Posts Tagged ‘USD’

N.J. gas firm eyes $300M income

ANDREW MAYKUTH The Philadelphia Inquirer

A southern New Jersey gas firm that bought a $2 million Marcellus Shale interest in 2008 says it might generate $300 million in income over its lifetime.

South Jersey Industries Inc., the Folsom, N.J., company that owns South Jersey Gas and several nonutility energy businesses, disclosed to analysts that its purchase of mineral rights in northern Pennsylvania could pay off handsomely.

Chief executive officer Edward J. Graham, speaking to analysts about the company’s annual earnings, said two horizontal wells in which South Jersey Industries has a stake will begin producing income this quarter.

He said the gas operator, St. Mary Land & Exploration Co., of Tulsa, Okla., was still tying the wells to a pipeline, but feels “really good about the prospects.”

Two more wells are planned for this year on the 21,000-acre property in McKean County.

In early 2008, South Jersey Industries paid $2 million for an interest in a partnership that owns the deep-gas rights on the property, Stephen Clark, the company’s treasurer, said in an interview. Since then, the value of mineral rights has skyrocketed.

South Jersey Industries estimates that its combined royalties and ownership rights will net 10.25 percent of the value of the gas produced — the company’s share would be about $300 million, based on an average price of $6 per thousand cubic feet.

“It has the opportunity to be very productive for us,” Clark said.

Graham told analysts that it was premature to estimate earnings, which depend upon the number of wells drilled and the price of natural gas. Production could take years, or even decades, to realize.

The estimates illustrate the huge potential in the Marcellus Shale, which lies under much of Pennsylvania and several surrounding states.

Copyright: Times Leader

As a result of the recent Pennsylvania state budget compromise, the Pennsylvania Department of Conservation and Natural Resources recently received bids for the leasing of state lands by gas drilling companies. The leases were for up to 32,000 acres of land in Cameron, Potter, Tioga, Clinton and Clearfield counties. The land is located in State Forests including Sproul, Elk, Tioga and Susquehannock.

According to the DCNR the leases will generate at least $125 million in additional revenues for the State coffers. The leases will also help create jobs. State environmental groups have raised serious concerns over the leases, but DCNR is confident that a balance has been struck addressing all issues.

Dougherty Leventhal and Price LLP represents individual injured as a result of gas drilling related injuries in Pennsylvania. Contact one of DLP’s twelve (12) Pennsylvania personal injury attorneys if you have any questions regarding injuries suffered as a result of companies or individuals related to the Pennsylvania natural gas drilling industry.

Pa. is biggest natural gas producer that does not impose some type of tax.

MARC LEVY Associated Press Writer

HARRISBURG — The natural gas industry in one of the nation’s hottest exploration spots is bracing for a political tussle over whether and how Pennsylvania will tax methane from the potentially lucrative Marcellus Shale formation.

An industry trade association, the Marcellus Shale Coalition, said Thursday it wants any discussion of a tax to involve the high cost to drill a shale well and cumbersome state laws that make it costly to operate.

A tax enacted without addressing issues that hamper exploration companies could encourage some to move resources to shale formations in other states, said coalition president Kathryn Klaber.

“What is important is to look at the broad issues, not just a tax, as to how we make this climate best for growth,” Klaber said. “There are a lot of modernization policies that need to be put in place to develop this massive natural resource.”

On Tuesday, Gov. Ed Rendell issued his annual spending plan for the state and renewed his call to enact a tax identical to West Virginia’s: 5 percent on the value of sale, plus 4.7 cents per thousand cubic feet produced.

Rendell projects the tax would produce $180 million in the fiscal year beginning July 1 and increase to nearly $530 million after five years, including 10 percent set aside for local governments.

Rendell wants money to shore up a state treasury that faces a projected $5.6 billion gap in 2011 and 2012 resulting from spiraling public pension costs and the expiration of federal stimulus budget aid.

Pennsylvania is the biggest natural gas producer that does not impose some type of tax on it.

However, the coalition wants to steer talk of a tax to reflect those imposed by shale states, such as Texas, Arkansas and Louisiana. In those states, the tax is discounted initially to allow the exploration companies to recoup a multimillion-dollar investment in each well.

