LEASED MINERAL RIGHTS

9 Months Ended

Sep. 30, 2012

LEASED MINERAL RIGHTS

LEASED MINERAL RIGHTS

NOTE 6—LEASED MINERAL RIGHTS

        On May 10, 2011, Mountaineer entered into lease agreements with Chesapeake Appalachia, LLC ("Chesapeake") to lease mineral rights (primarily oil and gas) with respect to approximately 1,707 acres in West Virginia that Mountaineer controls or holds the mineral rights. Mountaineer will continue to retain the ownership rights in all of the property and has the ability to sell the property subject to the terms of the lease agreements.

        The agreements have an initial term of five years, with an option to extend for an additional five year term. The agreements required Chesapeake to pay Mountaineer a lease bonus payment of $1,265 per acre for a total of approximately $2.1 million, of which $1.8 million and $0.3 million was received in May 2011 and November 2011, respectively. The lease bonus payment of $1.8 million is reflected within other revenues in our consolidated statement of operations for the nine months ended September 30, 2011. In addition, Mountaineer will receive a 14% royalty on the sale of any oil or gas extracted by Chesapeake. Royalty payments will be recognized when received. No royalty income was recognized during the three or nine months ended September 30, 2012 and 2011.