The Washington County Commission on Tuesday unanimously approved leasing the mineral rights to 270 acres of property at the Washington County Home for deep-well drilling.
As part of a landowners association known as the Caywood Group, the county will lease the oil and natural gas rights in underground formations beneath the county home and surrounding properties to Michigan-based SGM Holdings Inc. at a rate of $2,550 an acre, with the royalty amount based on whether oil or natural gas is produced. The lease includes prohibitions against drilling and any other surface work on the 70 acres around the building itself.
"It was important from the beginning that the area around the county home, the building itself, be protected," Commissioner Tim Irvine said.
Irvine said he understood SGM planned to assign the lease to locally based Reed Energy.
Commissioners have not determined how the nearly $690,000 lease bonus payment will be used.
"We're researching several options of what to do with it," Commission President David White said.
White said he thinks of the payment as a "windfall" and believes it should be used in a special capacity, rather than as part of the regular budget.
"One of the options I wanted to research was to put it into a designated fund for capital improvements," he said.
County home administrator Ted Williams said he is "all for" the leasing and hopes it can become a source of revenue for the home.
The commissioners also voted 3-0 to approve an agreement with local attorney Jim Huggins to negotiate and prepare the lease documents. Huggins, who represents the other members of the Caywood Group, has already been working and negotiating on behalf of the county
"Today's resolution was to firm up how he's going to get paid for that," said county Prosecutor Jim Schneider.
Huggins will be paid $15 an acre, directly from SGM out of the county's bonus payment. If the property produces, he would also receive a portion of the royalties.
Germantown resident Cora Marshall, a former county commissioner, attended the meeting and questioned aspects of the lease, including how much insurance the company would carry, whether the county would be paid in a timely manner and whether a transmission line would be placed on the property.
"I'm here today because I am a concerned citizen about this acreage," she said. "This property is totally different from a rural property that doesn't have a facility that serves our residents."
The commissioners said the only line that would be on the property is one to connect it to material produced with other properties. A transmission line to move oil and natural gas over large distances is not part of the agreement, they said.
"There's no definite plan that there will be a line going across," White said.
Commissioners did not immediately have answers for Marshall about the other topics, but Irvine said after the meeting that the lease requires the company to have a minimum of $5 million of multiple types of insurance and that he understands the county will be paid by the summer.
Irvine added that the lease does not provide for any injection wells to be placed on county home property.
Marshall concluded by urging commissioners to thoroughly research the lease and do their due diligence. Commissioners said they'd discussed the matter at previous public meetings, and Schneider noted he had reviewed the documents. Although oil and gas is not his specialty, he said he consulted with other attorneys.
"I'm confident that the lease agreements I've looked at ... are not going to get the county into any difficulty," he said.