Harrison County Ohio Landowners Group

Greetings to my fellow Harrison County Landowners!

My name is Dan Ellis, and I own 132 acres in Rumley Township. I'm
not a landman or a broker, and I don't represent a gas company. I'm a
fellow landowner concerned with the rush of interest in our mineral
rights by gas and oil companies and brokers over the last 2 years, and
looking to the future of what it means for our county.

If you own mineral rights in Harrison County, are a surface owner
interested the consequences of drilling activity, or are a concerned
citizen of the county wanting to make sure that gas and oil
development has a good and lasting impact upon our county, I
encourage you to join the Harrison County Ohio Landowners Group
(HCOLG). HCOLG has two goals:

1. Protection: We want to protect our County's rich natural
resources like our soil and water, and also our infrastructure, like our
roads and bridges. We want to protect the rights of our landowners
and mineral owners, so they can know that their land is protected,
and that they are fully benefitting from the rights they have as
mineral owners.

2. Boosting the Economy: We help landowners find the best
leasing situation that suits their needs, combining high monetary
compensation with outstanding landowner-friendly lease terms.
Every dollar of revenue we can achieve for our landowners is money
circulating in our county. Once leased, we help royalty owners make
sure they are getting their fair share of revenues.

The way we are helping to accomplish these goals is by sharing
information with landowners about gas and oil drilling activities in
the County. Leasing of mineral rights is a decision that will span a
generation, and informed landowners are better able to make the
right decisions. There is plenty misinformation surrounding gas
leasing, and we strive to present current and factual information.

If this is something that interests you, then please read on about the
brief history of how we got to where we are, read through an example
of a good lease, and learn how to become a member of HCOLG.

There is a long history of gas and oil exploration in Ohio, but over the
past few years there's been a huge surge in oil and gas exploration
and development all across Appalachia in two deep shale formations
called the Marcellus and the Utica. These formations stretch across
much of Pennsylvania, into New York State and parts of West
Virginia and Eastern Ohio. Producers began leasing land in
Pennsylvania many years ago, and for the past couple of years have
been active in eastern Ohio, mainly involving the Utica Shale. During
the early days of the "play" the resource had not been proven by
drilling and production, and so a typical lease offer was about $100
per acre for a five year term along with a royalty of 12.5% (1/8) of any
production. As the gas (and oil) began to flow out of these new wells,
the formations proved to be very productive, and a frenzied period of
leasing began. The gas companies knew more about the value of the
resource under the land than did the landowners. This often resulted
in the landowner signing a lease at a price and terms well below the
fair market value of his resource. The lure of a big up-front payment
was too attractive to refuse even though it might have represented
only a small fraction of the true value being sold. Lease offers began
to climb dramatically for informed landowners, reaching more than
$5000 per acre and 20% royalty for those who waited and were
fortunate enough to be in the right place at the right time.

It became apparent to some landowners that the playing field was
tilted strongly in favor of the producers and the landmen that
represented them. To offset this advantage various individuals began
to form landowner groups to pool landowners into large blocks often
containing tens of thousands of acres. This process resulted in some
of the most favorable financial and land-protective lease terms.

In our region of Harrison County the Utica Shale is more productive
than the Marcellus. In fact we are in the heart of a transition area
called a "wet zone", where we have gas, oil, and other gas liquids all
together in the shale. In the current market, gas prices are low but
oil prices the price for liquids are high, so our shale is very desirable.
Several drilling permits for the Utica shale have now been issued,
and drilling activity it set to increase dramatically through 2012.

We've had drilling in our county for decades, but these were mostly
shallower, vertical-only wells. With new horizontal drilling
technologies being used to drill into these deep shale layers, the gas
in these formations has become cost-effective to recover. This new
drilling is different in several ways from the drilling that Ohio
landowners are used to. For one thing, it is generally going much
deeper, from 5000 to 9000 feet. Another is the horizontal portion that
extends 2500 to 9000 feet out into the shale to extract much more gas
from one well. Yet another is the improved use of hydraulic
fracturing, or fracing, which has been technologically advanced to
dramatically increase gas flow in these shale formations. Finally, the
horizontal laterals allow for a much greater coverage area, so that a
single well pad can handle the drainage of more than 1000 acres of
land, thus greatly reducing the surface disturbance caused by the
recovery of the gas. This means that most landowners who lease their
minerals won't even have a well pad on their property.

As we learned in this county during the booming days of coal
extraction, there is an environmental impact that comes with
retrieving the minerals. We are going to be living with our soil and
water long after our gas is gone, so that means protection of these
natural resources is important, and should be provided for in the
lease contract. Environmental concerns must be addressed with great
care. It is important that we protect our land while at the same time
seek a fair compensation for our gas and oil, however most
landowners are only vaguely aware of the complexities of oil and gas
leases. Landowners are well advised to have an experienced O&G
attorney review their lease.

Harrison and surrounding counties have now gone through a lease
acquisition rush. Landmen from several organizations are still
researching area landowners using courthouse records and calling
individuals whose property is not already held by lease. Based on
recent landowner reports it appears that current lease offers in parts
of Harrison County have reached the $5000 per acre and 20% royalty
range.

One of the best ways to negotiate with the gas companies has been
through landowner groups. Gas companies feel more comfortable
giving higher dollar offers to larger acreages that they know they can
make into a drilling unit. It is more efficient for them to deal with
larger acreages. This also makes them more willing to approve a
lease contract with more protections for landowners. The lease terms,
involving environmental and financial aspects, can be researched and
compiled in a single effort within a landowners group. This combined
effort leads to better terms and less cost than if done individually.
Negotiations have improved bargaining power due to the large pooled
acreages and the expertise of those leading the group.

At this time it appears that the frenzy of leasing is over and there are
no more large landowner groups forming in Harrison County.
However if you are still unleased and looking for a good opportunity,
we may be able to help you. Depending on your location and the size
of your property, you may be able to get added into one of the
previous landowner groups, or find a specialized small group that is
forming in a specific location. Alternatively, if you know who all your
neighbors have leased with, you may be able to approach that Lessee
and negotiate with them, since your property will be desirable to
them to complete a block of properties called a drilling unit.

Also, if you have already have signed a lease and are now a royalty
owner, we can advise you and support you as drilling commemences
and you begin to receive payments. As a group, we can be a strong
voice for the rights of landowners and mineral owners in this county.
For the sake of protecting your land and helping Harrison County,
please consider joining the Harrison County Ohio Landowners
Group.

- Dan Ellis

dellis@hcolg.org