Allure of shale prompts Mill Creek MetroParks Board to vet options

By Karl Henkel | February 19, 2012 at 12:09a.m.

CANFIELD

Mill Creek MetroParks has financed some of its needs in the past 15 years from $3.7 million in funding that is not from golf or Riverside Gardens or Lanterman’s Mill.

That steady revenue stream for Mill Creek comes not from the park but from below the park where, for years, drillers have tapped natural gas in the Clinton Sandstone.

Forty-three active wells — using slant-drilling technology — ring the park to extract underground resources.

Now, a familiar company — Oklahoma City-based Chesapeake Energy Corp. — has taken an interest in park property for exploration of the gas- and oil-rich Utica and Marcellus shales.

Chesapeake could use the same methodology — drilling underneath the park from nearby properties — but on a much larger scale.

Mill Creek board members have not made any decisions regarding Marcellus or Utica drilling under park lands.

Jay Macejko, Youngstown city prosecutor and park board member, told The Vindicator he believes the park is “in the driver’s seat” in controlling horizontal drilling activities.

THE POTENTIAL

The 4,400 acres, as a potential gas source, could be worth millions of dollars in upfront bonus payments, which in Ohio can range from $2,500 to $5,000 an acre, plus royalties as high as 20 percent.

Park officials say there will be no new drilling on or under the park but are taking precautions to ensure legal, economic and environmental prosperity for one of the Mahoning Valley’s most treasured assets.

“We want to remain transparent. It’s such an emotional thing, and I really wish I had an answer,” said Clarke Johnson, executive director of Mill Creek MetroParks. “The whole staff here is all about preservation.”

But no new drilling does not rule out new horizontal drilling using the existing well sites. That potential environmental impact is in the forefront of the minds of many parkgoers, who have come out en masse to park board meetings to gather information and voice their opinions.

“There should be no fracking on the perimeter of park, or anywhere near a residential area,” said Lynn Anderson, a member of Guardians of Mill Creek Park.

THE WELLS

Drilling for gas is not a new phenomenon for Mill Creek. There are about 154 gas wells, producing and plugged — about 20 of which are on park land, according to the Ohio Department of Natural Resources and park staff.

Johnson said most of the wells on park property were pre-existing when Mill Creek acquired the land.

“The classic example is the [MetroParks] farm,” Johnson said. “There are wells on the farm land that belong to the county.”

In total, 43 wells in and around park land produced gas and royalties last year that benefited Mill Creek, 26 of those operated by Canfield-based Everflow Eastern Partners.

Everflow in 1993 signed the largest oil and gas lease with the park, totaling 2,530 acres.

The lease allowed Everflow to explore under the park via slant drilling, much like other leases between drillers and the park.

“The park was always the last one to sign on any leases to drill under the park,” said M. Virginia Dailey, a 12-year former park board member. “The park never allowed drilling on park property. [The drilling] was always part of a much bigger lot of property.”

THE LEASES

Everflow, however, in late 2011, planned to assign deep-drilling rights to a subsidiary of Chesapeake, the largest holder of Utica shale mineral rights in the Valley. The company already has drilled the first Utica well in Mahoning County’s Milton Township.

But that plan has a hitch: Because Mill Creek had the 1993 lease agreement vetted by its attorneys, only Everflow can maintain the mineral rights for the 2,530 acres, presuming it continuously extracted natural resources.

If Everflow did not extract resources by 1996, three years after the lease agreement, mineral rights from portions of the leased land reverted to the park.

Everflow cannot transfer, or sublease, mineral rights to anyone but partnerships and working interest holders, said Atty. Alan Wenger of the Youngstown-based law firm Harrington, Hoppe & Mitchell.

Wenger said the ball is in Mill Creek’s court; the park also could decide to allow Everflow the ability to assign deep rights to another company.

THE MONEY

Mill Creek accumulated about $1.4 million of its $3.7 million in gas royalties from 2005 to 2008, the four highest-producing years.

Production has slowed in recent years, and in 2011 fell 40 percent, from $275,175 to $161,490.

Mill Creek puts its royalties into a replacement reserve fund, which acts as a safety net for emergencies and to help pay for capital investments.

“We didn’t spend it for anything other than what couldn’t be paid for in regular budgets,” Dailey said. “We just simply knew that there were going to be big projects going on. That’s what that money was used for.”

The board spent about $500,000 from the fund in 2011 — it spent as much as $1.9 million in a single year in 2007 — and the fund currently has a balance of about $2.5 million, park treasurer Kevin Smith said.