Archive for the ‘Pennsylvania Natural Gas Drilling’ Category

Property owners claim in lawsuit agent offered lower royalty than allowed by law.

MARC LEVY Associated Press Writer

HARRISBURG — Scores of people who own land above a potentially lucrative natural gas reservoir are seeking to void the drilling leases they signed and accused a land agent of guaranteeing a lower royalty than the amount allowed by state law.

The property owners filed a lawsuit in federal court in Williamsport last week against The Keeton Group LLC, of Lexington, Ky.

The lawsuit stems from a rush of activity by exploration companies to capitalize on the largely untapped Marcellus Shale gas reservoir while natural gas prices are high. Property owners from West Virginia to New York have complained of aggressive “landmen” pushing them to sign leases that allow an exploration company to drill down to the Marcellus Shale, a layer of thick black rock that holds a vast reservoir of gas.

The law cited by the plaintiffs guarantees a property owner at least one-eighth of the royalties from the recovery of oil and gas on their land. However, the suit said the leases violate state law because they give the exploration company the right to subtract taxes, assessments and adjustments on production from the 12.5 percent royalty.

The suit, filed Thursday, said the approximately 130 plaintiffs own more than 18,000 acres in Sullivan and Lycoming counties in northern Pennsylvania. The contracts were signed with Keeton between April 2005 and March 2006, the suit said.

A telephone message left Tuesday with The Keeton Group was not immediately returned. On an outdated version of its Web site, Keeton touts its record as an early arrival on the Marcellus Shale.

“Our group was among the first to acquire lease rights for the current Marcellus Shale drilling activities — not only in Pennsylvania but also in 7 other states under which this vast geological formation lies,” the Keeton site said.

The gas reservoir beneath the Marcellus Shale was long known to exist, but only recently has drilling technology improved enough to cost-effectively tap into it. According to state officials, drilling activity on the formation is taking place at about 275 well sites, and less than 20 sites are producing gas.

To date, exploration companies have spent about $2 billion on leasing land, performing seismic studies and other activities in pursuit of Marcellus Shale gas in Pennsylvania, according to Stephen Rhoads, the president of the Pennsylvania Oil and Gas Association.

Companies as large as ExxonMobil Corp. have shown interest in Pennsylvania, which is one of four states that sit atop 54,000 square miles that analysts say hold the best exploration prospects.

Copyright: Times Leader

YOU CAN practically hear the Luzerne County Commissioners yelling: “Eureka! Thar’s treasure in them thar’ hills.”

The trio knows that – much like a century ago – a potential financial bonanza lies below our feet in the form of a coveted fuel. This time, it’s not anthracite.

Instead, companies aim to extract natural gas from deep below Northeastern Pennsylvania’s crust, using new drilling technology to tap a rock formation known as the Marcellus shale. The drillers, and speculators hoping to profit by hoarding land-lease agreements, have knocked on doors throughout the region, promising to put money in the pockets of cooperative property holders.

Luzerne County officials rightly recognize that this region’s (second) energy revolution offers a rare opportunity.

If handled properly, it can provide a much-needed source of relatively inexpensive fuel for home-heating and other purposes. Plus, the industry can be a significant money-maker for private landowners as well as public entities, including the commonwealth (which controls state forests and game lands) and the county.

Pennsylvania’s natural gas boom, therefore, deserves to be handled with extreme care so that current residents and future generations reap the full benefits. The approach will require specialized knowledge of geological, environmental and legal issues, coordination among all involved parties and patience.

With no disrespect intended, this is not a job for the Luzerne County Commissioners to attempt on their own.

Commissioner Greg Skrepenak’s proposal to create a gas exploration task force, which will involve professionals, makes sense in the short term. After studying the issue, however, this task force might decide it’s more sensible to combine efforts with a regional or statewide group that has even more expertise and can leverage the best deals on behalf of the taxpaying public.

The commissioners could vote as soon as Wednesday to request proposals for drilling in the county-owned Moon Lake Park area. What’s the rush? Most advisers have been telling private property owners that there is no need to leap on this bandwagon; indeed, better deals probably can be secured at a later time and by coordinating efforts with surrounding property owners rather than trying to compete with them.

In recent years the county has entered into some poorly arranged contracts, such as the juvenile detention center deal. The stakes are too high to botch this one.

Unfortunately, the current commissioners might see natural gas leases as an easy out – an escape from the burdensome budget deficits that have become all-too typical here in recent years. It would be a mistake, however, to make hasty decisions for short-term gain that could impact this region and its residents for the next century.