For instance, Texas imposes a 7.5 percent tax but discounts it for 10 years or until the operator recovers 50 percent of the drilling and completion costs. In Arkansas, the state imposes a 5 percent tax on natural gas production but discounts it to 1.5 percent for at least three years.

Last year, Rendell called for the same tax rate on gas. After months of Republican-led opposition, he relented, saying he did not want to hurt an industry in its infancy.

In recent weeks, Rendell has said he believes the industry can afford to pay a tax, and pointed to the heavy influx of cash into Marcellus Shale exploration ventures.

For now, production from the Marcellus Shale is still in the early stages. Fewer than half of the approximately 1,100 wells drilled in Pennsylvania are connected to pipelines that can bring the gas to customers.

Environmental groups and the Pennsylvania State Association of Township Supervisors support a tax. The Senate’s Republican majority has not ruled out the eventual imposition of a tax, although Senate Appropriations Committee Chairman Jake Corman, R-Centre, called it “premature.”

Copyright: Times Leader

Tunkhannock expecting $439,975 check in March from Chesapeake Energy.

By Rory Sweeneyrsweeney@timesleader.com
Staff Writer

Tunkhannock Township in Wyoming County announced this week it received the signed agreement for its gas-drilling lease with Chesapeake Energy for about 76 acres of public land.

The up-front bonus check for $439,975 is expected in early March.

The township board had signed the lease in October, but the process was delayed because of municipal regulatory requirements.

“We were part of the Wyoming County land group, but we had to put it out for bid being a municipality,” said Judy Gingher, the township’s secretary.

The bid stipulated, however, that the winning bidder had to have at least 1,000 acres already leased in the township, and no one entered a bid.

The township received $5,762 per acre, which was $12 per acre more than for private landowners, Gingher said. The township currently has no plans for the money.

“They’re looking possibly just to invest it,” Gingher said.

Gingher said there were minor community concerns about surface-drilling activity because much of the land is in the township’s 42.5-acre Lazy Brook Park, which hosts a variety of community functions.

The land might be off limits to surface activity because of building-setback requirements and deed restrictions.

Much of it was purchased in 2006 through hazardous flood mitigation buyouts, which carry emergency management agency restrictions that prohibit permanent structures.

Township Solicitor Paul Litwin was unsure if drilling would be considered a restriction, though, because the drilling infrastructure is temporary and the resulting well pad likely wouldn’t impede flood flow, which is the purpose of the restrictions.

Structures are permissible “as long as you don’t increase the flood height with the structure, and a pad would basically be flat once you put the structure in,” he said.

“The question we’ll have to resolve if they want to put a pad there is that a permanent structure, and we’ll have to look at that if and when they want to do that. … They haven’t applied yet, so we haven’t looked at it yet. … My guess is it probably would not be considered permanent.”

Brian Grove, the director of corporate development at Chesapeake, declined to comment on the lease or plans for the property.

Copyright: Times Leader

Cleaner than coal and cheaper than oil, a 90-year supply is under our feet, experts say.

By MARK WILLIAMSAP Energy Writer

An unlikely source of energy has emerged to meet international demands that the United States do more to fight global warming: It’s cleaner than coal, cheaper than oil and a 90-year supply is under our feet.

It’s natural gas, the same fossil fuel that was in such short supply a decade ago that it was deemed unreliable. It’s now being uncovered at such a rapid pace that its price is near a seven-year low.

Long used to heat half the nation’s homes, it’s becoming the fuel of choice when building new power plants. Someday, it may win wider acceptance as a replacement for gasoline in our cars and trucks.

Natural gas’ abundance and low price come as governments around the world debate how to curtail carbon dioxide and other pollution that contribute to global warming. The likely outcome is a tax on companies that spew excessive greenhouse gases. Utilities and other companies see natural gas as a way to lower emissions — and their costs. Yet politicians aren’t stumping for it.

In June, President Barack Obama lumped natural gas with oil and coal as energy sources the nation must move away from. He touts alternative sources — solar, wind and biofuels derived from corn and other plants. In Congress, the energy debate has focused on finding cleaner coal and saving thousands of mining jobs from West Virginia to Wyoming.

