Rig Count Up in Pennsylvania

By Steve Reilly
Staff Writer
Published:
Saturday, January 2, 2010 9:08 AM EST
The natural gas rig looming over a hundred feet over the Eileen property in Smithfield Township is one of 92 drilled in Bradford County in 2009 — over six times the number drilled in 2008.

Like many Bradford County rigs, the massive structure has become somewhat of a roadside attraction for curious passers-by.

But if current trends continue, it could be only a matter of time before such rigs jutting out from the rural landscape become less a novelty and more a part of the county’s everyday scenery.

If Pennsylvania was the primary target for gas exploration in the Marcellus Shale in 2009, Bradford County was its bulls-eye.

At the end of 2008, there were a total of 63 permits to drill wells into the Marcellus Shale in Bradford County, 17 of which had actually been drilled.

In 2009, according to statistics released on Nov. 30, there were a total of 383 Marcellus Shale drilling permits granted in Bradford County — more than any in other county in Pennsylvania.

With over 300 permitted wells yet to be drilled in the county, and with the torrid pace at which permits are granted showing no signs of stopping, all indications point to 2010 as a year in which the natural gas industry could forever transform the landscape of Bradford County.

The rush to drill in 2009

Until 2008, few had heard of the Marcellus Shale, a rock formation buried 5,000 feet deep stretching across 95,000 acres of a four-state region from New York to West Virginia. But two events in the last decade combined to unleash the hidden potential of the shale bed and make “the Marcellus” a household name.

In 2005, natural gas companies began exploiting the Barnett Shale in the Fort Worth, Texas area using a combination of hydraulic fracturing, or “hydrofracking,” and newly-pioneered horizontal drilling techniques to extract natural gas from the shale. The tremendously profitable gas extraction operations in Texas led to a hunt for similar formations across the country, and eventually to the establishment of relatively smaller natural gas economies in Arkansas’ Fayetteville Shale and Louisiana’s Haynesville Shale.

Then, in January 2008, Penn State geosciences professor Terry Engelder and SUNY-Fredonia geology professor Gary Lash released a study that estimated the size of the Marcellus Shale at 168 trillion to 516 trillion cubic feet — 80 to 250 times the previous U.S. Geological Survey estimate. In terms of geographic area, the Marcellus Shale is estimated to be 19 times larger than the Barnett Shale.

Both of these factors — the development of new drilling technology and new geological insights into the size of the Marcellus Shale — combined to set the stage for an exploratory phase that saw a cadre of multinational gas companies to flock to the area in 2008. That year, the Pennsylvania Department of Environmental Protection (DEP) granted permits to various gas companies to drill in the Marcellus Shale at 476 sites across the state, the majority in later half of 2008.

But in 2009, activity took off in earnest. DEP granted 1,742 Marcellus Shale drilling permits state-wide as of Nov. 30, with promises of even more in the pipeline for 2010.

DEP press secretary Teresa Candori stated that although there will continue to be many permits in 2010, she doesn’t necessarily expect the number of permits the agency grants to triple again next year.

“I don’t think you’ll see a similar sort of increase (in 2010),” she said.

“It’s not been going on long enough to see a trend. From 2003 to (the end of) 2007, we issued a total of 93 Marcellus Shale drilling permits. So really only in 2008 and 2009 have we seen a sort of a rush to drill, (or) at least to get the permits. So it’s hard to predict any kind of trend after only two years,” she added.

Candori stated that DEP recently hired 37 new staff members specifically to handle the growing Marcellus Shale workload at the agency. Their salaries, she said, will be drawn directly from a recent hike in permitting fees.

Economic impact

In July 2009, a Pennsylvania College of Technology study caused a wave of excitement when it estimated that drilling in the Marcellus Shale is expected to create 98,000 jobs for Pennsylvanians in 2010 and inject $14.17 billion into the state’s economy.

The study was commissioned by two groups of pro-gas state legislators, the Pennsylvania House Natural Gas Caucus and the Marcellus Shale Committee. However, predictions that natural gas drilling will provide an economic boost to the area have been promulgated by local officials and gas company executives alike over the past year.

“It’s pretty amazing, statewide,” said Mark Scheuerman, chief general counsel and media relations manager for Fortuna Energy. “I think the numbers that the Marcellus Shale Coalition, through their economic development analysis they did through Penn State, account for about 26,000 new jobs in Pennsylvania since about a year ago, all attributed to Marcellus development, (and) we think that will continue.”

“(In) areas like the Barnett Shale in Texas, in the Fort Worth area, in about three to five years there were almost 100,000 new full-time jobs associated with Barnett Shale exploration and the production. That’s a formation that is about 5,000 square miles. The Marcellus — and, of course, it covers a four-state area — is about 95,000 square miles. And Pennsylvania has the biggest chunk of it. So if you can extrapolate from those numbers, it gives you kind of breathtaking forecast of what the economic impact will be from a jobs standpoint,” Scheuerman added.

Scheuerman noted that the efforts of some community and four-year colleges are helping to develop a gas-oriented workforce, a turn of events he said was “encouraging” for the area’s economic prospects.