Luzerne County

officials rightly recognize that this region’s (second) energy revolution offers a rare opportunity.

Copyright: Times Leader

Commissioners consider asking for proposals to drill at Moon Lake Park.

Having witnessed the natural-gas drilling boom both in other counties and for some local residents, Luzerne County officials are considering the windfall potential for county lands.

At its meeting on Wednesday, the county commissioners are expected to approve issuing a request for proposals to drill in a little more than 2,000 acres in Moon Lake Park. They’ll also likely vote on creating a gas exploration task force proposed by Commissioner Greg Skrepenak.

Commissioner Steve Urban said he’s been following the gas progress for about six months and feels now is the time to offer the park lands because surrounding landowners are seeking leases as well.

“People are already interested in the land around Moon Lake, and I’m optimistic they’d be willing to talk to us,” he said. “It’s good to be proactive.”

He said the going rates seem to be between $2,600 and $3,200 signing bonuses per acre and perhaps 18 percent royalties.

Beyond the benefits to the county, he suggested local customers would find a benefit in receiving domestically produced natural gas.

He said the drilling wouldn’t affect plans to construct mountain-bike racing courses there.

Skrepenak said he’d likely support offering the lands for leasing, but said the county should have fully researched the topic first.

“I definitely think we need to take this issue as far as we can,” he said.

The task force would gather information, but also be a source for residents and local companies seeking work with the gas companies, he said. It should be made up of county officials, other public officers and experienced professionals, he said.

The shale drilling has shown to be “recession proof” in Texas, he said, which is why he finds it an exciting consideration. “It is the hot topic,” he said. “It’s been seen as a positive thing for the most part.”

Dave Skoronski, director of the county Geographic Information System/Mapping Department, noted there are promising signs that companies are considering the county. Several companies in related industries have come to his office to buy the county’s map data.

“They’ve been coming, and some people who work at the desk said they were doing gas research,” he said, noting that Burnett Oil Co., Inc., Mason Dixon Energy, Inc. and Elexco Land Services, Inc. have purchased map information.

Panel created

Luzerne County Commissioner Greg Skrepenak was named to the County Commissioners Association of Pennsylvania’s Natural Gas Task Force.

The group has been established to identify issues related to exploration and development of natural gas in Pennsylvania and to advise on policy related to those issues. Skrepenak participated in the task force’s first conference call on Sept. 26.

Copyright: Times Leader

Gas-drilling firm increased original request tenfold.

After it received approval to withdraw about 2 million gallons of water daily from the Susquehanna River, Chesapeake Energy Corp. is trying to increase that allowance roughly tenfold.

The Susquehanna River Basin Commission approved the original allowance in September, but Chesapeake applied earlier this week for a modification of the approval to allow withdrawing 20 million gallons each day.

The approval is only for natural-gas drilling in eight counties in New York and 15 counties in Pennsylvania, including Luzerne.

Chesapeake did not immediately return a request for comment.

Whether the request is approved remains to be seen.

“They can request however much, but that doesn’t mean that’s what the commissioners would ultimately approve,” SRBC spokeswoman Susan Obleski said. “We have gotten a few others (requests for withdrawal increases) … but certainly no increase like this.”

The increase seems to be to allow multiple well drillings each day, she said. New techniques, called hydrofracturing, have made it economical to attempt extracting gas from Marcellus shale deposits deep underground, but the drilling is heavily water intensive, requiring millions of gallons for each “fracing” process.

She noted the SRBC is considering changing its rules so that each well pad would require a withdrawal permit instead of one for the company’s entire leased area.

The commission is scheduled to vote on the issue in December. The public can comment on the increase request or rule changes by e-mailing the commission or by attending public meetings.

If you go

The Susquehanna River Basin Commission is holding a public meeting at 7 p.m. on Oct. 21 at Lycoming College’s Academic Center’s Lecture Hall, Room D001, on Mulberry Street in Williamsport. Notice of attendance or submission of testimony should be sent to Richard Cairo at rcairo@srbc.net.

Copyright: Times Leader

Expert advises landowners to have groundwater tested before gas drilling begins.

In the rush to sign leases to drill for natural gas, some fear that dollar signs might blur landowners’ considerations of other important issues, like protecting groundwater.

But landowners are unlikely to notice most major threats to water quality, and the problems they do notice, according to Bryan Swistock, a water specialist with Penn State University, have more to do with landowner oversights than driller mistakes.

“Most of the real health concerns in water you wouldn’t even notice,” he said. “The vast majority of the complaints turn out to be something else (other than contamination from drilling), so it’s really important that people take a look at their water supply and make sure they’re not causing their own problems.”