Utilities in the U.S. aren’t waiting for Washington to jump on the gas bandwagon. Looming climate legislation has altered the calculus that they use to determine the cheapest way to deliver power. Coal may still be cheaper, but natural gas emits half as much carbon when burned to generate the same amount electricity.

Today, about 27 percent of the nation’s carbon dioxide emissions come from coal-fired power plants, which generate 44 percent of the electricity used in the U.S. Just under 25 percent of power comes from burning natural gas, more than double its share a decade ago but still with room to grow.

But the fuel has to be plentiful and its price stable — and that has not always been the case with natural gas. In the 1990s, factories that wanted to burn gas instead of coal had to install equipment that did both because the gas supply was uncertain and wild price swings were common. In some states, because of feared shortages, homebuilders were told new gas hookups were banned.

It’s a different story today. Energy experts believe that the huge volume of supply now will ease price swings and supply worries.

Gas now trades on futures markets for about $5.50 per 1,000 cubic feet. While that’s up from a recent low of $2.41 in September as the recession reduced demand and storage caverns filled to overflowing, it’s less than half what it was in the summer of 2008 when oil prices surged close to $150 a barrel.

Oil and gas prices trends have since diverged, due to the recession and the growing realization of just how much gas has been discovered in the last three years. That’s thanks to the introduction of horizontal drilling technology that has unlocked stunning amounts of gas in what were before off-limits shale formations. Estimates of total gas reserves have jumped 58 percent from 2004 to 2008, giving the U.S. a 90-year supply at the current usage rate of about 23 trillion cubic feet of year.

The only question is whether enough gas can be delivered at affordable enough prices for these trends to accelerate.

The world’s largest oil company, Exxon Mobil Corp., gave its answer last Monday when it announced a $30 billion deal to acquire XTO Energy Inc. The move will make it the country’s No. 1 producer of natural gas.

Exxon expects to be able to dramatically boost natural gas sales to electric utilities. In fact, CEO Rex Tillerson says that’s why the deal is such a smart investment.

Tillerson says he sees demand for natural gas growing 50 percent by 2030, much of it for electricity generation and running factories. Decisions being made by executives at power companies lend credence to that forecast.

Consider Progress Energy Inc., which scrapped a $2 billion plan this month to add scrubbers needed to reduce sulfur emissions at 4 older coal-fired power plants in North Carolina. Instead, it will phase out those plants and redirect a portion of those funds toward cleaner burning gas-fired plants.

Lloyd Yates, CEO of Progess Energy Carolina, says planners were 99 percent certain that retrofitting plants made sense when they began a review late last year. But then gas prices began falling and the recession prompted gas-turbine makers to slash prices just as global warming pressures intensified.

“Everyone saw it pretty quickly,” he says. Out went coal, in comes gas. “The environmental component of coal is where we see instability.”

Nevada power company NV Energy Inc. canceled plans for a $5 billion coal-fired plant early this year. That came after its homestate senator, Majority Leader Harry Reid, made it clear he would fight to block its approval, and executives’ fears mounted about the costs of meeting future environmental rules.

“It was obvious to us that Congress or the EPA or both were going to act to reduce carbon emissions,” said CEO Michael Yackira, whose utility already gets two-thirds of its electricity from gas-fired units. “Without understanding the economic ramifications, it would have been foolish for us to go forward.”

Even with an expected jump in demand from utilities, gas prices won’t rise much beyond $6.50 per 1,000 cubic feet for years to come, says Ken Medlock, an energy fellow at the James A. Baker III Institute for Public Policy at Rice University in Houston. That tracks an Energy Department estimate made last week.

Such forecasts are based in part on a belief that the recent spurt in gas discoveries may only be the start of a golden age for gas drillers — one that creates wealth that rivals the so-called Gusher Age of the early 20th century, when strikes in Texas created a new class of oil barons.

XTO, the company that Exxon is buying, was one of the pioneers in developing new drilling technologies that allow a single well to descend 9,000 feet and then bore horizontally through shale formations up to 1 1/2 miles away. Water, sand and chemical additives are pumped through these pipes to unlock trillions of cubic feet of natural gas that until recently had been judged unobtainable.

Even with the big increases in reserves they were logging, expansion plans by XTO and its rivals were limited by the debt they took on to finance these projects that can cost as much as $3 million apiece.