Among colleges developing Marcellus Shale-oriented programs is Lackawanna College, which is in the process of constructing a permanent campus in New Milford, Pa., that features a natural gas technology curriculum.

Brian Driscoll, countywide economic development manager of the Central Bradford Progress Authority stated that the economic impact has been noticeable, but difficult to quantify “just because it’s so tough to track that with so many different companies involved, and there are subcontractors involved, and all different dynamics.”

“It’s no secret to anybody there’s a lot of activity more going on,” he said. “There are some employment impacts. A lot of the employment seems to be going to folks from outside of the area. But that has created a tremendous demand for hotel space as well as residential rental units, like apartment-type dwellings. So there’s been a real increase in demand for housing, both temporary and longer-term,”

“You (also) see a lot of activity at restaurants and service-related activity,” Driscoll added. “So I think the spectrum’s pretty wide-ranging.”

But, according to Driscoll, the idea of gas industry profits falling into county resident’s hands hasn’t quite come to fruition yet.

“What we don’t see at this point is a lot of revenue coming directly into residents’ hands through royalty payments or anything like that, because the process isn’t quite far enough along. A lot of folks have gotten lease payments, but aren’t in the royalty cycle yet,” he explained.

Driscoll also pointed to the secondary aspects economy that are indirectly benefiting from the increase in population and the growing numbers of transient workers.

“I know that there are existing businesses in the Valley and elsewhere in the county that you might not think would be totally related (that are benefiting). I know hardware stores have been selling components to these folks. We know of a company that sells cleaning supplies that has been inundated with requests for their materials, just based on additional people in residential units. Flower shops (are benefiting because) guys from Texas are sending flowers back home to their wives. Stuff like that that you just wouldn’t think of has become impacted as well,” Driscoll said.

However, the expected increase in population will probably cause some speed bumps that must be dealt with along the way, according to Bradford County Commissioner Mark Smith.

“The increase in the population and the increase in human services is going to have an impact. Our correctional facility and services such as children and youth, and drug and alcohol services, and the school systems — the issues and problems that arise naturally from having more people in the county,” will have to be dealt with as the changes develop, Smith stated,

Another issue prominent in the minds of local officials is the prospect of a state-mandated severance tax on oil and gas revenue in Pennsylvania that would send portions of the gas companies back to the state’s general fund.

Many local officials, such as Bradford County Commissioner Doug McLinko and state Rep. Tina Pickett, have been vocal in their opposition to the proposed severance tax on the grounds that it would take tax revenue away from municipalities where most of the drilling is occurring and send it back to the state government.

Pickett stated that a better way to raise revenue from Marcellus Shale activity would be to lease selected portions of state property to gas companies.

Proponents of the tax argue that 14 of the other top 15 gas-producing states in the country have such a tax.

Natural gas and the Valley: ‘A very busy year’

As the natural gas industry takes its foothold across the county, it seems to have skipped over the Valley in terms of permits granted and rigs constructed. But the central location and developed nature of the Valley have made it a prime target of gas companies during the past year in their search for a place to locating their infrastructure.

Tunkhannock-based Somerset Regional Water Solutions’ proposed water treatment facility on Mile Line Road, voted down by the Athens Township Board of Supervisors in November due to it’s failure to correct a number of deficiencies in the original plans, was one example of a failed venture this year. Documents attached to the proposal for the treatment plant indicated that incoming wastewater would potentially be radioactive, and that excess water would be dumped into the Chemung River.

Two successes for the gas industry, however, were achieved in the Tannery Curve area of Athens Township. There, a 50-truck parking lot and a water withdrawal site were approved and are now currently being developed to feed Chesapeake Energy’s drilling operations throughout the county, taking advantage of the site’s proximity to Route 220.

Two other projects — a 60-person temporary housing quarters, or “man camp” on Round Top Road, and an East Athens water withdrawal facility — were nixed by gas companies themselves in the middle of the approval process. Reports indicate that another site for the “man camp” is being sought by Nomac, Chesapeake Energy’s drilling subsidiary.

Athens Township Supervisor Robin Smith assessed 2009 as “a busy year” for the township.

“I think the township is a place that they are looking at to locate, hopefully because of our location, because we’re so close to (Route) 220 and I-86. And I think we’re going to see a lot more happening in the coming year,” she said.

Looking ahead: ‘It depends on the rocks’

Although forecasts indicate that 2010 will be a pivotal year, and many in the area are counting on the quick growth of the fledgling industry, the pace at which the industry develops is dependent on one thing that is out of anyone’s control: nature itself.

Fortuna’s Scheuerman highlighted the unpredictable nature of the geology as a factor that, despite all the planning that the industry has done, no one can predict.

“From our perspective, about a year ago we had zero production in the Marcellus. Now we’re at about 30 wells and we’re producing just at about 70 million (cubic feet) out of our Marcellus wells in Northern Pennsylvania. It’s been quite a satisfying accomplishment and we’re looking to expand on that in 2010,” Scheuerman said.

“But there’s always a lot of factors that go into exactly where you conduct operations — whether it’s exploration or development — and then production is always a question of mother nature,” he added.

“It depends on the rocks, as they say.”