Hoping to tap a gas bonanza

Rising prices lure natural gas drillers to vast, but deep Appalachian field

On the outskirts of Kittanning along the Allegheny River, well drillers mixed a million gallons of water and 800,000 pounds of sand and pumped it at high pressure more than a mile underground. Their goal was to crack up a deep layer of black shale and release what they hope will be a natural gas bonanza.

The new $750,000 Snyder Brothers Oil and Gas Co. test well is the first attempt by the Kittanning-based company to tap the deep and potentially lucrative Marcellus Shale geologic formation, which stretches in a thick underground layer from New York to West Virginia and may hold as much as 516 trillion cubic feet gas, about a tenth of it recoverable using modern technology.

Although it might take three years to determine if the new Snyder Brothers well is a success, it shows the depths to which the search for energy is sinking in Pennsylvania.

Rural landowners are already cashing in as gas companies and speculators are searching for suitable drill sites.

The bonanza is biggest in the central and northeast part of the state, where the Marcellus Shale runs 100 feet thick or more and is easier to fracture because it's more brittle. Gas development companies are leasing land at rates ranging up to $3,700 an acre and paying royalties of up to 18 percent on the gas produced.

In southwestern Pennsylvania, lease rates that were just $5 an acre 18 months ago have risen steadily to $65 an acre, then $100 an acre, and lately companies have been paying $300 an acre, said David O'Hara, a Snyder vice president. Some leases in Washington County have even topped $3,000, but royalties there are sticking to the more traditional 12.5 percent.

Deep drilling permits are being issued so fast it's difficult to get an accurate count from state agencies. The Department of Environmental Protection says it has issued 590 -- up from 375 at the end of last year -- to 23 companies in 15 counties, including Allegheny, Fayette, Washington, Greene, Butler and Westmoreland in the southwest. The Pennsylvania Geological Survey puts the number of permits at 764.

The number of deep wells that actually have been drilled is a lot lower, maybe about 200, but industry experts say the business is in a boom cycle.

Natural gas prices between $10 and $13 per 1,000 cubic feet and new technology that includes horizontal drilling and hydraulic fracturing have combined to spike interest in the Marcellus Shale formation, Based on the huge estimates of its gas reserves -- and no one knows how accurate they are yet -- the recoverable amount in the formation would be more than twice the natural gas used in the United States last year.

"It's all very exciting," said Stephen Rhodes, president of the Pennsylvania Oil and Gas Association. "The order of magnitude differences in the amount of gas we could get out of the Marcellus tells you that no one knows how much or if it's economically recoverable.

"But with more than $2 billion already invested in wells and leases, it's clear that those who have taken the time and studied the data believe this is a very significant opportunity here, and that's for both jobs and wealth creation. If it plays out the way some believe, Pennsylvania could become a very big gas producing state."

Driven by new technology

"We're guardedly optimistic," a hard-hatted O'Hara said last week as 10 Superior Well Services pump trucks noisily forced the water-and-sand slurry down the drill hole at a rate of 3,700 gallons a minute.

At the bottom of the 6,200-foot-deep hole, Superior had already set off multiple small explosive charges to fracture the 80-foot-thick layer of black shale. (The shale gets its color from organic materials, mainly plants, that were trapped in the sedimentary rock more than 365 million years ago.)

The water, pumped under high pressure, carries the sand grains into those fractures. In a matter of days, the water is pumped back out of the hole and the sand is left behind to hold the fractures open, allowing the natural gas to move through them to the well where it is collected and moved to the surface.

The test well outside Kittanning is a normal vertical well, but new directional drilling techniques could be used on subsequent wells to push the drill hole horizontally through the Marcellus formation, allowing more gas recovery over a wider underground area.

About one-third of the wells into the Marcellus so far have been horizontal, which can cost more than $1 million to drill and use twice or three times the amount of water as a conventional vertical well.

Snyder holds permits for half a dozen sites and has scouted dozens of others but has only drilled the well outside Kittanning and another it plans to "frac" next week near Worthington, also in Armstrong County.

Snyder's "fracing" operation on Wednesday attracted more than two dozen industry representatives, including a handful of self described "land agents."

'Out of the woodwork'

Geologists have known about the Marcellus Shale and its natural gas potential for 75 years. But when natural gas prices were lower than they are now it didn't make economic sense to sink expensive wells into the formation, which lies 6,000 to 8,500 feet below the surface. That's at least twice as deep as other regularly tapped gas deposits in Pennsylvania.

Higher gas prices and the higher estimates of the amount of gas in the Marcellus released earlier this year by researchers from the Pennsylvania State University have "hyped" the play a bit, said John Harper, chief of the subsurface geology section for the Pennsylvania Geological Survey, which has estimated the formation contains 295 trillion cubic feet of natural gas, still a substantial amount.

"I'm not saying the Marcellus doesn't contain gas or it can't be drilled for with modern technology at these prices," Mr. Harper said. "It's going to be a phenomenal gas play, but it's been there for a while and some companies have been quietly drilling in it for a few years. But when recoverable number of 51 trillion cubic feet was put out there they really started coming out of the woodwork."

The first well into the Marcellus Shale in Pennsylvania was drilled in 2003 by Range Resources in Washington County, but the firm didn't get a producing well in that county until 2005. Now it has 150 wells tapping into the Marcellus in western Washington County. Atlas America is developing wells in Greene County.

"There's been huge interest," said Neil Weaver, DEP spokesman.

Contributing to that interest has been the state Department of Conservation and Natural Resources, which announced last week that for the first time in six years it will accept bids for deep well drilling on 18 tracts covering 74,023 acres in the Loyalsock, Tiadaghton and Tioga state forests in Tioga and Lycoming counties -- the heart of the highest leasing area in the state.

The minimum bid, due by Sept. 3, is $1,000 an acre, so the state could reap at least a $75 million windfall and probably much more given that leases of private land in the area have recently soared to more than $3,000 an acre.

Although the decision to allow new oil and gas exploration is a controversial one with some environmental groups, the DCNR was under pressure from some Republican state legislators to open up even more forest land for exploration and development.

Christina Novak, a DCNR spokeswoman, said the department is not planning to expand the number of leases it's offering anytime soon but wouldn't rule more out next year.

DCNR Secretary Michael DiBerardinis said environmental reviews will be conducted to make sure any wells leased protect the health of the forests.

The environmental concerns are primarily related to water use. Conventional vertical wells can take as much as 1 million gallons and horizontal drilling operations can use 3 million gallons or more.

Although most areas of the state where the drilling has taken place so far have plenty of water, problems have occurred. Range Resources-Appalachia and Chief Oil and Gas were cited and fined by the DEP in May for violating the state Clean Streams Law by removing too much water from small streams near their deep wells in Lycoming County. Both firms are now in compliance and have filed required water management plans.

Where the water goes after it's used may be more of a problem. Water used to fracture underground rock and pulled back to the surface can be contaminated with brine and salt, and even pick up some radioactivity, and must be treated before it can be released into state waterways.

There are only two water treatment facilities in the state that specialize in such water treatment, but drilling companies can contract with municipal water treatment facilities if they have the capacity and capability to do such treatment.

Don Hopey can be reached at dhopey@post-gazette.com or 412-263-1983. First Published July 20, 2008 4:00 AM


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