He noted that problems often occur from faulty residential wells or other outside factors, but landowners attribute it to the drilling. Natural gas drilling sites are cropping up in the region as companies rush to tap the Marcellus shale, a layer of rock about a mile below the surface that industry experts believe is trapping billions of dollars in natural gas.

Swistock, who has done most of his research with shallow wells in western Pennsylvania instead of the deep shale wells, stressed the importance of getting water tested for a baseline before giving drillers the green light. “It’s very difficult to show that anything’s been done to your water unless you can show it was good before,” he said.

He suggested watching for sedimentation, particularly due to construction and ground disturbance, as well as metals like barium and iron showing up in groundwater.

“It’s not common, but it can happen from time to time,” he said. “If it’s going to happen, most likely it’s going to happen right around the gas well.”

Just as important are concerns over the quantity of water used, where it comes from and where it goes. The innovative horizontal drilling method used to tap the shale requires millions of gallons of water, and industry watchers like Swistock are concerned that the region lacks the treatment facilities necessary to process the tainted water that results.

In an attempt to educate landowners about these water issues, Swistock has been holding seminars through the Penn State Cooperative Extension. One is scheduled for 7 p.m. to 9 p.m. Oct. 14 at Lake-Lehman High School.

“It’s funny. You can pretty much divide the people who attend these things into two groups,” Swistock said. Those who stand to profit off the drilling generally attend but don’t get too agitated, he said. Those who won’t profit but stand to be affected by any problems do get agitated. “It’s a natural reaction. If you’re going to make money from something you’re more willing to put up with it.”

Still, Swistock noted, with all the problems, the problems with natural gas drilling are a far cry from those associated with past energy extraction activities in this region. “It certainly pales in comparison to coal mining,” he said.

Rory Sweeney, a Times Leader staff writer, may be reached at 970-7418.

Copyright: Times Leader

By MARC LEVY Associated Press Writer

HARRISBURG, Pa. (AP) _ A top state environmental official says Pennsylvania is ill-equipped to handle the huge influx of interest in drilling for a potentially lucrative natural gas formation.

John Hanger, the acting secretary of the state Department of Environmental Protection, made the comments during a hearing in Harrisburg before the state House Environmental Resources and Energy Committee.

Hanger told lawmakers that he needs dozens more employees to review drilling permit applications and inspect drilling sites over the Marcellus Shale gas formation.

He also said he is concerned the state will run out of capacity to treat the contaminated water left over from the drilling process, but that state laws are largely adequate for protecting the environment.

Copyright 2008 The Associated Press
Posted at: Times Leader

By JOSEPH B. WHITE The Wall Street Journal

First it was ethanol made from corn. Then ethanol made from twigs and stems and trash. Then, the future was going to belong to hydrogen. Now, the alternative fuel flavor of the month in Washington is natural gas.

You may know this already, thanks to vigorous public-relations campaigns mounted to promote natural gas as a vehicle fuel by energy billionaire T. Boone Pickens and allies such as Chesapeake Energy Chairman and Chief Executive Officer Aubrey McClendon. Mr. Pickens touts natural gas as a fuel for cars as part of his broad “Pickens Plan” to reduce America’s dependence on foreign oil.

Mr. Pickens, in a television ad, summarizes his case for using natural gas as a vehicle fuel in nine words: “It’s cleaner. It’s cheaper. It’s abundant. And it’s ours.”

Nothing is ever that simple in the energy business. A lot of natural gas isn’t “ours.” It belongs to the same companies that currently supply us with oil, or to big gas utilities such as Ch esapeake. But Mr. Pickens is correct when he says that natural gas is abundant in the U.S. Recent advances in drilling technology have made it possible to exploit gas reserves that weren’t economical to tap before, such as the Marcellus Shale in the Appalachian region of the Northeastern U.S.

The macro problem that Mr. Pickens and gas industry executives need to solve is what to do with all that new gas – assuming it becomes available as forecast. Already, natural-gas prices have slumped about 40 percent since May. Grabbing some of petroleum’s more than 90 percent share of the U.S. vehicle fuels market is a smart strategy for the gas industry.

The question for consumers who don’t own shares in natural-gas companies is whether a compressed-gas fueled vehicle is a better deal than some other green technology, or the status quo.

The only natural gas car on the U.S. market right now is a Honda Civic GX. Honda Motor Co. let me borrow one for a few days to road t est the NGV (natural-gas vehicle) lifestyle.

