Rags to Riches

Oil Money Keeps Ohio Farm Operation Alive

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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The development of the Utica Shale in northeast Ohio has helped Ballard Jenkins' farm stay in the family. Pictured from left to right are family friend and co-owner of Jenkins Farms LLC, Roger Coen, Jenkins neighbor Roger Kiko, Larry Jenkins, Ballard Jenkins and "B" Jenkins. (DTN photo by Todd Neeley)

Editor's note: With the expansion of oil shale production across the country in recent years, DTN has been following the challenges farmers and landowners face when deciding whether to lease their land to energy companies for oil production. Previous stories can be found on our In-Depth web site at http://www.dtn.com/…

This latest story shows how expanding shale production has benefitted farmers financially and allowed them to continue farming. On April 11, State geologists in Ohio announced a probable link of earthquake activity in the Marcellus Shale basin to hydraulic fracturing. The following story was written before to that announcement.


CARROLLTON, Ohio (DTN) -- Somewhere, the late Ballard Sr. and Bessie Jenkins are shaking their heads in disbelief.

The poor-as-dirt couple moved from rural Paintsville, Ky., to Carrollton, Ohio, in 1946 looking for a place to settle.

A generation later their son Ballard Jr., with help from the area's oil shale boom, has taken the Jenkins family farm from rags to riches.

Chances are, Ballard said, his dad wouldn't believe the story; money wasn't such a big deal to Ballard Sr. anyway.

"My dad used to say they never landed a man on the moon," Ballard said. "Mom and Dad lived through the Great Depression and the Wall Street crash when guys were jumping out of windows. They would say, we could jump off the roof line but it wouldn't help. I'll bet you my dad never spent a night in a hotel."

Ballard Jr. and his wife took a chance and bought a farm in 1969. He received a loan to buy a small tract of land, a few dairy cattle and equipment. Pretty much every penny he made -- which never has been much -- was reinvested back in the farm.

After running a marginal breakeven dairy operation since 1972 -- made more difficult by the recent recession -- Ballard was ready to sell the farm in 2010.

"There was just no way with 60 cows if we want to feed the family," Ballard said.

STRIKING IT RICH

Ballard's son, Larry, though a successful salesman, said he always had sights on returning to the family farm someday. It appeared he wouldn't get that chance when the family decided in 2010 it was time to sell the cows and pay off creditors.

Little did they know, the family farm was about to get a whole new lease on life.

That year, an energy company drilled a vertical test well south of Carrollton near the Pennsylvania border, to explore the potential of what now is known as the Utica Shale, an organic-rich shale that lies under significant portions of Ohio, Pennsylvania, West Virginia, New York, Quebec, Canada, and other parts of eastern North America.

Tests found big potential for oil production.

Ballard said he remembers saying "as soon as I sell the farm, they're going to drill an oil well right where that barn is" across Highway 9 from his house. "Today, they're putting up a well behind that barn," Larry said.

Word spread quickly about the Utica Shale and soon an oil and gas representative dropped by the Jenkins farm to offer $100 an acre for the rights to develop oil on their land.

Larry quickly spearheaded an effort to learn more about the industry and to unite area landowners' involvement in signing oil leases with energy companies. His inquiries led to a landowner in Pennsylvania who said he leased his property at $1,400 an acre. "We didn't believe it," Larry said.

"I bumped into my neighbors and said if anyone approaches you about leasing, let's talk about it," Larry said.

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A group of 30 to 40 landowners met for the first time in 2010 in Carrollton. The group invited oil companies and learned that 50 to 100 area landowners already had signed leases with a large, anonymous, energy company.

"By the time we left our meeting, the offer was up to $500 an acre," he said. "Nobody knew it was Chesapeake Energy at the time. It was all secretive."

Roger Kiko, a Jenkins neighbor who also ran a dairy farm, joined the family's efforts to negotiate leases. He learned that property owners' leases atop the Marcellus Shale in Pennsylvania were rising into the thousands of dollars per acre.

