Hanoverton Becomes Crossroads of Utica Shale
HANOVERTON Ohio -- Truck after truck streams down U.S. Route 30 in Columbiana County, all of them loaded with aggregate, pipe, earthmovers, sand, water, and equipment used in oil and gas exploration.
Between drilling activity in Columbiana and neighboring Carroll County to the south, the thoroughfare has become an artery that carries the lifeblood of the Utica shale, and Don Hofmeister is smack in the middle of it.
From the vantage point of his business, Hanoverton Motorcars Inc. on Route 30 in Hanoverton, Hofmeister says he’s seen and heard it all. Managers, rig workers, neighbors and farmers – all stop in these days either to buy a vehicle or chat about the biggest industry to hit this region in decades.
“I’m 48 years old and I’ve never seen anything like this,” Hofmeister says of the oil and gas industry. Wells are popping up to the north and south of his business, while less than a mile away UEO Buckeye – a partnership between M3 Midstream, Access Midstream and EV Energy Partners – is putting the final touches on the first phase of its huge cryogenic plant near the crossroads of Kensington.
Hofmeister says when he’s not selling vehicles – his dealership stocks used cars and trucks, mostly trucks – he’s busy monitoring production and drilling activity in his area via the gas well viewer on the website of the Ohio Department of Natural Resources.
“Southwest of here, the wells are all hooked up and ready to go,” Hofmeister relates. However, pipeline infrastructure just to the north hasn’t materialized yet because many landowners remain in negotiations regarding rights-of-way and easements.
The first phase of the plant is finished (READ STORY), Hofmeister notes, and gas from the connected wells to the south is flowing into the giant processor. “Once they get that up and running, a whole other shift will come in to start Phase Two,” he says.
Workers at the Kensington site -- part of a $900 million gas gathering and processing network under development that extends south to Harrison County -- stop in each week, Hofmeister relates. Many in the oil and gas business are optimistic about developing the resources of the Utica, he continues, and believe the play is still in its infancy.
“One guy told me, ‘Your little town is about to boom,’” Hofmeister relates, hoping that the industry will have a similar impact here as it’s had in places such as Carrollton, about 15 miles down the road in Carroll County.
Oil and gas activity has already translated into more business at Hanoverton Motorcars, Hofmeister adds. “Over the last year, there’ve been a lot of cash deals,” he reports. “I’ve sold a lot to pipeline guys from Texas, Louisiana and Arkansas.”
Overall business at the dealership is up about 20% since exploration started two years ago, he says. “We’ve always done a good repeat business because we’ve been here so long. And when you throw oil and gas on top, well, that’s the gravy.”
Still, some residents of Hanoverton are at odds over pipeline easements, and many are holding out for the best deal before allowing lines to cross their property, observes Jack Reeder. His family has owned a farm just off state Route 9 since the mid-19th century.
“The business has kind of pitted neighbor against neighbor,” Reeder says. In his case, his family’s 400 acres was bound to an old lease signed in 1984, and subsequently purchased by Chesapeake Energy Corp.
“We didn’t see any upfront money,” Reeder recalls. But the old lease called for limited use so Reeder had to renegotiate the terms of the agreement to be included into the unit of the Hayes well. Although he says he initially wanted to negotiate for bonus cash, he felt pressure from his neighbors to sign and complete the unit in exchange for future royalties on the well.
“We were promised big royalties, but they’ve capped that well because there’s no way to sell it,” Reeder adds. “They’re still negotiating with the landowners to get the pipelines in.”
For the most part, Reeder says, residents have been kept in the dark about Chesapeake’s plans. Last year, for example, seismic testing disrupted some operations at his farm. The company performing the tests left unmarked wires and other equipment in the cornfields that became tangled in Reeder’s machinery. “It did $3,000 worth of damage,” he says and the farm had to temporarily rent new machines to finish the work. “However, they took care of the repair bill and the rental,” he says.
Pipeline and rig crews, most from Texas and Louisiana, have all been very friendly, Reeder adds. “They’re bringing in experienced people and they really want to get along with everybody,” he says.
Much of the oil and gas development is concentrated in the central portion of the county, not far from where the Kensington plant is rising, says Mike Halleck, a Columbiana County commissioner. “I’d say four of the 18 townships in the county are prolific in the oil and gas play and it’s become the driving force in the local economy.”
As of July 20, 80 permits for horizontal wells have been issued in Columbiana County since 2011, and of that number, 33 are drilled, according to records from the Ohio Department of Natural Resources. Of those wells, eight are in production, ODNR reports.
A majority of the permits -- 21 -- were issued for Hanover Township where the Kensington plant is operating. Thus far, the township has one well in production and four others drilled, ODNR records show.
Center Township, directly east of Hanover, has five wells permitted, all of them drilled, but none in production as of July 20. And, directly to the east of Center Township, Elk Run Township boasts seven permits, of which six are drilled but none is producing.
Franklin Township, directly south of Hanover, is home to 13 permits, two of which are drilled and producing.
“They’re estimating about 1,000 wells over the next five years,” Halleck says. “But the real problem we have right now is the lack of infrastructure. Obviously, you can’t sell something until you get it to market.”
While it’s impossible to pin down precisely how many jobs have been created throughout the county because of the oil and gas bonanza, Halleck believes the industry has made a dent in the county’s unemployment rate.
“When I took office 2 years ago, unemployment was around 15%,” the commissioner says. The unemployment rate countywide for June 2013 stood at 8.2%. “Unemployment has almost been cut in half,” he says.
The improved economy is also evidenced by sales tax collections, adds Columbiana County Commissioner Jim Hoppel. “Five years ago, our conservative figure was to collect about $12 million a year,” he says. This year, the county is on track to see between $14 million and $15 million in sales tax revenue as sales of new vehicles are up sharply.
Dan Summers, sales and leasing consultant at Columbiana Buick Cadillac Chevrolet in Columbiana, says demand for trucks is up significantly since the oil and gas business moved into town.
“It’s strong,” Summers says. “We also own a used-truck dealership on state Route 7 and they’re selling a ton of used trucks to the oil and gas industry.”
And Hoppel qualifies the rise in sales tax revenue doesn’t account for large purchases such as farm equipment because farmers have federal exemptions from paying local sales tax.
“Someone who went through this experience in North Dakota told me there would be three stages to this,” Halleck adds.
The first is the impact from the upfront lease payments, he says. Some landowners who leased their property cashed in as high as $6,000 per acre, and those one-time payments have trickled through the economy.
“The second is the pool of money generated from right-of-way agreements for pipelines, and the third are the long-term royalties on the product,” in this case, the oil and natural gas produced from wells in Columbiana County, Halleck remarks.
The commissioner intimates that many are expecting this to be a play that extends 25 to 50 years: “Royalties are likely to increase, and that dovetails into ongoing economic prosperity.”
That’s precisely what small businesses such as Hanoverton Motorcars are hoping for. “Over the last couple of years, it’s been a nice upswing,” Hofmeister says. “I’m excited. As long as we hold the standard here in Hanoverton, we could be a beautiful little town.”
EDITOR'S NOTE: This story appears on the front page of our August 2013 print edition.
Copyright 2013 The Business Journal, Youngstown, Ohio.
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