Driving the Civic GX isn’t different than driving a standard, petrol-fueled car. My white test car had an automatic transmission and the usual bells and whistles. The adventure of driving a natural-gas fueled Civic only starts when the fuel gauge gets close to empty – and that happens fairly quickly because the car’s range is only 200 to 220 miles between fill-ups.

At this point, you’ll need an Internet connection to help you find a public natural-gas vehicle refueling station in your metro area. If you are fortunate will you find one in your ZIP code, because there are only about 1,100 natural-gas refueling stations in the U.S. The closest one to my house was about 18 miles away at a depot owned by the City of Ann Arbor.

The unmanned refueling station had an imposing looking pump with two hoses that dispensed compressed gas at different pressures. The Civic’s manual explained that I should use the one marked 360 0 pounds per square inch. Behind the Civic GX’s fuel door is a nozzle fitting. After a couple of tries, I got the fitting from the high-pressure hose properly locked on, and threw a lever on the pump to “On” to start the flow.

I realize it was irrational and techno-phobic to worry that I would somehow overfill the compressed gas tank on board the car and turn my Civic into an explosive device. Let’s say that I was nervous enough that I had done something wrong that when the pump shut off automatically, I was relieved, even though the system had only refilled the tank to the half-full mark. Mr. Pickens could add another element to his plan: It will create jobs for filling station attendants who can help nervous natural-gas newbies.

On the positive side, my natural gas was about half the price of the equivalent quantity of gasoline – $1.94 a gallon.

The Honda Civic GX illustrates almost perfectly the chicken-and-egg problems besetting efforts to wean personal transportation in the U.S. away from petroleum fuels.

Because there aren’t many natural-gas refueling stations, Honda only builds a couple of thousand natural-gas Civics a year, and other car makers are reluctant to push the technology to consumers. Because there are so few natural-gas vehicles, outside of commercial or government fleets, fuel retailers don’t have much incentive to sink $500,000 to $750,000 into a natural-gas refilling station capable of handling cars as rapidly as a conventional gas station can, says Richard Kolodziej, president of NGV America, a Washington advocacy group that represents about 100 natural-gas companies and other enterprises with a stake in promoting natural gas as a motor fuel.

Because there is little demand for natural-gas vehicles, the ones that are available come with a hefty price premium, in part because their fuel tanks aren’t molded plastic, but are instead heavily engineered, high-pressure tanks. A Civic GX lists for ab out $24,590, compared to about $17,760 for the mid-range Civic LX on which it is based. Tax credits can offset as much as $4,000 of that price. And in some states, natural-gas cars can use high-occupancy vehicle express lanes – a major perk for time-pressed commuters.

The Civic GX achieves about 24 miles to the gallon in the city and 36 on the highway, when its consumption is converted to gasoline equivalent miles per gallon, Honda says. The Environmental Protection Agency estimates the GX’s annual fuel costs at $884 a year, compared to $1,987 a year for a petroleum-fueled Civic. That indicates a payback, after the tax credit, of about 2½ years on the premium over the standard car.

One problem with the natural-gas Civic, Mr. Kolodziej concedes, is that it doesn’t look any different than a normal car. It doesn’t advertise the owner’s green cred the way a Prius does. “Where’s the sex in that?” He asks. “The sex comes in when you fill up for $10.”

Mr. Kolodzie j says he refuels his Civic GX using a Phill home-fueling system. This costs about $5,000 and allows a natural-gas vehicle owner to refuel overnight with gas from the lines running into the house. (A $1,000 tax credit is available for the Phill system.) But the hardware in Mr. Kolodziej’s garage isn’t all that’s different. He also says he doesn’t care that the vehicle has a limited range and takes hours to refill using the home refueling device.

“I go to work. I go to the store,” he says. “That’s what 99 percent of people do. Americans want to be able to drive to California tomorrow. They won’t.”

Mr. Kolodziej would say that. But he’s right. A switch to natural-gas cars would require a change of attitudes and expectations both by consumers and car makers. More of us would need to accept owning a car that can do one job – commuting and running errands in fewer than 200 miles a day. It’s the same fundamental proposition behind plug-in hybrids such as the Chevrolet Volt or plug-in Prius.

The big hurdle for natural-gas vehicles is that somebody will need to invest substantial sums in a consumer refueling infrastructure. The gas industry was hoping that somebody would be Uncle Sam. Unfortunately, Congress just found out last week it may have to spend $700 billion salvaging the global financial system. That could put big federal subsidies for natural-gas cars – and a lot of other worthy ideas – on the back burner.

___

Send comments about Eyes on the Road to joseph.white@wsj.com.

