he said.
The influx of drilling dollars has made it possible for the district "to dream for the future," he said. "That’s something we could never have done in the past because we never had enough money."
One of the district’s new dreams is to develop trails, a long-needed recreational feature, and perhaps a series of trails to tie together the lake system, he said.
The district has earmarked the Utica shale income for these areas:
•To eliminate an $80 million maintenance backlog on district facilities.
•To completely renovate facilities at five recreational parks and two marinas.
•To reduce a $12 a year assessment paid by 500,000 landowners.
•To establish a revolving loan fund to help local communities in its 18 counties to fund water and sewer projects.
•To pay off $4.9 million in debt — with another $1 million set aside for debts that cannot be paid off immediately.
The district tackled $4.5 million of deferred maintenance in 2013 and has budgeted $8.4 million in 2014 for additional work.
The recreational improvements are expected to cost $167 million, an estimate contained in a draft strategic plan for the district and a new recreational master plan. The recreational plan is available at www.mwcd.org/planning.
The improvements are planned over the next 10 years at Atwood, Charles Mill, Pleasant Hill, Seneca and Tappan parks plus the Piedmont and Seneca marinas.
As a first step, the Piedmont Marina has gotten a $3 million face lift in a joint project with the Ohio Department of Natural Resources. That included construction of a new seawall and marina.
The district has hired 19 new staffers since Jan. 1, mostly in engineering to oversee a major overhaul of the district’s recreational facilities. That boosts the district’s staff to about 110 full-time positions.
Many of the MWCD’s campgrounds were designed in the 1950s and need to be upgraded and improved with new design, roads and infrastructure, Hoopingarner said.
The $12 assessment was first levied in 2009 on landowners in Summit, Stark, Wayne and 15 other counties in the Tuscarawas-Muskingum watershed.
The district collects about $11 million a year from the assessment that funds the safety of 14 dams and reservoirs.
That assessment will reduced to $6 a year in 2015.
The district will provide $5.5 million from drilling income to fund planned projects, Hoopingarner said.
The district has commitments of about $125 million to the U.S. Army Corps of Engineers to pay the local share of dam improvements. That obligation will be paid from the remaining assessments.
The district’s five-member governing board was reluctant to eliminate the assessment until the members were assured that the Utica shale boom was real and would continue, he said.
Continuing the assessment will be reviewed annually and it could be reduced again or eliminated, he said.
The district is working with the Ohio Revolving Loan Fund to provide loan money to communities in the 18 counties.
The district will provide perhaps as much as $25 million to the state agency that will then award the low-interest loans to local communities in the district.
The district would provide the money and the state agency would administer the program that could be in place later this year.
The MWCD’s introduction to Utica shale leasing came in 2010 when Oklahoma-based Chesapeake Energy Corp. approached the district.
The company, now the No. 1 player in Ohio, wanted to lease all of the district’s available 30,000 acres. It offered $500 an acre.
The district was intrigued by the verbal offer, Hoopingarner said. "That was a lot of money," he said.
Staffer Mark Swigart advised against signing with Chesapeake at that time, and that view prevailed, he said.
Chesapeake later increased its offers to $1,000 an acre and then to $1,500 an acre, he said.
At that stage, the district decided it was "time to get serious" about leasing and formed a team to begin researching shale leases and shale issues.
Team members included staff members plus outsiders including Cleveland attorneys David Nash and Susan Fisher-Edwards, retired petroleum engineer Steve Gross, Marietta College oil professor Bob Chase, the Fahlgren Mortine public relations firm, retired ODNR oil-gas deputy chief Tom Tugend and then-Ohio state geologist Larry Wickstrom.
It discussed the pros and cons of leasing with the U.S. Army Corps of Engineers and the Ohio Department of Natural Resources.
The Corps was concerned with how close horizontal drilling might come to the dams it controls at the district lakes. The Corps owns about 100 acres including mineral rights under the dams in order to protect them. That would prevent drilling near the dams.
That group met in late 2010 and early 2011. It recommended not leasing all the district’s acreage at one time. It felt that the district would have more control if it leased lake parcels separately.
That, Hoopingarner said, is because each of the MWCD’s lakes has its own local issues, its own culture, its own personality.
The MWCD’s team also devised a set of very protective guidelines for leasing and drilling to provide the best environmental protections, he said.
He said the key question that the team asked was: What if the district did not get involved with drilling?
Drilling could develop on neighboring land that could impact the district and its operations and the district would not be able to control it the way it has through strict leases, he said.
Not leasing all the district-owned land at one time was the hardest thing to deal with, Hoopingarner said.
The public was not overly involved in the leasing debate with few offering comments to lease or not to lease, he said.
The district first leased at Clendening in 2011, Leesville in 2012, Seneca in 2013 and Piedmont in 2014.
The price per acre paid to the MWCD in signing bonuses also increased from lease to lease, Hoopingarner said.
In 2014, Colorado-based Antero Resources paid a signing bonus of $15,000 an acre to lease 6,600 acres. That price may be the most lucrative lease in the Utica shale and the neighboring Marcellus shale in Pennsylvania.
Drilling on district-owned land is not new, Hoopingarner said.
The district has leases with drillers who have drilled 275 wells in the shallow Clinton sandstone. Those wells typically provide about $200,000 to $300,000 a year in income for the district that was formed in 1933 to limit floods, conserve land and boost recreation.
The district, Hoopingarner said, is "satisfied with the progress and the way shale drilling has developed on our property."
It has not encountered any problems with drillers but has encountered a few problems with pipeline operators, he said.
"We’re really, really pleased with where we are today," he said. "It’s working out well, so far."
Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.
Rig Count Interactive Map by Baker Hughes, an energy services company.
Shale Sheet Fracking, a Youngstown Vindicator blog.
The Ohio Environmental Council, a statewide eco-group based in Columbus.
Earthjustice, a national eco-group.
People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.
Concerned Citizens of Medina County, a grass-roots group.
No Frack Ohio, a Columbus-based grass-roots group.
Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.
Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.
Allegheny Front, environmental public radio for Western Pennsylvania.