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Company seeks oil lease on city property

Land sold for duplex

Staff writer

Hillsboro City Council members said Tuesday they thought the terms of a proposed oil and gas lease were too low.

Land leasing agent Chaz Doffing of J. Fred Hambright Inc. of Wichita is seeking a three-year oil and gas lease on the property where the city’s sewer lagoons are, as well as property to the north of that leased to Cooperative Grain and Supply for demonstration plots.

The company proposed an initial payment of $15 per acre, plus one-eighth royalties on any oil actually produced at the site. The company plans to drill up to 1 mile deep for horizontal drilling, and no surface work would be needed on the city’s property, Doffing said. The horizontal drilling is necessary because of the proximity of some of the company’s planned operations to Marion Reservoir.

Council member Bob Watson said he didn’t favor approving the lease as-written, because it gave too low of value to the city and left open the possibility of actually drilling on the city’s property. He also said he was concerned about interfering with Cooperative Grain and Supply’s operations on its leased land.

Doffing said the company could include an addendum requiring written permission from the city for surface work of any kind.

Watson requested tabling the lease until the council heard directly from City Attorney Dan Baldwin on the matter, and the rest of the council agreed.

Baldwin joined the meeting later and shared his concerns. He said he wanted to make sure the city had some say in the pooling process the company is using to combine oil production among several landowners. He also questioned how the city could be sure it was getting its fair share of royalties from the pool.

Doffing said the company will produce monthly reports of oil production.

Council member Marlene Fast, who missed the earlier discussion, said that $15 per acre was the lowest price for an oil lease she had heard about. She said she even knows of places in Kansas where lease prices are up to $1,500 an acre.

“If I can hit oil with a shovel, I’ll pay you $1,500,” Doffing said.

He said the project will go forward on other properties with or without the city’s lease, and that he didn’t expect any other oil companies would want to lease land in the middle of a horizontal drilling project.

A memorandum from City Administrator Larry Paine said the lease also allows for hydraulic fracturing, also known as “fracking.” The process has gained notoriety because of accusations it has led to groundwater contamination in Pennsylvania.

Doffing said those risks are much lower here because of the depth of operations. Fracking in Pennsylvania that caused problems was shallow and close to the water table. Here it would be nearly a mile deep, he said.

The council kept the lease tabled and asked Doffing and Baldwin to address concerns about the lease before the next scheduled council meeting, 4 p.m. Oct. 18.

Land sold for duplex

Economic Development Director Clint Seibel told the council that two people had offered to buy the same lots owned by the city on the 300 block of North Lincoln Street.

Mike Stultz, whose home neighbors the properties, wanted to purchase two lots and part of a third to build a building for his HVAC business. That would require a conditional use permit, because the area is zoned for residential use. Stultz was offering $6,000 for the land, Seibel said.

Fast said she was concerned about the possibility of Stultz selling the property in the future to someone who would use it for a different type of business.

On the other hand, E.R. Grothe offered $8,000 for the same land, saying he wanted to build a duplex on it.

Fast said there are already duplexes in town that haven’t sold, but Seibel said Grothe doesn’t plan to sell it. He plans to live in half and rent the other half out.

“We are short of quality rentals in this town,” Seibel said.

Considering the higher price and use more in-line with zoning in the area, Watson said he would prefer to sell to Grothe.

“It’s kind of a no-brainer,” Watson said.

Fast said other adjacent properties the city owns would be easier to sell if adjacent to a duplex than to a business. The council approved selling the land to Grothe.

In other business:

  • A contract with Ranson Financial to administer a Community Development Block Grant for road projects was approved. Ranson Financial will receive $19,500, contingent on the city receiving the grant.
  • Police Chief Dan Kinning received permission to seek bids for a police cruiser to replace a 2003 Ford Crown Victoria with about 92,000 miles on it. Because Ford is not currently manufacturing a police cruiser, the city will have to open bidding to out-of-town dealers to receive competitive bids. Mayor Delores Dalke said city policy is to buy from a local business if their bid is within 10 percent of the low bid.
  • An ordinance specifically prohibiting J-turns on streets with centerlines was approved. Dalke said police need to actually ticket people instead of giving warnings to stamp out illegal J-turns.
  • Dalke appointed Amy Simmons to the Hillsboro Housing Authority and reappointed Brenda Kimberly to the Hillsboro Library Board with the council’s approval.
  • Paine said he hopes to have bids on city street projects ready to open Oct. 25, 26, or 27. The design process has been slower than he wanted, he said.
  • Council member Byron McCarty said he thinks the council needs to prioritize building a new fire station.
  • McCarty urged Paine to work on a written agreement covering operation of Hillsboro Municipal Golf Course with the Hillsboro Golf Association. The lack of a written agreement was one of the items criticized in the city’s annual audit.

The next meeting is scheduled for 4 p.m. Oct. 18.

Last modified Oct. 5, 2011

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