Posts Tagged ‘Matt Sheppard’

He tells symposium Pa.’s “bureaucratic BS” is limiting operations.

PLAINS TWP. – To hear John Baen describe it, Pennsylvania is like an awkward, naive suitor, dithering over the details so much that it’s stumbling on the walk to the front door and turning off its hot date: natural gas drillers.

The industry has recently increased its complaints about what it sees as the state’s excessive regulatory procedures – or “bureaucratic BS,” as Baen put it on Wednesday – that are souring hopes to ramp up drilling in the potentially lucrative Marcellus Shale about a mile under much of northern and western Pennsylvania, among other states.

Keeping things green is important, the real-estate expert and University of North Texas professor said, but not as much as making some green. “I know you’re sensitive to your environment and all that, but it’s four acres (disturbed for drilling) out of 5,000” acres that are then producing gas, he said. “Would you allow a drilling rig in your back yard? … It depends on what they’re willing to pay you extra.”

Baen was one of three gas industry experts speaking at a Marcellus Shale Symposium hosted by the Joint Urban Studies Center at the Woodlands Inn & Resort. The center, a partnership of local colleges and universities, provides economic research for regional planning.

The experts were brought in to discuss their impressions from the proliferation of drilling in the Barnett Shale, a similar gas-filled rock formation in north Texas. Though concerns were addressed, such as potential environmental damage and likely workforce shortages, sanguine profiteering was emphasized repeatedly.

William Brackett, the managing editor of an influential Barnett Shale newsletter, noted the local job market and economy ballooned 50 percent in 2007 to 83,823 jobs and an $8.2-billion economic benefit. The same good fortune is befalling rural Pennsylvania farmers who were near destitute, he said. “All the sudden, they get a new barn and are able to send their kids to college.”

Of all the speakers, the most subdued in his support of the industry was Matt Sheppard, a director of corporate development for Oklahoma-based Chesapeake Energy, which sponsored the symposium. Though natural gas drilling has been in the state for decades, it has lain pretty low, he said. “This is not an industry that has done a great job of talking about things, explaining things,” he said. “We’re here for one reason, and that is that Americans are demanding cleaner energy right now. … And the truth is we’re not going to the other way.”

The presenters said the industry is looking for straightforward rules like in other states, which have standardized drilling manuals and few other regulatory hoops. But despite Baen’s dire predictions that drillers might pull up stakes, Sheppard assured his company was likely sticking it out.

“At Chesapeake, we’re big believers in organized development,” he said. “You’re not going to see a lot of companies come in here and drill one well and leave. … You invest this amount of money in a state, you’re going to be around a while.”

Copyright: Times Leader

Insiders say price declines and credit issues are limiting lease bids and bonus payment offers.

The natural-gas windfall seems to have dried up – at least for now.

Commodity price declines, disappearing credit worthiness and companies transitioning to produce gas from the lands they’ve leased have combined to limit lease bids and reduce bonus payment offers.

“Not only are we noticing it, there’s no argument that’s not happening,” said Jack Sordoni, who owns the Wilkes-Barre-based fossil-fuel drilling company Homeland Energy Ventures LLC and is negotiating leases for local landowners.

Though he’s recently inked leases in Fairmount Township with $2,850 per acre up-front bonuses, he said he’s also recently had similar offers in the same area fall to $2,000 per acre. Other sources are reporting offers dropping back to pre-summer levels of several hundred dollars.

Part of the cause for the change, he noted, is that some large companies have dropped out of the leasing competition because prices have fallen and the credit crisis has hampered their ability to take on short-term debt.

“I would suspect, not being an economist, that they would have pretty far reaching” effects, he said. “The ones who are signing aren’t competing with as many players, so the prices aren’t going to be as high.”

The companies say the clock is ticking on beginning work on existing leases, so they’re focusing on filling out the gaps in the territories they’ve already locked up.

“We have moved from the lease acquisition phase to the development phase,” Chesapeake Energy spokesman Matt Sheppard wrote in an e-mail. “We are leasing strategically to support our existing leasehold.”