Under Exxon, which earned $45.2 billion last year, that barrier has been obliterated.

Copyright: Times Leader

Community partnership members worry about road deterioration, water supplies.

By Rebecca Briarbria@timesleader.com
Staff Writer

DALLAS TWP. – Lehman Township Supervisor Doug Ide informed members of the Back Mountain Community Partnership Thursday afternoon at Misericordia University about the latest natural gas drilling news in the area.

The BMCP is an inter-municipal group composed of Dallas, Franklin, Jackson, Kingston and Lehman townships and Dallas Borough.

Ide attended a public information session by EnCana Oil and Gas Tuesday at Lake-Lehman Junior/Senior High School. He and the other Lehman Township supervisors have also met with EnCana representatives.

Ide says he learned WhitMar Exploration Company has leased 24,000 acres of property in the northwestern part of Luzerne County, mainly on the north side of Route 118 in Fairmount, Ross, Lake and Lehman townships.

“The gas drilling is going to be here in the Back Mountain,” said Al Fox, BMCP president. “I thought it was quite alarming to hear the other day that 800 people signed up.”

According to Ide, EnCana, which will do the drilling, hopes to form two exploration wells in the county – one in Fairmount Township and one in Lehman Township – if they receive the required permits. The wells will prove whether there is natural gas in the area.

Ide says EnCana is willing to bond any road the township requests. Road deterioration and traffic from heavy trucks and machinery has been a common concern among the BMCP.

“We’re going to set some conditions on some roads we do not want traveled, specifically Old Route 115, Hillside Road,” Ide said.

BMCP officials decided to invite representatives from EnCana to speak at the group’s January meeting.

In February, the BMCP will invite back Brian Oram, a geologist and Wilkes University professor, to discuss what the municipalities should do to safeguard their drinking water and other issues related to drilling.

Oram spoke at the BMCP’s September meeting and briefly touched on water’s involvement in natural gas drilling.

In other news, the BMCP approved each member municipality to contribute $300 each to the group’s proposed 2010 operating budget. The budget is to cover general government administration costs.

Copyright: Times Leader

PennEnvironment group wants to ensure water, land isn’t damaged by natural gas exploration.

CBy Rory Sweeneyrsweeney@timesleader.com
Staff Writer

According to a state environmental advocacy group, Pennsylvania needs to do more to ensure that gas drilling creating profits today won’t end up like the coal mining of yesterday that left a costly environmental legacy for the next generation.

In a recent report, PennEnvironment outlined various changes it recommends to the state’s approach to the drilling industry.

They include: strengthening clean-water laws and regulatory tools; making sensitive public lands off limits to drilling and instituting a severance tax on the extracted gas.

“I think we’ve leased out too much state forest land,” said state Rep. Greg Vitali, D-Delaware County, who attended a teleconference last week.

He added that it’s “irresponsible” to lease more until the production is taxed.

“It’s only political influence … that’s kept the Marcellus Shale from being taxed,” he said.

He hoped to get such a tax in the next state budget cycle.

At issue is how to best oversee the increased drilling in the gas-laden shale, which is about a mile underground throughout much of northern and western Pennsylvania. While the state Department of Environmental Protection has promised increased oversight, a rash of issues at various drilling sites has residents concerned that companies will strip out the gas and leave pollution in their wake.

The report lists various regulatory changes PennEnvironment believes would minimize the potential realization of those fears.

“We disagree with the idea that dilution is the solution,” said Brady Russell of the Clean Water Action organization.

He suggested that drilling companies should foot the estimated $300 bill for landowners to get baseline water testing before drilling begins because it can be difficult for landowners to find that money.

The report also calls for better right-to-know laws to force drillers to release the kinds and amounts of chemicals they use and account for the water they consume, while providing for public input that includes allowing health officials opportunities to review proposed permits.

The report also suggests rewriting the municipal code to give local officials primacy over state law for siting wells, which would overrule a recent state Supreme Court decision.

Regarding regulations, the report suggests expanding buffer zones around streams where drilling is prohibited and account for cumulative impacts of drilling when considering additional well permits.

The report calls for banning wastewater discharge to publicly owned treatment works and requiring recycling and reuse of all flow-back wastewater, while setting zero-discharge limits at treatment facilities.

