Royalties Coming Down the Pipe

TRIADELPHIA – Many Ohio and Marshall County mineral owners who have natural gas leases with Chesapeake Energy may soon start receiving royalty checks because the driller is turning on its pipelines.

“We are in the process of final testing and commissioning of compression and pipeline facilities for a portion of our system in Marshall and Ohio counties. We hope to begin initial gas flow by early next week at some locations,” said Stacey Brodak, senior director of corporate development for Chesapeake.

Chesapeake has been assembling large blocks of acreage with lease agreements over the past few years in preparation for drilling for and moving natural gas out of Marshall and Ohio counties. Some of these leases are expected to pay mineral owners as much as 20 percent of production royalties, while others will pay as little as 12.5 percent.

After the leasing, Chesapeake drilled numerous wells throughout Ohio County. Subcontractors working on behalf of the company then laid miles of gathering and transmission pipelines. Much of this work is still ongoing, as the company has more pipelines – and compressor stations – to finish building in the county to be able to access the gas from all of its wells.

However, Oklahoma City-based Chesapeake has advanced its local operations to the point that it can turn on some wells to send gas through its pipeline network.

“It is good news to hear that they are going to get the gas flowing,” said said Tim Greene, owner of Land and Mineral Management of Appalachia and a former West Virginia Department of Environmental Protection oil and gas inspector. “Now, this takes your area into a whole other level of development. Now, mineral owners should start getting their checks.”

Although every lease agreement can have its own unique clauses and features, Brodak said mineral owners should start receiving monthly royalty checks within three to six months once the wells and pipelines are in operation.

“For the mineral owners, the initial check will probably be the largest. There is a natural decline after that because the well production naturally goes down,” Greene said in reference to the gas flows from wells that are usually very high as soon as a well goes online.

“You need to make sure you are getting paid right. Watch out anytime you get a really large amount one month, but a really small amount the next month. For most companies, if they overpay you, they will expect you to send the money back.”

As evidenced by the piles of pipeline stacked on the south side of Interstate 70 near The Highlands and along National Road in the Valley Grove area, Chesapeake and its subcontractors are not finished installing lines in Ohio County. Greene said for those who still have not signed a right-of-way agreement to allow a pipeline to cross their surface property, there are several matters to consider. He said these could be as narrow as 4 inches in diameter to as wide as 36 inches. Another important matter to consider in a pipeline agreement is whether the company will have to bury the pipeline under the ground or run it along the surface.

Greene also said pipelines – which will ultimately stretch for thousands of miles – will carry the gas from wells to a compressor station before taking it to the marketplace. Transmission lines are ones that lead to, for example, an interstate pipeline to carry gas across the nation. Gathering lines lead the gas from the wellheads to a processing plant or compressor station, from which it will then go to the transmission lines.

Chesapeake is building the Battle Run compressor station at a site on the north side of Interstate 70 near the Truck Stops of America at Dallas Pike, roughly 2 miles east of The Highlands. Chesapeake, in a legal advertisement earlier this year, noted it has the “potential to discharge” various air pollutants from the Battle Run compressor station. The company also has a compressor station established in the Sand Hill area that is also slated to release air pollutants.

“The gas will be dehydrated and compressed at our new Sand Hill compression facility for delivery by pipeline to the MarkWest (Energy) Majorsville plant, which is a few miles southeast of the Sand Hill facility,” Brodak said.