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Pa. Tapped, Drillers Not

A new lease: As gas wells power up, parts of the state are going from getting by to getting rich.

Doug Stough steadies things as he and Joe Rivera work to get a bore hole going.<br />
Doug Stough steadies things as he and Joe Rivera work to get a bore hole going. Michael S. Wirtz / Staff Photographer
Doug Stough steadies things as he and Joe Rivera work to get a bore hole going.<br /> Gallery: Pa. Tapped, Drillers Not

HUGHESVILLE, Pa. - W. Neil Barto's 180-acre Angus breeding farm reflects a man struggling with burdens. A barn has collapsed into a heap of lumber and hay. Tomatoes rot by the driveway. Rusted junk and empty bottles clutter the porch. Weeds flourish.

Barto's wife, Louise, came to the door in a wheelchair. She was disabled 23 years ago in an automobile crash, and Barto quit his county job to care for her. Barto's health is not so good, either. He lost a finger to a log splitter, got a knee replacement a few years ago, and had a kidney transplant in 1995 that freed him from dialysis.

"The wife and I, we've been without for quite a long time," Barto said last week as he stood by a pen of watchful, mud-caked heifers.

Barto's luck may have turned. In April, two wells drilled on his farm began producing natural gas, and the royalties started arriving in the summer. He and his neighbors became the latest Pennsylvanians to strike gold in a mile-deep layer of black rock called the Marcellus Shale.

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    In July, four days before Barto's 67th birthday, he received the first check from Chief Oil & Gas L.L.C., the Dallas company that last year drilled the wells on this hardscrabble farm, 21 miles east of Williamsport.

    Barto's monthly royalty checks now come in at about $7,000. It's just the beginning. He and 14 neighbors get royalty checks from the sale of the gas, but the wells capture only a fraction of the gas trapped in the rock. Chief plans to drill many more wells on Barto's land and surrounding properties.

    Barto is trying to keep his newfound bounty in perspective. With the compensation he got when Chief drilled on his land, he splurged on a $42,000 McCormick tractor - the first new tractor of his life - and he built a new metal barn.

    "All I want to do is keep my cows and take care of them," he said. "That's good enough for me."

    As each new well comes into production, gas drillers are reporting robust discoveries. They're scrambling to lock up the most promising properties in northern Pennsylvania, where there has been little gas development. Gas leases that could be bought for $25 an acre four years ago, and $2,500 last year, are approaching $6,000 an acre.

    "You should have come up and bought yourself a hunting camp about 10 years ago," said Bill Wilson, a retired airline pilot who organized the Wyoming County Landowners Group. Last month the group, representing more than 600 property owners with 39,000 acres, signed leases with Chesapeake Energy Corp. for a dizzying $5,750 an acre. The deal will inject $225 million by year's end into a rural county west of Scranton with a population of 28,000.

    "There's a lot of smiles up here now," said Wilson, who stands to earn more than $1 million in bonus money to lease his 200-acre farm, regardless of whether any gas is ever developed.

    The bonanza is attracting idle drilling rigs from other states.

    While oil and gas drilling nationwide has fallen by half since the stock market crashed a year ago, the number of rigs has doubled in Pennsylvania. There are 59 active rotary rigs in Pennsylvania, the most outside the traditional energy giants of Texas, Louisiana, and Oklahoma, according to Baker Hughes Inc., an oil and gas field services company.

    In the first nine months of this year, 1,340 Marcellus permits were issued and 385 wells drilled - more than double the number from 2008.

    The object of the quest is a layer of bedrock formed from sediments on the deep ocean floor 365 million years ago. The Marcellus underlies 54 of Pennsylvania's 67 counties. In northern Pennsylvania, where much of the activity is taking place, the formation is up to 300 feet thick and lies 7,000 feet below the surface.

    Though the Marcellus was long known to contain gas, its potential became clear only recently as developers perfected a horizontal drilling technique that allows them to follow the contours of the shale bed. Since horizontal drilling began four years ago in southwestern Pennsylvania, geologists have raised their estimates of the recoverable reserves. By some estimates, the 363 trillion cubic feet of gas could supply the entire country for 15 years at current consumption rates.

    The proximity to big Northeastern markets makes the gas particularly attractive. Though natural-gas prices plummeted in the last year, several of the biggest operators in the Marcellus said at a conference in Pittsburgh on Monday that the new Pennsylvania wells were profitable even at depressed prices.

    "It looks like the Marcellus has the best rate of return of any of the resource plays out there," Jeff Ventura, the president of Range Resources Corp., told more than 1,000 people who flocked to the conference, sponsored by Hart Energy Publishing. He said Range would produce up to 200 million cubic feet of Marcellus gas each day next year, eight times its 2008 production.

