No Clampetts in NEPA
By Gardner, Dave
NEPA landowners are looking down. Their target, as deep as two miles beneath the Earth’s surface, is the ancient Marcellus Shale formation.
This hard sedimentary rock, located in New York, Pennsylvania and West Virginia, was formed 350 to 400 million years ago. Then, the bottom of a deep sea trench became covered with many layers of organic materials that were eventually cooked by heat and pressure. The final result of this geologic activity became the Marcellus Shale. Experts believe the rocks contain huge quantities of natural gas.
Robert Dye, senior economist with the PNC Financial Services Group, says that the Marcellus Shale is a textbook example of the vast energy reserves that still exist in the United States.
Until now, there’s been one very big catch. “Expensive technology is needed to recover and bring this gas to market,” says Dye. “The higher prices in today’s market for energy now make this recovery economically feasible.”
Economic concerns
Philip Pass, partner in Conservation Services LLC, a regional agent, explains that a 1970s study confirmed that usable hydrocarbons are locked within the hard shale. However, economically feasible technology didn’t exist at the time to recover it.
“This shale is compacted and solid, and the natural fractures containing the gas are microscopic,” says Pass. “The shale generally runs in a northeast to southwest fashion, and the amounts of gas are still speculation to some degree.”
According to Pass, gas recovery technology proven in Texas can target a shale seam. Deep vertical and then horizontal drilling is performed across the shale, with no effects on the surface.
The shale is then fractured with a process known as “fracking,” and the available gas seeps out over long periods of time. There is no “gusher.”
“The question here is not if the driller hits gas, but if they hit shale,” says Pass. “Some of the unknowns to be dealt with are the depth and location of a specific shale layer and its gas concentration.”
Rick Marquardt, petroleum engineer with Conservation Services, comments that experts believe the Marcellus gas reserves are huge. The recovery process starts with a deal for leasing rights between a landowner and a driller.
Marquardt explains that gas recovery companies take more of a drilling risk than many people realize
“This horizontal drilling method of recovery and the fracking process are all very complicated and expensive,” says Marquardt. “Some of the considerations are the fracking density needed, how the fractures in the shale evolve, the shale’s distance and its unique width. Another risk is whether the hydrocarbons have been properly cooked to evolve into gas.”
Marquardt speculates that within 10 years, if the gas reserves exist in the quantities experts expect and the recovery mechanics work out, Pennsylvania’s Marcellus Shale will become one of most prolific gas reserves in country. The dollar impact to northeastern Pennsylvania (NEPA) will be significant, at multiple levels within the regional economy.
“The environmental impact must also be taken into account, but these experienced gas companies have an historical pattern of handling things correctly,” adds Marquardt.
Business concerns
Pass explains that different business models exist in the drilling industry .A “conventional play” attempts to extract pockets of oil and gas from the Earth. There is substantial risk because drillers must bore directly into the subterranean gas or oil pockets.
A “resource play” business model, which is being used with the Marcellus Shale, is compatible when gas is expected to be found consistently over large areas. There is less risk for the driller, and reduced seismic testing is needed to locate underground fault lines.
A lease signed between driller and landowner is the key component in a gas recovery deal.
“A lease on drilling can address at least
150 different concerns, and use of an experienced natural resources attorney is vital,” says Pass. “The agreed upon terms are critical in eventually determining the total economic value to the property owner.”
“Landowners can form groups to assist with the lease terms, and quantity leases can be five to 105 pages,” says Pass. “The state minimum for royalties of gas pumped out can be as low as 12.5 percent, but 15 to 18 percent is possible.”
Environmental concerns Mark Carmon, community regional coordinator at the Northeast Office of the Pennsylvania Department of Environmental Protection (DEP), says that vast investment is needed to bring the state’s natural gas to market. This includes new roads to rural sites for many of the drilling rigs.
“There are no production wells yet in this region,” says Carmon. “The area is very rural, and there’s no pipeline infrastructure to transport the gas.”
Carmon explains that property owners must use legal representation for writing their leases, and that DEP does not perform lease regulation.
His organization will monitor drilling sites, the resultant groundwater testing and subsequent restoration of the sites after drilling ceases.
DEP will also check that proper erosion and sedimentation protection is being used, and that a sealed drill casing is used through the ground’s water tables. The site’s vegetation must be restored, and wetlands protected. According to Carmon, billions of dollars are at stake as work accelerates in the Marcellus Shale. “I will not speculate 10 years into the future about the direct economic impact this all will have on NEPA,” says Carmon. “It’s one thing to plan, but another to actually bring the gas to market. One thing that’s certain is that there will be no Beverly Hillbillies- Jed Clampett situations of instant wealth.”
Copyright Northeast Pennsylvania Business Journal Jul 2008
(c) 2008 Northeast Pennsylvania Business Journal. Provided by ProQuest Information and Learning. All rights Reserved.