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The city of Heber Springs accepted a gas lease bid October 27 that will add over $1.5 million to the city bank account. And that doesn’t include royalties down the road.
Only two companies, Schonwald Land, Inc. and Chesapeake Energy, placed bids to lease the gas rights of city-owned property, which is between 400 and 500 acres. “The winning bid came from Chesapeake at $4,117 per acre,” said Jackie McPherson, Heber Springs mayor. “The second bid was $2,200 an acre.”
There are stipulations that accompany the lease agreement. Included is a pugh clause, gross royalty clause, a limitation clause, a limited warranty clause, and added at the meeting Wednesday, a clause to protect surface rights and that the city will be given a copy of the title information.
The pugh clause means Chesapeake cannot tie up all sections within the area of a well site.
The gross royalty clause allows the city to be paid without deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the gas. Most contracts only have a net royalty clause.
The limitation clause means Chesapeake can only remove gas and gas condensate produced from the Fayetteville Shale formation.
The surface rights clause means Chesapeake has to negotiate another lease to do any work at a potential site.
The limited warranty clause, according to the contract, “This assignment is made without warranty of title, either express or implied, except as to conveyance or encumbrances by, through, or under assignor. Assignor agrees that assignee shall have the right at any time to redeem for assignor by payment any mortgages, taxes, or other liens on the property, in the event of default of payment by assignor, and be subrogated to the rights of the holder thereof”.
Of course with all that “extra” money, there are a lot of ideas on how to spend it. “We’re not spending anything until we have money in hand. When we do start to spend it, we are looking at using it for infrastructure needs.
“We were going to work out of our budget for infrastructure but this lease should allow us to do the planned extension of Front Street to Broadway, which is about $400,000. We also need to pay off debt of about $800,000 for a bond used to purchase furnishings for the community center.
“We are also looking at extending Lohawk to Broadway by the post office. If that is done, a traffic light will also go in.”
Should the residents have any concern about drilling or disturbance of Spring Park and the springs or any other disruption due to drilling? “I’ve worried about that too. Everyone I’ve talked to in the industry said they shouldn’t even drill in the city, but drill in the county and get gas from city. I don’t believe we will have many wells in the city.
“We have an ordinance in place to regulate drilling in the city. There are a lot of restrictions, noise levels, guarantees on roads, etc.”
The city didn’t just jump at an offer, city leaders did a lot of studying. “We have been looking at this for the last two or three years. We have been proactive by putting an ordinance in place before drilling started. We will not allow anything to happen to our community that would jeopardize it. We’ve been studying and researching this and are not going into this blindly.”
McPherson adds the gas industry has helped keep the area going. “We are very proud they are here, it has meant a lot to us in the economic crisis. The industry has shielded us from being in the crisis a lot of the country has seen.”
The $4,117 sounds like a lot, but it isn’t the highest bid a city has received. “Clinton’s bid was higher. I am very proud of the bid we received. With the prices of gas prices today, this is the highest I’ve seen.”
The city of Heber Springs accepted a gas lease bid October 27 that will add over $1.5 million to the city bank account. And that doesn’t include royalties down the road.
Only two companies, Schonwald Land, Inc. and Chesapeake Energy, placed bids to lease the gas rights of city-owned property, which is between 400 and 500 acres. “The winning bid came from Chesapeake at $4,117 per acre,” said Jackie McPherson, Heber Springs mayor. “The second bid was $2,200 an acre.”
There are stipulations that accompany the lease agreement. Included is a pugh clause, gross royalty clause, a limitation clause, a limited warranty clause, and added at the meeting Wednesday, a clause to protect surface rights and that the city will be given a copy of the title information.
The pugh clause means Chesapeake cannot tie up all sections within the area of a well site.
The gross royalty clause allows the city to be paid without deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the gas. Most contracts only have a net royalty clause.
The limitation clause means Chesapeake can only remove gas and gas condensate produced from the Fayetteville Shale formation.
The surface rights clause means Chesapeake has to negotiate another lease to do any work at a potential site.
The limited warranty clause, according to the contract, “This assignment is made without warranty of title, either express or implied, except as to conveyance or encumbrances by, through, or under assignor. Assignor agrees that assignee shall have the right at any time to redeem for assignor by payment any mortgages, taxes, or other liens on the property, in the event of default of payment by assignor, and be subrogated to the rights of the holder thereof”.
Of course with all that “extra” money, there are a lot of ideas on how to spend it. “We’re not spending anything until we have money in hand. When we do start to spend it, we are looking at using it for infrastructure needs.
“We were going to work out of our budget for infrastructure but this lease should allow us to do the planned extension of Front Street to Broadway, which is about $400,000. We also need to pay off debt of about $800,000 for a bond used to purchase furnishings for the community center.
“We are also looking at extending Lohawk to Broadway by the post office. If that is done, a traffic light will also go in.”
Should the residents have any concern about drilling or disturbance of Spring Park and the springs or any other disruption due to drilling? “I’ve worried about that too. Everyone I’ve talked to in the industry said they shouldn’t even drill in the city, but drill in the county and get gas from city. I don’t believe we will have many wells in the city.
“We have an ordinance in place to regulate drilling in the city. There are a lot of restrictions, noise levels, guarantees on roads, etc.”
The city didn’t just jump at an offer, city leaders did a lot of studying. “We have been looking at this for the last two or three years. We have been proactive by putting an ordinance in place before drilling started. We will not allow anything to happen to our community that would jeopardize it. We’ve been studying and researching this and are not going into this blindly.”
McPherson adds the gas industry has helped keep the area going. “We are very proud they are here, it has meant a lot to us in the economic crisis. The industry has shielded us from being in the crisis a lot of the country has seen.”
The $4,117 sounds like a lot, but it isn’t the highest bid a city has received. “Clinton’s bid was higher. I am very proud of the bid we received. With the prices of gas prices today, this is the highest I’ve seen.”
