More Natural Gas in East Texas

Now for the news: It's not the Marcellus Shale formation they are banking on, but another formation called the Herkimer.

While the Marcellus and Trenton Black River formations have become big names in the Southern Tier's fledgling natural gas culture, they are just a few of a growing list of geological riches prospectors are seeking under the region's rolling landscape.

The Herkimer formation, which is being mapped out between northern Chenango and central Broome counties, is one of many gas-rich formations being discovered throughout the Southern Tier. Norse Energy, which holds mineral rights to more than 130,000 acres in Broome, Chenango and Madison counties, is discovering the potential of the Herkimer after drilling wells and building infrastructure in the Norwich area.

The company plans to continue working its way south into the heart of Broome County, where it can ship gas through the Millennium Pipeline, said Dennis Holbrook, a spokesman for Norse. The Millennium, a major transmission line bisecting the Southern Tier, is expected to be completed later this year.

"We believe the area has excellent potential," Holbrook said last week. "We're very positive with what we have been able to achieve so far."

Norse, based in Norway, recently developed two wells in Chenango County, with production rates for each approaching 1 million cubic feet per day. Those results have encouraged the company to commit more manpower and equipment to the area.

Crews are now working on two more wells near Norwich. In addition to plans to link to the Millennium Pipeline, the company has built a compression station at the northern end of its operations to pump gas into the Dominion Pipeline running through Madison County.

In a recent company report, company CEO Oivind Risberg characterized success in the Herkimer as "the tip of the iceberg," with the possibility of tapping into other gas formations, such as the Utica and Marcellus shales, also running under the region.
Small, but worthy

How big is the Herkimer? Smaller than the Marcellus, but big enough to attract attention from an international company.

Unlike the Marcellus, which extends uniformly over a vast area, the Herkimer holds gas-rich pockets here and there, many of which are still being discovered.

Generally speaking, limestone-type deposits such as the Herkimer run under a gas-rich shale formation called the Rochester, extending south from Rochester, through central New York, the Southern Tier and northeastern Pennsylvania, according to Terry Engelder, a professor of geosciences at Penn State University.

Similarly, the Trenton Black River holds gas-rich pockets running under the Utica shale throughout western New York and parts of the Southern Tier.

The Marcellus has the largest footprint, encompassing the Southern Tier, Pennsylvania and parts of West Virginia and Ohio, with a relatively uniform blanket of gas. At between 4,000 and 5,000 feet, it is the shallowest of the formations, with the others lying a mile or more beneath the surface.

While promising, the Herkimer and other formations hold less gas combined than the Marcellus, which is generally recognized as the mother lode, Engelder said. They also require detailed geological mapping, and heavy reliance on seismic testing to pinpoint gas pockets.

"The Marcellus is the meat and potatoes," Engelder said. "The others are like appetizers. An operator needs to live off the meat and potatoes."

Drillers will have to wait for the main course in New York, however, while the state updates its environmental regulations to deal with the intensive drilling process necessary to tap the Marcellus.
Environmental reviews

Regulators with the state Department of Environmental Conservation are reviewing the environmental impact of the process, which uses millions of gallons of water and chemical additives to fracture the bedrock at each well. It also produces relatively large amounts of waste, and the state is trying to answer questions about how it will be handled and treated, along with other environmental concerns.

The review is expected to last at least until spring.

That puts companies in a tough position, said Mark Scheuerman, head of media and legal affairs for Fortuna, an Elmira-based company with about 1 million acres in the Southern Tier and Pennsylvania. Some of those leases will expire next year, leaving the company to try to patch together the remaining quilt-work of leased land to form units large enough to drill.

While Fortuna executives may find that discouraging, landowners counting on more lucrative lease deals might prosper. Five years ago, leases were generally going for between $5 and $100 per acre, with 12.5 percent royalties. This year, the going rate has climbed to between $1,500 to $3,000 per acre, with royalties as high as 15 percent.

As companies wait to develop the Marcellus in New York, landowners with expiring leases might have the chance to renegotiate for better terms, said Lindsay Wickham, a field adviser for the New York State Farm Bureau. On the flip side, gas companies can extend leases indefinitely once they begin any type of work on the property, and new discoveries in other formations are likely to encourage that.

"It's a double-edged sword," Wickham said. "It's very encouraging gas companies are committed to working in the area and biding their time until they can explore the Marcellus. But it can also tie up leases."

In the meantime, Fortuna Energy is finding financial nourishment from the Trenton Black River, with plans to begin exploring the Marcellus in Pennsylvania.

"We still have high hopes for the Marcellus," Scheuerman said. "But we have to drill a number of wells to understand its reach."

Similarly, the Herkimer is providing welcome sustenance for Norse as it waits for regulatory issues to be worked out for the Marcellus.

"Our intent is to have multi-strata opportunities, so if one doesn't work out, we can produce from another," Holbrook said. "It's important to have options."

The company is tapping the Herkimer after investing 10 years of research and preliminary work in the area. As it begins showing the first signs of bearing fruit, Norse is moving manpower and equipment to the area to drill more wells and develop pipelines necessary to capitalize on the find.

With 250 potential well sites, the total take from the Herkimer could be more than three hundred billion cubic feet, according to company estimates. That would generate gross revenues of about $2 billion based on current gas prices, excluding returns from other formations that could be discovered while developing the Herkimer.
Pipeline a priority

In the complex world of geology and economics, several other parts of the equation must be accounted for to predict the future of gas development in the Southern Tier.

Who gains and who loses remains to be seen based on a number of wild cards, including the price of natural gas, the rate of infrastructure development, the future of the economy and the duration and outcome of the state's environmental review.

The credit crunch will likely affect the gas industry like any other, gas company officials said. It also could continue to push down the price of natural gas. But because gas resources are developed over 10- or 20-year periods, negative impact over the short term may not significantly affect outcomes over the long term.

Additionally, the largest reserves and the most prolific wells are essentially worthless if there are no pipelines to get gas to customers. To that end, Norse and companies like it are banking on the Millennium Pipeline to pump gas from the heart of Broome County to regional markets in and around the New York metropolitan area.

Where will the drilling action be most intense as the industry continues to forge ahead? For starters, look toward the pipelines.

"It is easier to drill a good well near a pipeline than it is to drill a better well that is farther away," Holbrook said.