A new drill for Pa: Fewer gas rigs operate, and local economies suffer

JONES TOWNSHIP, Pa. - Gus Trejo, a career oil-and-gas driller from South Texas, moved his family to Pennsylvania in 2010, betting that the emerging Marcellus Shale gas industry would provide long-term security.

"Retirement is what I was thinking," he said.

Trejo supervised three drill rigs in this remote corner of Elk County for Seneca Resources Corp. until the industry crashed last year. He now manages one site, Seneca's sole remaining rig in the entire state. He's glad just to still be employed.

"Now, I'm sitting on the edge of my seat," said Trejo, 50, whose two brothers also resettled near his Tioga County livestock farm, though one has since returned to Texas. "I hope things get better and we stick around a lot longer. I like this part of the country."

Five years ago, the Marcellus Shale bonanza attracted 115 drilling rigs to the state, each requiring a battalion of suppliers, trucks, earthmovers, equipment manufacturers, and support services.

This month, the rig count fell to 16, a number not experienced since 2007, before hydraulic fracturing entered the public debate and when Marcellus was just a gangster in Pulp Fiction.

Last year's energy-price plunge undercut the business across the nation. Gas producers that borrowed heavily to acquire acreage and to drill struggled to cover their debt. They cut operations and sold assets to stay solvent. Some went bankrupt. Those financially strong enough to survive are hunkered down.

"We're going through a historic downturn," said David J. Spigelmyer, president of the Marcellus Shale Coalition, an industry trade group. "We lost maybe $10 billion in capital spending in 2015, and are heading the same way in 2016 with the rig count."

Despite the slowdown in drilling, Pennsylvania is not likely to relinquish its new status as a natural gas giant. In 2008, it produced 198 million cubic feet of gas, about a quarter of the state's needs. Last year, Pennsylvania produced 4.6 trillion cubic feet, a fifth of the nation's gas demand.

The volume of gas production remains stable because of the large inventory of wells awaiting pipeline connections. As soon as the price rises, a producer brings a waiting gas well online. Producers expect the drilling slowdown to last at least 18 months.

Still, the downturn has depressed local economies. The traffic that energized and disrupted rural life has subsided. Sales of clothing, food, and vehicles are down. Skilled welders have taken jobs at Walmart. Unemployed workers stay home and don't spend.

"Just the sheer volume of people in restaurants, hotels, even at some charity events, they're definitely not there anymore," said Stan Foster, chief operating officer of Superior Energy Resources L.L.C., a Brockway, Pa., gas field-services company.

Three years ago, competition for skilled help was so fierce that Superior struggled to fill job vacancies. "During the peak we had up over 130 employees," Foster said. "Now, we're at 20. Of course, sales are also right in line parallel with that curve."

At midday recently, it was practically empty at the Mountain Inn in Clermont, McKean County, a bar and restaurant where once it was not uncommon for rig crews to order takeout of 30 hamburgers at a time. A game warden had come by that morning to install a trap for the most demanding patron, a black bear that raided the inn's dumpster. It left a lot of debris and, like a growing number of customers, no tip.

"Usually, we'd have a full bar now," said Brenda Walker, the inn's owner. She has cut hours and reduced her staff from nine full-time employees to four part-timers.

"The past year has been horrible," Walker said. "The best thing that can be said is we had a few good years."

For more than a century, Seneca Resources has drilled conventional gas wells in this part of the vast forested region known as the Pennsylvania Wilds, supplying energy to the distribution systems of its parent company, National Fuel Gas, which operates gas utilities in northwestern Pennsylvania and western New York state.

As the Marcellus Shale emerged, Seneca partnered with an experienced shale-gas producer to tap into its vast acreage of oil and gas properties. It now has become a significant unconventional gas producer in its own right.

Seneca's Marcellus wells in the Clermont-Rich Valley area of Elk, Cameron, and McKean Counties are not as productive as its acreage farther east in Lycoming and Tioga Counties. But Seneca owns the mineral rights here outright, so it does not have to pay royalties to a landowner under a lease. That's one less cost, making production here attractive, said Rob Boulware, Seneca's spokesman.

Like many Marcellus operators, Seneca has been tightening its belt and creatively financing its operations to conserve capital.

It operated three drill rigs in the area through much of 2015, but shut two down at the end of the year. In December, Seneca announced a joint venture with IOG Capital, a Dallas investment firm, that will pay 80 percent of the costs of developing 42 wells in the region, with an option for 38 more.

The dramatic drop in Marcellus drill-rig activity in the last five years is misleading because rigs are so much more efficient now than when drillers first explored here.

The drill rig Trejo supervises, which is operated by Patterson-UTI Energy Inc., recently required only seven days to drill each well at a nearby location. A similar well would have required more than three weeks to drill a few years ago, he said.

A drill-bit manufacturer recently recognized Trejo's crew for drilling 4,933 feet during a 24-hour period, a record.

"Where is that plaque?" Trejo asked the night superintendent, Wesley Sammons, who pointed to a cabinet in their trailer office. The award was still wrapped in plastic.

"The more wells you drill, the better you get at it," Trejo said.

The cost to drill each well has come down from about $3 million to $1.4 million to $1.6 million, he said. That doesn't include hydraulic fracturing, a separate process conducted after a well is drilled.

With drilling completed ahead of schedule, Trejo was overseeing the relocation of the drill rig to a new well pad in Elk State Forest. A mammoth undertaking, not unlike a traveling carnival, it required disassembly of a 165-foot-tall rig and associated equipment. The move would take 111 tractor-trailer loads moving seven miles on gravel roads over three days.

Seneca plans to drill five wells at the new location, where workers from Superior Energy Resources were busy installing a containment system that would collect any spills during the months work would take place there.

Trejo said the first bore to be drilled on the site will be an exploratory well aimed at the Utica Shale formation, about a thousand feet deeper than the 6,900-foot-deep Marcellus formation. An exploratory well will take longer to accomplish because the drillers will withdraw core samples of rock for geologists to study.

The Utica is the target for drillers in eastern Ohio, but its potential in north-central Pennsylvania is less well understood. Seneca and Shell have drilled three Utica exploratory wells in Tioga County that showed promising results, and the well that Seneca plans in Elk County will add to the company's knowledge.

Trejo, now an adopted Pennsylvanian with a daughter studying at Pennsylvania State University, has a stake in the exploratory well's success. If Seneca determines it has two stacked shale formations that can be commercially exploited from the same surface location, it will increase the value of its reserves, potentially prolonging his employment.

If only the price of gas improves.

amaykuth@phillynews.com

215-854-2947@maykuth