Columbiana Port Authority Signs with Chesapeake
EAST LIVERPOOL, Ohio -- Chesapeake Energy Corp. extended its reach in Columbiana County by signing a five-year lease for the drilling rights for 156 acres owned by the Columbiana County Port Authority.
Chesapeake will pay the port authority $4,000 per acre with a royalty of 17.5% of net revenues it generates from either oil or gas produced and marketed. The Oklahoma City-based Chesapeake will have the option to extend the lease before or on the expiration date for an additional five years.
The board of the port authority approved the lease at its monthly board meeting Monday evening.
The lease is the first piece of a 309-acre claim of property along the former Youngstown & Southern railroad where it enters Columbiana County just south of North Lima and extends to at the Pennsylvania line just east of Negley, said the CEO of the port authority, Tracy Drake, said.
Chesapeake entered into a lease in September 2011 for the mineral rights to the property at $2,500 per acre, “But I think because of the overwhelming amount of property that Chesapeake’s trying to absorb, they just couldn’t get it done by the end of the year,” Drake told his board.
With the renegotiated lease bringing in more revenue than the original, Drake said the newer agreement would allow the port authority to repay some of its debt.
“It’s really good for us,” Drake said. “These are valuations and monies that are coming to us based upon property rights that we didn’t realize had value until the last few years. And then it’s the entrepreneurs like Chesapeake who are willing to come in and pay folks who have property rights to utilize them, and that’s great.”
The remaining land will be covered in a subsequent lease to be negotiated, Drake said. While this is a nonsurface lease, meaning it's likely no drilling rigs will be sited on the land, he said it has value to Chesapeake because it likely will allow the company to acquire other parcels where drilling can take place.
The agreement comes on the heels of Chesapeake’s announcement it will build a $900 million processing plant in Kensington with Houston-based M3 Midstream, which does business as Momentum. With the Kensington plant, “We will see a dynamic change on the Ohio River,” Drake said, as the byproducts from the plant will serve as a primary feedstock for the plastics industry. Such projects are evidence of the surging industry in the region, “And we’re right in the midst of it,” he said.
“We’re going to see all other types of projects,” he continued, “from midstream suppliers and those who are suppliers to the drillers, to driller projects to these types of big plants that will basically process what’s coming out of the ground.”
The Kensington plant will be at the north end of a pipeline that will lead to an even bigger plant. “Out of which the materials that are being captured, particularly liquids, will be transshipped by rail,” Drake said.
To that end, the Wellsville Intermodal Park, with its rail access and 60-ton river crane barge system, will play a crucial role with both inbound supplies and outbound materials, he said. And it’s something the state has recognized, with representatives from JobsOhio directing companies to the park and the port authority, the CEO noted.
“I have people calling everyday saying, ‘We heard about your facility. How can we utilize it?’ ” Drake said. “It’s just a matter of what’s the best mix. It’s not a matter of what’s going to happen. It’s a matter of how we put it all together.”
The board approved an amended lease to the Rosebud Mining Co. of Kittanning, Pa., for 22 acres at $500,000 per year. While the lease allows Rosebud to use the land for itself, the company can also “put it into play with entities who want to get into the terminal,” Drake said.
The port authority controls another 27 acres upriver and is in discussions with interested third parties, he reported.
“We’re getting across-the-board interest in existing facilities, small pieces of acreage for suppliers [and] big pieces of acreage with buildings for entities who are in the business,” Drake expanded. “It’s an open market. It’s a seller’s market. And we’re doing the best we can to facilitate all the inquiries we’re getting.”
With the rapid influx of companies looking to set up shop in the tri-county region, the building trades are reaching out to other states for extra help, said Don Crane, president of the Western Reserve Building & Construction Trades Council. Crane also sits on the port authority board.
Construction workers are coming in from as far as Cumberland, Md., and “Definitely West Virginia has been really fulfilling our needs due to a slower time for that particular building trades,” Crane said. With V&M Star’s pipe mill expansion, General Motors Co.’ Lordstown plant getting ready for more production, RG Steel coming online, “and all of our normal work, we are needing construction workers,” Crane said, particularly welders, equipment operators and laborers.
“We haven’t really ever seen a time like this, but we can handle it,” Crane told his colleagues. “Whether it’s dispatching five people or 100 to a job site, it’s just a matter of time.”
Who will get the work for the Kensington plant remains has not been determined, but Crane said the building trades unions are training their members in oil and gas “to make sure that we’re ready.” Welders remain in huge demand among trade schools, and while they might need specific training for the oil and gas industry -- such as pipe and downhill welding -- the Local 396 of the Plumbers & Pipefitters union “are doing a great job in Youngstown with that continued training once they get these applicants,” he said. Crane applauded the Youngstown/Warren Regional Chamber’s efforts to attract applicants with its Youngstown Ohio Utica & Natural Gas (YOUNG) Conference & Expo, and that a similar conference will soon be held in Columbiana County.
“It’s been a bit taxing because we’ve had to sort of guess on what the needs of the oil and gas industry have been,” Crane explained. “But now that we’re sort of getting involved with it, we’re stepping up to the plate.”
Crane expects between 500 and 600 workers to be work on the construction of the Kensington plant, with as many as 100 at the job site at any given time.
In other business, Drake said that Planck Trading LLC of Boca Raton, Fla., still intends to move forward with its natural gas to liquid fuel plant. Planck assumed the controlling interest of the Ohio River Clean Fuels project from Baard Energy last year and changed its scope from a coal liquefaction plant to using natural gas as its primary feedstock.
“They’re actually in the natural gas acquisition mode to supply their plant,” Drake said. “So, they might actually be competitors with Chesapeake.”
The board awarded a construction contract to Parella-Pannunzio Inc. of Youngstown for paving work at the entrance of the Wellsville Intermodal Park. The $188,866 contract includes paving work from the entrance to Clark Avenue off state Route 7 down to the access road to the park. Of the $188,866 the Ohio Department of Transportation will pick up $156,700.
The board also approved a lease renewal of 420 square feet of office space for the Ohio Environmental Protection Agency in the port authority building, 1250 St. George St.
The board executed a perpetual easement to Boardman Industrial Land LLC of Boardman Township. The 50-foot-wide, 2,049-square-foot easement for vehicular traffic across the rail line will allow the trucking company to develop land, Drake said.
Copyright 2012 The Business Journal, Youngstown, Ohio.