Sheppard said that for Chief Oil & Gas and many companies “it is more of a shift to moving dollars into drilling and development” instead of continuing to build leasehold in unproven areas.

Chief Oil & Gas spokeswoman Kristi Gittins wrote in an e-mail: “A lot of acreage has been leased. As drilling begins and areas prove out, leasing should pick up.”

Sordoni said that in the business “a lot of times we call that ‘going operational,’ and think for many of them, that’s true.”

With drilling and production increasing, natural gas prices have dropped about 50 percent in the past half year, he noted.

“This was a gold rush at the beginning. It was a frantic pace. Companies were scrambling. The pullback of the commodity prices has certainly led to a slowdown,” he said.

But there are some positive indications for unsigned properties. For example, companies have already shown indications of ramping up production in the region.

Gittins said Chief will soon have four rigs in the region, including one made specially for maneuvering in the hilly Appalachian region, and two more by early 2009.

First, the gas isn’t going anywhere. Horizontal drilling only allows vertical fracturing of rock, and it’s illegal to drill beyond the leased boundaries. So the rule of capture – which allows gas or oil to be collected from a rock fracture that crosses a lease boundary – doesn’t apply.

Secondly, companies have already shown indications of ramping up production in the region.

Gittins said Chief will soon have four rigs in the region, including one made specially for maneuvering in the hilly Appalachian region, and two more by early 2009.

Chesapeake is predicting it will need much more water for its drilling operations before the 2012 expiration of its current permit with the Susquehanna River Basin Commission. While the company isn’t asking to change its permit to withdraw 5 million gallons daily from the river, it is asking to expand how much water it can use each day from 5 million gallons to roughly 20 million gallons.

Copyright: Times Leader

Companies now are focusing on drilling land that’s already been leased, industry experts say.

The natural-gas windfall seems to have dried up – at least for now.

Commodity price declines, disappearing credit worthiness and companies transitioning to produce gas from the lands they’ve leased have combined to limit lease bids and reduce bonus payment offers.

“Not only are we noticing it, there’s no argument that’s not happening,” said Jack Sordoni, who owns the Wilkes-Barre-based fossil-fuel drilling company Homeland Energy Ventures LLC and is negotiating leases for local landowners.

Though he’s recently inked leases in Fairmount Township with $2,850 per acre up-front bonuses, he said he’s also had this week similar offers in the same area fall to $2,000 per acre. Other sources are reporting offers dropping back to pre-summer levels of several hundred dollars.

Part of the cause for the change, he noted, is that some large companies have dropped out of the leasing competition because prices have fallen and the credit crisis has hampered their ability to take on short-term debt.

“I would suspect, not being an economist, that they would have pretty far reaching” effects, he said. “The ones who are signing aren’t competing with as many players, so the prices aren’t going to be as high.”

The companies say the clock is ticking on beginning work on existing leases, so they’re focusing on filling out the gaps in the territories they’ve already locked up.

“We have moved from the lease acquisition phase to the development phase,” Chesapeake Energy spokesman Matt Sheppard wrote in an e-mail. “We are leasing strategically to support our existing leasehold.”

Sheppard said that for Chief Oil & Gas and many companies “it is more of a shift to moving dollars into drilling and development” instead of continuing to build leasehold in unproven areas.

Chief Oil & Gas spokeswoman Kristi Gittins wrote in an e-mail: “A lot of acreage has been leased. As drilling begins and areas prove out, leasing should pick up.”

With drilling and production increasing, natural gas prices have dropped about 50 percent in the past half year, he noted.

“This was a gold rush at the beginning. It was a frantic pace. Companies were scrambling. The pullback of the commodity prices has certainly led to a slowdown,” he said.

But there are some positive indications for unsigned properties. For example, companies have already shown indications of ramping up production in the region.

Gittins said Chief will soon have four rigs in the region, including one made specially for maneuvering in the hilly Appalachian region, and two more by early 2009.

With drilling and production increasing, natural gas prices have dropped about 50 percent in the past half year.

Copyright: Times Leader

Lucrative leasing deals are possible for area residents. Negatives: Noise, pollution.

