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Driller pays South Butler School District $628,000 for rights

Drilling company Phillips Exploration Inc. has signed an oil and gas lease with South Butler School District and paid the district an up-front fee of more than a half-million dollars.

District officials, however, caution that, even though money and signatures have been exchanged, they have no idea whether drilling will become a reality.

"Really, at this point, they haven't indicated yes or no whether that will happen ... or a time frame or anything," said district spokesman Jason Davidek.

The school board approved the five-year lease in a 6-2 vote in September.

After that, Phillips had 90 days to review that lease, do a title search, check the document's provisions and sign it.

Among the provisions in the lease:

• The district must OK any site the company wants to drill.

• No well will be drilled and no pipeline will come closer than 500 feet to a district structure.

• "Pooling" is allowed, meaning Phillips could station a wellhead on another property adjacent to South Butler's but still extract the district's gas reserves.

As an up-front payment, Phillips paid the district about $628,000, which will be deposited in the general fund for now.

There are two payment portions to the lease, Davidek said: The up-front payment and a royalty of 18 percent of the proceeds received if gas is extracted.

Even if Phillips decides not to drill, South Butler will keep that $628,000, Davidek said.

District solicitor Tom Breth said Phillips would have to ask the school district for permission to test the land.

"If they intend to do any preliminary site work and/or if they intend to locate a wellhead on school district property, they must first come to the school district and get their permission for access onto the property," Breth said.

The lease covers about 165 district acres in Jefferson and Clinton Townships.

XTO Energy purchased Phillips Companies in June, and XTO Energy merged with ExxonMobil in 2010, according to Jeff Neu, XTO public and government affairs advisor.

"We have signed the lease and made payment this month," Neu wrote in an e-mail. "We're in the process of evaluating this acreage to determine its value in our diverse, balanced portfolio of development opportunities."

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