SALEM - A three-year oil and gas lease agreement between the city and Chesapeake Exploration may be signed today for $3,500 an acre for non-surface rights, a 20 percent royalty on gross proceeds and a three-year renewal option worth another $3,500.
"That would be $7,000 over six years," city Councilman Dave Nestic said, if the company chooses to renew the deal. "I think it's a good move."
Mayor John Berlin told city council about the final proposal Thursday night, with city council voting to give him the authority to enter an agreement to sell the mineral rights. The agreement will cover about 381 acres of land owned by the city, located outside of the city limits.
Signing a shale lease deal was one of the priorities set by council in January. It had been discussed at length last year, but never got completed. Council officially gave Berlin the power to negotiate for a lease deal in March, which he and city Law Director Brooke Zellers have been working on since then.
Previous offers had been for $3,500 an acre for non-surface rights and 17 percent royalties on net proceeds, then 18.5 percent royalties on net proceeds. Berlin explained that the difference in price between what some other entities had recently secured had to do with surface and non-surface rights. He said the $5,800 an acre deals were for entities allowing surface drilling on some of their acreage.
He said the up front money may be down, but will be offset by the royalties and said he felt they should move forward with the contract.
Zellers, who put a lot of time into the agreement, said he was satisfied with the language, especially the fact that they were able to negotiate away the market enhancement the company wanted on the royalties. Basically, instead of the company being able to deduct its costs off the top, such as for transportation, and then giving the city it's proceeds from the net income, they'll be giving the city 20 percent off the top first, from the gross proceeds. He also talked about the renewal option and how the city has a chance to get paid an additional $3,500 if the company chooses to extend the term of the contract.
"I'm pleased with it. I think the city is well-protected," he said.
Zellers also explained that the proposal includes a warranty of title clause, meaning the city can only lease to Chesapeake what the city has to lease. If Chesapeake makes a mistake on a parcel, the city can't be held liable.
In other business, former longtime city councilwoman Mary Lou Popa approached council again about her request for them to fund a citywide cleanup and hire a second housing inspector. Popa had brought both issues to council last month and wanted to know if they had been discussed by the administration or council members since then.
She suggested both issues come before a Committee of the Whole meeting, which would involve all seven city council members. She also questioned whether any of the council members had driven around their wards or the city to look at the condition of properties and whether the mayor had increased the hours for the current housing inspector.
Councilman Clyde Brown said he's out every day looking at his ward. Councilman K. Bret Apple said he drives through town and he sees. During pleasure of council at the end of the meeting, Councilwoman Cyndi Baronzzi Dickey said she does watch her ward and has resolved one issue already and is working on another one with the city Service/Safety Director.
She said she's open to any comments or requests from city residents, but she also cautioned residents that just because a property doesn't meet their standard of living, that doesn't mean it's in violation of any rules.
Council took no action on Popa's requests, with Council President Mickey Cope Weaver telling Popa that the idea of a citywide cleanup has been looked at and continues to be looked at. As for the question for the mayor about the hours for the housing inspector, she said it might be better for Popa to meet directly with the mayor.
Before ending her presentation, Popa again reminded the council members that the constituents put them in their seats, then added they can just as easily take them out of those seats.
Brown announced that he's holding a meeting of the Streets, Alleys and Sidewalks Committee at 6 p.m. July 10. When asked what the topic would be, all he said was that it's a street issue.
Mary Ann Greier can be reached at mgreier@salemnews.net
