Fire Department Looks for Rescue in Drilling Deal

Until recently, Neff Volunteer Fire Department officials shrugged over what to do with the 56 acres of rural Ohio that a woman left the department after she died.

The financially struggling department, which answers emergency calls within 34 square miles of Belmont County along the Pennsylvania border, had enough trouble dealing with unpaid tax bills and its money-losing operations.

Then a Texas oil and natural gas drilling firm came knocking.

The donated land, it turns out, sits atop the natural-gas-soaked Utica Shale. The U.S. Geological Survey has estimated that the formation, which stretches from the middle of Ohio to upstate New York’s Adirondacks, contains about 38 trillion cubic feet of “undiscovered, technically recoverable natural gas.”

An attorney for the fire department told Bankruptcy Beat that the drilling proceeds are its only hope to survive.

The Neff Volunteer Fire Department filed for Chapter 11 protection last week in the U.S. Bankruptcy Court in Columbus while waiting for its first pre-drilling payment from an affiliate of oil and gas exploration company Paloma Resources. The company has promised the fire department a 20% cut of the oil and gas royalties it would earn from pulling the resource out of the deceased woman’s property.

The department’s first payment from the Paloma affiliate of nearly $400,000 is more than half of its revenue from all of 2012, according to court papers.

“I don’t know a way around their problems were it not for this oil company,” said Arnold White, the fire department’s bankruptcy attorney. “They simply don’t make enough.”

Mr. White said that the department, which has firehouses in Ohio’s Neffs and Bellaire, loses money on some of the contracts it signed with local municipalities and nursing homes to answer fire and emergency calls. With a fleet of about half a dozen ambulance vehicles, the department’s 34 emergency workers respond to about 2,400 EMS calls and 300 fire runs a year, according to court papers.

Most of the emergency workers are paid employees who make less than $14 an hour. Mr. White said the tough job market has actually made unpaid volunteers scarce as potential volunteers must make themselves available for odd jobs and aren’t able to commit to shifts at the fire department.

The fire department’s biggest debts are its tax bills.

The state’s Bureau of Workers Compensation, which collects workers compensation insurance money and is owed about $550,000, got the power to take $59,000 out of a department bank account on Oct. 30.

The fire department said in court papers that it also owes more than $800,000 to the U.S. Internal Revenue Service. In May 2011, the department’s tax-exempt status was taken away after it didn’t file the proper tax forms for three years, according to court papers.

Without the money from the drilling contract, Mr. White said he doesn’t see another way for the department to repay its debts and get out of bankruptcy protection.

“There’s just no way to repay the government,” he said.

Write to Katy Stech at [email protected].