Copyright 2008 The Associated Press.

Posted At: Times Leader

But experts say that doesn’t mean drillers won’t eventually explore here.

None of the 73 permits the state Department of Environmental Protection issued Wednesday for natural gas wells in the Marcellus Shale was in Luzerne County.

That doesn’t necessarily mean drillers aren’t interested in looking for gas here, experts say. But a combination of factors may slow activity compared to other parts of the state.

“I’m sure it’s still in the mix,” said Stephen Rhoads, president of the Pennsylvania Oil & Gas Association. “The work in trying to explore and analyze for natural gas in the Marcellus Shale in the region … is only beginning in the northeast” region of Pennsylvania.

Energy companies and geologists have estimated for decades that billions of dollars worth of natural gas is locked in a layer of rock called Marcellus Shale that runs about a mile underground from upstate New York down to Virginia, including through the northern tier of Pennsylvania. Only recently have technological advances and higher energy prices made extracting the gas financially feasible.

Western Pennsylvania has much more drilling infrastructure, such as wastewater treatment facilities, than this region, Rhoads said, which explains why the majority of the permits issued on Wednesday were for western counties.

He also attributed the companies’ deliberate pace to budgetary constraints, a lack of drilling rigs and an incomplete grasp of the geology.

“It takes a lot of time and money to understand what lies more than a mile underground,” he said. “These companies are investing a lot … to make sure they get it right.”

While some properties have been leased in the northwestern section of Luzerne County, Mark Carmon, regional DEP spokesman, said there are no drilling permits in the county. He was unaware of any awaiting approval, either, but cautioned that doesn’t mean county landowners have missed the windfall.

All the assurances don’t make the waiting any more palatable for landowners.

“It’s pretty frustrating,” said Jack Zucosky, whose Luzerne County Landowners group is looking to get its more than 6,000 acres leased. “We’ve been close a few times with a few companies, but nothing definite yet.”

He’s confident Luzerne County property will get leased, but not until next year at the earliest.

“I really think what’s going on here is natural gas (prices) dropped a lot, and these companies are having cash flow problems,” he said. “It’s a waiting game right now.”

Rory Sweeney, a Times Leader staff writer, may be reached at 970-7418.

Copyright: Times Leader

HARRISBURG, Pa. (AP) _ Five out-of-state companies are the high bidders for the right to drill for natural gas on more than 74,000 acres in Pennsylvania’s state forests.

The high bidders were among 17 companies that competed for the drilling rights over a potentially lucrative natural-gas formation known the Marcellus Shale. The 18 tracts that were put out to bid by the state forestry agency are located in Tioga and Lycoming counties in north-central Pennsylvania.

All together, the high bids total about $190 million.

Three of the companies are from Texas and two are from New York.

Copyright 2008 The Associated Press.

Posted at: Times Leader

DAN NEPHIN Associated Press Writer

PITTSBURGH — A lawyer for a suburban Pittsburgh municipality trying to keep gas wells out of a residential neighborhood told the Pennsylvania Supreme Court on Tuesday that towns must be allowed to regulate the location of drills.

The high court’s ruling on whether Oakmont, home to the famous golf course of the same name, can restrict the location of wells will have big implications across Pennsylvania, a state where landowners big and small are trying to cash in on the vast stores of valuable natural gas below.

“This is way beyond Oakmont. This applies to every municipality in the state,” said borough attorney Clifford Levine. If a lower court ruling is allowed to stand, municipalities could become virtually powerless to control the growing number of gas and oil wells that are being drilled throughout the state.

Propelled by high natural gas prices, companies are scouring for drilling opportunities throughout the region.

Geologists and exploration companies, for example, recently developed a way to extract gas from one large reservoir located some 6,000 to 8,000 feet underground. Though drilling into that large pool has only just begun, prospectors are buying up drilling rights, leading to tensions among neighbors and questions about who can drill where.

In Oakmont, Huntley & Huntley Inc. wants to drill a gas well in a residential subdivision on two adjoining lots that total 10 acres. The families that own the lots would be allotted one-quarter of the gas at no charge and the rest would be sold. The families would share in the profit.

Opponents, mostly neighbors, objected on grounds that the well violated local zoning laws and that the drilling would create noise and jeopardize public safety. The borough council agreed and rejected the company’s proposal.

In July 2007, a state appeals court overturned the decision, saying state law pre-empted municipalities from regulating well locations.

The court relied on its interpretation of a 1992 amendment to the Pennsylvania Oil and Gas Act, but that amendment was intended to address only operational issues, Levine argued.

Copyright: Times Leader