The opportunity won’t come to most Northeastern Pennsylvania landowners, but those offered a natural-gas well will face life-changing effects, both positive and negative.

“It’s going to transform Pennsylvania, there’s no doubt about it,” said Ken Balliet, a Penn State Cooperative Extension director well-versed in gas-lease issues. “This whole Marcellus shale play is highly speculative” for the gas companies, he said, because it’s not very well studied, but landowners who land lucrative deals will see it otherwise. “When you hand someone a check for half a million dollars, that’s not very speculative.”

Add to that well-siting and annual royalty payments, and suddenly the problem becomes trying to find tax havens for the profits.

The tradeoff, however, is an unexpected and sometimes unwelcome bustling of activity — trucks, noise and pollution. Many of the changes will come and go, but some – like a clear-cut well site or a noisy compression station – will remain for decades.

It’s a sacrifice Jerry Riaubia is willing to make on his 16 acres in Sweet Valley – if the right number is on the checks and they keep coming. “If I had an income for my family, it would be well worth it,” he said. “We could help the economy out if we had that money. It could save our economy.”

For many rural landowners, the offers are difficult to pass up. Reports of leases offered at $2,500 per acre are common as close as Wyoming County, and companies have increased production royalties from the state-mandated 12.5 percent to 18 percent as owners become more educated.

Even with just his 16 acres in a standard 600-acre drilling unit, and estimating modest gas extraction at 18 percent royalties on a single well, Riaubia stands to pocket around $117,000 over the well’s lifetime, according to www.pagaslease.com, a Web site run by landowners who were approached early on about leasing.

That’s only the profits from a single well, and far more than one can exist at a site. “We heard of one company had drilled 27 on one pad,” said Tom Murphy, a Penn State Cooperative Extension educator.

And as oil prices increase, so will natural gas prices, according to a 2005 report by the Schlumberger oil and gas company. “The price of gas is linked to oil and based on each fuel’s heating value,” the report notes. “As long as oil prices remain high, there is no reason for natural gas prices to go down. Although gas is abundant in much of the world, it is expensive and potentially dangerous to transport internationally.”

That financial windfall might be just a pipedream for Luzerne County residents, though.

Chesapeake Energy Corp., one of the largest leaseholders in the Marcellus play, isn’t leasing in the county, according to Matt Sheppard, the company’s director of corporate development. A single listing exists for Luzerne County on the gas lease Web site’s lease tracker. Signed in late May, the five-year offer was $1,500 per acre with 15 percent royalties.

While Riaubia said he hasn’t been approached by any companies, land groups in northern municipalities in the county, such as Franklin Township, have been negotiating. Rod McGuirk, who owns 56 acres in the township, said owners there have been offered $1,800 per acre. “They’re just preliminary offers, but we’re excited,” he said.

That excitement could quickly wane if problems crop up or owners are unprepared for the realities of drilling. Unlike other unconventional gas sources, shale wells produce consistently over three decades, so well sites are more or less permanent. Even after sites are reclaimed, some infrastructure is left behind.

Also, because gas is transported nationally through lines that are more compressed than regional distribution lines, noisy compression stations will need to be installed in what are otherwise bucolically quiet locales.

Then there’s the potential to unearth radioactive materials, acid-producing minerals and deplete water resources. In fact, after concerns arose about the amount of water necessary to drill a well, the state Department of Environmental Protection included an addendum to its drilling permit that addresses water usage and is specific to Marcellus shale.

Still, officials assure that regulatory agencies are keeping tabs on drillers. “There’s an awful lot of eyes watching the streams up there,” DEP spokesman Tom Rathbun said. “So these guys aren’t just going to be able to dump stuff. … If they start killing streams, a lot of people are going to find out quickly.”

And aside from that, he said, the financials force the industry to regulate itself. “The Marcellus shale is not really a business for fly-by-nighters,” he said. “You don’t throw $10 million away because you were cutting corners on an environmental regulation. Now that they know we’re watching … there’s too much money on the line for these guys to do stupid mistakes or to cut corners.”

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

Copyright: Times Leader