While the report doesn’t address the threat of concentrating naturally radioactive refuse from the drilling process – an issue of concern in New York as the state considers regulations for drilling – Erika Staaf of PennEnvironment said the issue hasn’t come up in Pennsylvania because it doesn’t seem that anyone has tested for it yet.

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

Copyright: Times Leader

EnCana Corp. will work with WhitMar Exploration Co. in seeking gas in the Marcellus Shale in the region.

By Rory Sweeneyrsweeney@timesleader.com
Staff Writer

EnCana Corp., perhaps the largest natural-gas producer in North America, has chosen Luzerne County as its entry point into the Marcellus Shale, thanks to an exploratory agreement with WhitMar Exploration Co.

WhitMar, a Denver-based exploratory company, has already leased about 25,000 acres in Columbia and Luzerne counties, including in Fairmount, Ross, Lake, Dallas, Lehman, Jackson, Huntington, Union, Hunlock and the northwest corner of Plymouth townships.

However, it doesn’t have the resources to develop the entire leasehold, so it went looking for a partner. It found EnCana, a Calgary-based company with U.S. headquarters in Denver that produced 1.4 trillion cubic feet of natural gas in 2008, according to its Web site. For comparison, Chesapeake Energy, another industry leader with a local presence, produced 839.5 billion cubic feet that year, according to its 2008 annual report.

Spokesman Doug Hock said EnCana has no other interest in the Marcellus Shale, a ribbon of gas-laden rock about a mile underground that stretches from upstate New York into Virginia but centers on Pennsylvania.

The agreement, however, only commits EnCana to the two exploratory wells WhitMar has agreed in its leases to create, Hock said. “Further activity will really depend on the results of the first two wells,” he said. “The first couple wells that we’re drilling are really to prove it up and ensure that we have viable program there.”

Both wells, while exploratory, will also be put into production, he said, though it’s unclear where pipelines will be installed to connect the wells to regional gas lines.

The deal gives EnCana 75 percent interest in the leasehold and control as the operator, according to WhitMar spokesman Brad Shepard. “Being an exploration company, we’re a small company,” he said. “At least in the Marcellus, we get a partner to develop it with.”

He said there were several companies interested, but that EnCana was “the best fit” thanks to similar interests in testing, drilling and size of the project.

Both companies are also interested in increasing the acreage in the leasehold, he said. Within the area the current lease encompasses, there are perhaps 25,000 to 30,000 acres that aren’t leased, Shepard said. “What we’re trying to do now is basically trying to infill all the land that we have now,” he said.

According to Hock, EnCana, whose business is currently 80 percent gas production, is in the process of splitting the company into two “pure plays” to “enhance the value” of each: EnCana, which would focus entirely on gas, and Cenovus Energy Inc. to oversee its oil-sands operations in Canada.

“We’re in that process right now,” Hock said. “The deal is expected to close at the end of the month.”

EnCana slid on the New York Stock Exchange this week, from $59.40 per share on Monday to $56.11 on Friday.

Both companies are also interested in increasing the acreage in the leasehold.

Copyright: Times Leader

Authority soliciting proposals now to raise money for upgraded pollution controls.

By Rory Sweeneyrsweeney@timesleader.com
Staff Writer

The Wyoming Valley Sanitary Authority is investigating the feasibility of treating wastewater created from natural-gas drilling.

It hopes to offset some cost increases the authority will soon incur to make pollution-reducing renovations.

The authority published a request for proposals earlier this week, seeking bidders who could supply at least 500,000 gallons of wastewater daily for at least three years and pay at least 5.5 cents per gallon. Using both minimums, that would create daily revenue of $27,500.

Drilling for gas in the Marcellus Shale creates millions of gallons of wastewater that must be treated.

“The good part of that is that, instead of paying for fresh water from the Susquehanna (River), we would pre-treat this and they would reuse that to fracture new wells,” said Fred DeSanto, the authority’s executive director. “We know drilling’s going on; we are a wastewater treatment facility. That’s our business to treat it. We just don’t want time to go by as there’s water to treat.”

That means that, for now, the plant is seeking a permit from the state Department of Environmental Protection to treat up to 150,000 gallons per day in its sewage stream. The company, however, is reserving the right to inspect for pollutants in incoming drilling wastewater.