"We talked about (it) and said 'if only we had that here,'" Kiko said.

GROUP FORMED

Larry Jenkins contacted a geologist at Penn State University for more information about their land.

"The guy said, 'You can consider yourself the luckiest person in the world'," Larry said. The scientist told him the Jenkins' farm sits on an oil bull's-eye.

Some 300 landowners, led by the Jenkins, formed a group they call "Standing United Really Excels," or SURE. The group, whose members own about 12,000 acres along State Highway 9, agreed they would not sign leases without group approval. This proved to be a large bargaining chip.

About nine months into the process, Larry said he knew lease prices were on the rise.

A local tree farmer who was part of another similar group in nearby counties asked SURE to join. Larry said that group had an offer of $2,250 an acre and 18% royalties.

"We said no," Larry said. "I really thought at this time we were getting cockier. This is for real. We just didn't feel it was time. We thought we could get $4,000 to $5,000. If we kept the group to Carroll County, we thought we'd be better off."

Larry sent letters to some 15 companies and five responded back. SURE narrowed the offers to three companies -- Chesapeake Energy, Rex Energy and Sierra Energy.

CHESAPEAKE DOMINANCE

Chesapeake already had a dominant position in the area, Larry said, and there was fear among the group that oil prices would "go stagnant" with just one company in development.

The group selected lesser-known Rex Energy. The first official offer was $3,500 an acre and 18% gross royalties in perpetuity, or 20% and $2,500 per acre.

The offers morphed into the signed lease of $3,500 an acre and 20%, on some 12,000 acres.

In all, the group of farmers, teachers and other landowners signed a $40 million agreement with Rex, without the help of attorneys.

That deal has sparked the local economy.

Businesses on the brink of closure have experienced an infusion of cash as Rex and other companies moved into the area to develop the Utica Shale.

"I think at $3,500 (an acre) and 20%, we were bringing another company into the area and we're going to up the bar," Larry said. "I honestly believed that without signing with another company no one else could come in."

BIG PAYOUTS

Near the close of 2011, the Jenkins' farm was beginning to see big payouts. Ballard received a $700,000 check with the potential for much bigger payouts in years to come.

Larry and his brother, "B," now farm about 1,300 acres of corn and soybeans in a region not traditionally rich in high crop yields -- allowing the brothers and their families to make a living while staying on the farm.

The family started expanding its cropland and buying new equipment.

Kiko, the Jenkins' neighbor, said the newfound financial security allowed him to pass his dairy to his son.

"I financed the cows to my son," he said. "We've been going on vacations more, and he now has a 50-cow herd. We're not caught up in the bigger-is-better mentality."

LIFE CHANGES

Before the end of 2011, Larry gave away some $40,000 to a local fire barn, the 4-H program, the Salvation Army and the Carroll County Foundation.

Then in 2012, Rex Energy approached him wanting to spend company money to help the community. Rex provided a $20,000 budget that Larry used to buy animals at auction and donate the meat to a county home.

While the oil boom has provided hope at a time when jobs and opportunities were fleeing the area, Kiko said there is concern newfound wealth will change the heart of the community for generations -- change its work ethic.

Though the oil is beginning to flow, he said geologists are unsure how long the Utica Shale will continue to produce.

"If this continues for 50 years, what does that do to our grandkids?" Kiko said. "We're all kind of watching that. We don't want to lose the work ethic."

Larry said working with the SURE group has opened avenues for expanding and improving agriculture in the region.

He works with other SURE producers to jointly buy seed and fertilizer, to market crops and share equipment -- essentially improving bottom lines.

Kiko said the oil boom has allowed farms to improve their standing.

"It made it possible to retire without selling the farm to live on," he said. "In this area, it got a lot of farms free and clear."

Todd Neeley can be reached at todd.neeley@dtn.com

Follow Todd on Twitter @toddneeleyDTN

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Todd Neeley

Todd Neeley
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