    The industry has not been shy about tooting its horn, spending freely on lobbying and laudatory academic reports.

    There is much to recommend natural gas. It is abundant and clean compared with coal and oil, and is domestically produced.

    The industry portrays environmental concerns about water pollution from the drilling as surmountable.

    The drillers must shatter the Marcellus to release the gas locked in the rock. They hydraulically fracture the shale with high-pressure injections of water, chemicals, and sand. The "fracking" process requires huge amounts of water, which returns to the surface with elevated salt and mineral content that requires treatment. There have already been spills, and some indications that local sewage plants have inadequately treated the fluid before it was released.

    But the gas companies say they increasingly are recycling the frack fluids, and treatment plants are being upgraded.

    "Handling the water is not a problem, so let's get on with it," said Murry S. Gerber, chief executive of EQT Corp., a Pittsburgh producer.

    In an industry whose history is marked by dramatic booms and busts, the projections for the economic benefit that the Marcellus could bring to Appalachia are staggering.

    An industry-funded Pennsylvania State University study in July estimated that the Marcellus would generate $3.8 billion in economic activity this year, produce $400 million in state and local taxes, and create more than 48,000 jobs.

    Gerber, the EQT chief, said the Marcellus could do what steel did for Pittsburgh more than a century ago.

    "We can put half a million more jobs in this state if we seize the day," Gerber said. He said the opportunity was ripe for companies that consume natural gas.

    Big gas developers are already expanding administrative operations in Pittsburgh, where the state's existing natural-gas industry is centered. Pennsylvania had nearly 47,000 wells in 2005, before the Marcellus breakthrough, mostly in the western part of the state.

    But gas drillers and suppliers are planting their flags in new outposts such as Williamsport, the Lycoming County seat, which is central to hot spots in Tioga, Bradford, and Susquehanna Counties.

    Lodgings are in short supply in Williamsport, where motel parking lots are filled at night with pickup trucks bearing Texas, Louisiana, and Colorado tags. Demand for apartments and office space is also picking up.

    Chief Oil & Gas and Anadarko Petroleum Corp. opened field offices near Williamsport. Halliburton, the oil field services giant, bought a 24-acre property.

    "Once I see a company like Halliburton here, then I know this is the real deal," said Francesco Morrone III, the owner of the upscale 33 East restaurant in downtown Williamsport. The restaurant is often full of boisterous, cowboy-hatted gas men who flash money, buy rounds, and talk big, Morrone said.

    "They're spending freely," he said.

    Local schools and colleges are cranking up training programs to prepare the workforce for the gas fields, but some local businesses are getting immediate benefits. Contractors are busy supplying gravel for well sites, or transporting pipe or water to rigs, said Jason C. Fink, executive vice president of the Williamsport/Lycoming Chamber of Commerce.

    "It's nice to see some of our existing businesses are getting a bump," said Fink. He said local banks had reported a substantial increase in deposits from accounts in gas-producing areas.

    There are scattered reports of conspicuous consumption among the locals - a few luxury cars in the back country. But most beneficiaries are not flaunting their wealth.

    Some landowners such as Barto, the cattle farmer, signed their leases long ago. They renewed five-year leases that gave them $2-an-acre yearly payments without seriously thinking anybody would find anything this big.

    "Nothing ever happened," said Lucille Mingle, whose farm is next to the Barto wells in Penn Township. "I wasn't a believer. I am now."

    Not everyone is sanguine. Since the price of leases has soared, hundreds of landowners with the old leases challenged the contracts. So many lawsuits were filed that the cases were consolidated and are being heard by the Pennsylvania Supreme Court.

    Mingle and her husband, Fred, who are retired, declined to join the lawsuit. They said the gas company and the drillers had been courteous.

    The Mingles recognize their lives may be changing in ways they never imagined. Their quiet corner of Lycoming County is suddenly very busy. They used to recognize most motorists who passed their house. But traffic has picked up substantially - well-diggers, sightseers, and suppliers driving big, fast trucks. The country roads are getting rutted, and township repair crews are having a hard time catching up.

    And for now, the drilling is still a novelty. Each well costs about $4 million to complete, and the 175-foot-tall drilling rigs operate nonstop, through the nights, the weekends, and even the holidays (though many rigs shut down on the first day of deer-hunting season, this being rural Pennsylvania).

    "At night, the rig is all lit up, and fills the sky with light," Lucille Mingle said. "It's like a carnival." 


    Contact staff writer Andrew Maykuth at 215-854-2947 or amaykuth@phillynews.com.

    Andrew Maykuth Inquirer Staff Writer
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