It requires pre-testing for “total dissolved solids” and “suspended solids” – generally a measure of the amount of minerals and chemicals in the water – and reserves the right to deny it.

DeSanto said that protects the authority’s equipment, which would “probably” be damaged by heavy loads of solids.

All testing and transportation costs would be paid by the drilling company, which also must carry $2 million in liability insurance, indemnify the authority from all risks associated with hauling the waste and provide a “blanket statement” that it isn’t “hazardous waste.”

The long-term goal is to build a million-gallon-per-day, closed-loop facility to “pre-treat” the water enough that it could be reused in industrial capacities and resell it to the companies that brought it in.In its bid request, the authority is looking to get at least half a cent per gallon for that water. That water would never touch the sewer operation or be discharged into the river.

“It’s the preferred method of disposal by DEP,” said John Minora, the president PA NE Aqua Resources, which is consulting on the project. “We’re left with a sludge cake that gets either landfilled or incinerated. … The water that’s left, it looks a little milky because it’s high in salt.”

That waste could then be mixed with effluent from the plant’s sewer operation to reduce solids levels, thus preventing more discharges to the river, he said. As pollution discharge credits, which would set a limit for how much facilities can discharge, become a reality, the reduced discharges could provide more revenue.

“I think the people who are environmental should be very happy about that,” Minora said. “Recycle and reuse, I don’t think it has to be an us-against-them” situation.

The revenue would go toward the millions the authority will have to spend to upgrade its system for upcoming requirements to reduce pollution in the Chesapeake Bay and to fix stormwater overflows that currently spill untreated sewage into the river whenever it rains heavily.

Potential revenues are “unknown right now because we don’t exactly what the treatment cost is going to be,” DeSanto said. “We feel that there’s enough there that we could make a profit to help our operating budget in the future, help our ratepayers.”

Bids are due by Nov. 16.

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

Copyright: Times Leader

Chesapeake Energy explains protections it practices during drilling for natural gas.

By Rory Sweeneyrsweeney@timesleader.com
Staff Writer

PLAINS TWP. – As negative issues arise related to natural-gas drilling in the Marcellus Shale, at least one company is being careful to keep residents informed about the industry’s benefits and distance itself from concerns.

Speaking on Thursday at the “Executive Management Breakfast Series” put on by Penn State Wilkes-Barre, a spokesman for Chesapeake Energy detailed the environmental protections his company uses when drilling and outlined the positive economic effect the industry has had in Pennsylvania.

Chesapeake has paid out $700 million to landowners since 2008, along with $100 million to contractors in the state and $500,000 to community projects in 2009, according to Brian Grove, the director of corporate development for the company’s eastern division.

But the growth – a plan for 200 more wells in 2010 – isn’t at the expense of precautions, he said. Wells receive five layers of protection from ground water, he said, and “all of the chemicals (used in the hydraulic fracturing process) are stuff you will find in your home.”

The statement comes weeks after driller Cabot Oil and Gas was fined by the state Department of Environmental Protection for spilling fluids that contaminated a nearby wetland and a day after the department announced another fine against Cabot and ordered that alternative water supplies be provided to Susquehanna County residents whose water wells have been contaminated with methane.

“Certainly, when an operation isn’t meeting the regulations laid out by the state, it doesn’t reflect well on the industry,” Grove acknowledged, adding that Chesapeake is striving to remain free of such image-tarnishing incidents.

At least one of Chesapeake’s operating practices impressed Mary Felley, the executive director at Countryside Conservancy in La Plume, for its environmental protection beyond state regulations. Drillers must collect water contaminated by drilling activities, but they’re only required to store it in open-air pits. When Grove noted that Chesapeake stores all of it in closed containers, Felley complimented the company on its additional protections.

Grove also assured members of the Wyoming County Landowners Group whose land rights are confirmed will be receiving the full up-front payments the group negotiated, which was a particular concern for Marisa Litwinsky, a financial advisor with Merrill Lynch. Group members and others who have recently signed with Chesapeake have worried that the driller might back out on paying the balance of those deals.

“We’re committed to” the land group, Grove assured. “Anyone who’s got a good title, they’re going to have a lease.”

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

Copyright: Times Leader