Airport shale drilling takes patience

Dallas/Fort Worth warns Pittsburgh International not to expect instant results with its fracking

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David Magana, the public relations face of Dallas/Fort Worth International Airport, wasn't in the room when officials from Consol Energy Inc. and Pittsburgh International Airport came to seek advice from the Texas airport in May. But if he had been, he'd tell the people from Pittsburgh to approach their Marcellus Shale development deal with a great deal of patience.

Mr. Magana speaks from experience.

Dallas/Fort Worth was the first international airport to sign a shale development lease, a blockbuster deal with Oklahoma-based Chesapeake Energy Corp. that has brought in about $300 million since 2006. But drilling there has been on hold for several years because of low natural gas prices.

"This thing comes and goes," he said. "If you know that going in and you don't create a lot of need from the gas revenue, then this thing goes very well."

Pittsburgh International is projecting that its deal with Consol, signed in February, will yield about $500 million over the life of the lease, which will be in effect as long as the gas keeps flowing profitably.

On Tuesday, Consol is scheduled to reveal its drilling plan at a public meeting at the Pittsburgh Airport Marriott from 4 to 7 p.m. The company is drafting its environmental assessment as required by the Federal Aviation Authority and public comments from the meeting will be included in that document, which Consol plans to submit in September and finalize in December.

The Pittsburgh airport authority has been turning to its Dallas/Fort Worth counterparts for years, since its first attempt to solicit gas companies in 2008 yielded no takers. That year was the first when royalties began to flow for the Texas airport.

DFW's lease signing bonus was $186 million for 18,543 acres, amounting to a whopping $10,000 per acre. Consol's deal with Pittsburgh International, which has 9,263 acres, settled at around $5,000 per acre, still far above the going rate these days.

The first year after drilling began at Dallas/Fort Worth, the airport took in about $30 million in royalties. By 2012, that had dropped to $8 million, Mr. Magana said.

While it projected drilling in the neighborhood of 300 wells, there are just more than 100 in the ground -- the last one drilled several years ago. Earlier this year, Chesapeake asked the Dallas airport for permission to delay its drilling obligation for 2013 and 2014.

In Pittsburgh, Consol doesn't have such requirements. There is no minimum number of wells that must be drilled and no annual requirement for production. The lease only requires that if the company deems it's not economic to drill, it must show the airport authority the numbers behind its logic and spells out recourse in case the airport disagrees.

At the Texas airport, the third-busiest in the nation, neither the bonus nor the royalty money was ever slated for operations, Mr. Magana said, and even in the capital budget, it made only a dent.

"It's been a bonus. People view it as this great panacea, but it really is just another tool," he said. "It's a great add-on, but not the solution to everything."

Both the bonus payment and royalties make up a smaller proportion of Dallas/Fort Worth's budget, which this year is $654.7 million, than Pittsburgh's airport, whose 2013 budget was approved at $159.6 million.

The airport's leadership has taken the long view, Mr. Magana said. The gas will remain in the ground until the price is right. Then, both Chesapeake and the airport can reap the benefits.

The relationship hasn't always gone smoothly. The Dallas airport spent four years pushing a lawsuit against Chesapeake over royalty calculations, a dispute that ended in a $5 million settlement last year. There was also controversy over a deep wastewater injection well on airport property that was believed to be causing small earthquakes and was shut down by the company.

But Mr. Magana said the partnership has been a good one overall.

The airport never experienced any disturbances in air traffic operations because of the drilling, he said.

Chesapeake's wells were drilled closer to the terminal and to runways than what Consol has in mind for Pittsburgh International, said Craig Neal, vice president of Consol's gas operations in Northern Appalachia, who made the trip to Texas in May.

"Actually, you will see very little" when the process gets going in Pittsburgh, he said. "And once the drilling is done, I don't think people will actually notice."

There also will be fewer well pads -- the lease caps the number at 10, but Consol is planning 6 -- and longer horizontal wells extending from each pad to minimize surface impact.

Rig lights will be pointed at the ground to keep air distractions at a minimum.

As was done at Dallas/Fort Worth, Consol will launch a training program for Pittsburgh air terminal employees and first responders to educate them about the drilling plan and process.

Mr. Neal said the company meets with the airport authority every two weeks. Both organizations have created special sections on their websites with information about the drilling project.

As far as state environmental permits, Consol and the Department of Environmental Protection believe the procedure will be no different than for wells on private property. The only additional demand is the need to comply with the Federal Aviation Authority's environmental assessment process, forcing Consol to engineer the entire network of wells, pipelines and impoundments as a package.

There also will likely be infrastructure needed to handle the natural gas liquids that Consol expects will be found underground.

Wells in the surrounding area seem to back up that theory. Production from Chevron and Range Resources' wells in Robinson, Washington County, which is about seven miles from the airport, show consistent liquids production. In Hanover, Beaver County, and Hanover, Washington County, each of which is about 15 miles from Findlay, wells are also producing wet gas.

Consol plans to have office space at the airport terminal. It has about 20 employees devoted almost exclusively to this project who will be based there.

For JoAnn Jenny, a spokeswoman for the airport authority, the May trip to Dallas underscored the potential of all that extra cash.

Using its bonus money, Pittsburgh has already reduced the rates that airlines pay to use the airport.

And, as Ms. Jenny noted, the airport authority is enjoying some of the best credit ratings it's ever had. Both Moody's and Fitch recently upgraded the authority, specifically crediting the deal with Consol as a financial bright spot.

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Anya Litvak: or 412-263-1455.


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