Gas firm beat out 3 others for lease
Posted on Friday, August 1, 2008
URL: http://www.nwanews.com/adg/News/232966/
At least three other firms submitted bids to the state Game and Fish Commission to lease its wildlife land for natural gas exploration, according to a preliminary review of commission documents late Thursday.
Chesapeake Energy Corp. of Oklahoma City won the right to drill on the nearly 4, 000 acres in the Gulf Mountain Wildlife Management Area in Van Buren County for $ 28. 3 million over five years plus 20 percent royalty payments.
The lease was approved Monday by the commission, which also OK’d a $ 1. 2 million lease with Chesapeake to drill in 7, 500 acres in the Petit Jean River Wildlife Management Area.
This commission received the Petit Jean money in late June, according to the documents obtained in a Freedom of Information Act request by the Arkansas Democrat-Gazette.
A March 14 summary of lease applications shows that XTO Energy of Fort Worth, Ozark Exploration of Dover and Storm Cat Energy of Denver also bid to drill on the Gulf Mountain land.
Environmentalists have said they feared drilling will harm wildlife habitats, but the commission has said the agreement with Chesapeake was crafted with the proper protections.
Gov. Mike Beebe has said that the commission should share some of the lease revenue with state agencies responsible for regulating natural gas drilling and making sure any damage to the environment is fixed.
According to the documents, Chesapeake initially proposed three lease options to the commission with varying per-acre charges for the 3, 954 acres depending on the royalty percentage. Those initial options were: An 18. 75 percent royalty with a lease payment of $ 28. 3 million. A 20 percent royalty with a lease payment of $ 24. 4 million. A 22 percent royalty with a lease payment of $ 18. 8 milllion.
Those terms were for a lease of four years. A five-year term was settled on.
Commission General Counsel Jim Goodhart said to the best of his knowledge Chesapeake strongly preferred the five-year lease instead of four years. In exchange, the commission received the highest proposed lease amount and the second-highest proposed royalty percentage.
XTO’s bid was a $ 15 million lease over five years with some acres at 20 percent royalty and others at 23 percent.
Ozark proposed no lease payment but would have given a 25 percent royalty.
Storm Cat offered $ 1 million lease at 20 percent royalty but only for 580 acres.
Also according to the documents, Chesapeake representative Bhavin Naik on June 20 sent the commission by overnight mail a check for $ 1, 248, 772 to cover the lease for the Petit Jean land.
A letter from Goodhart, dated May 28, two months before commission approval, to Chesapeake representive Bob Portman says “please find fully-enclosed original oil and gas leases... Chesapeake should now release the lease bonus payment totaling $ 28, 298, 131. 68 via wire transfer in the AGFC’s bank account upon your separate receipt today via facsimile of the signature page for the Gulf Mountain WMA lease.”
The letter went on to say that the commission would now deposit the $ 1. 2 million check for the Petit Jean lease.
Goodhart said Thursday that the May 28 date was an error. He said his letter should have said “July 28,” which was Monday when the commission approved the leases. He said Chesapeake sent the Petit Jean money early because the company thought the commission would act on it before the Gulf Mountain lease. But he said the commission preferred to act on them in the same meeting. He said there was some discussion in the agency about whether to go ahead and deposit the check but he emphasized to others in the agency that they had to wait for the commission to approve the lease.
Beebe said he expects the Game and Fish Commission’s agreements with the Department of Environmental Quality and the Oil and Gas Commission to share the money will be concluded before January, which is the start of the 2009 regular legislative session.
Some environmental advocates have complained there wasn’t enough public notice by Game and Fish Commission about the plan to lease the land.
Beebe said he couldn’t say for sure whether there was enough public notice. Information for this article was contributed by Michael R. Wickline of the Arkansas Democrat-Gazette.