Allegheny County, Consol strike $500M airport gas drilling deal
February 8, 2013 10:00 AM
Allegheny County Executive Rich Fitzgerald prepares to speak at the public meeting Thursday at Robert Morris University. He announced legislation for a contract between the Allegheny County Airport Authority and Consol Energy.
Lisa DeSantis, left, of New Castle and Maggie Henry of Bessemer cover their mouths with Ban Fracking Now stickers during a hearing about the county's deal with Consol Energy to extract natural gas from land at Pittsburgh International Airport.
Consol Energy President Nick J. Deluliis speaks at a public meeting at which Allegheny County Executive Rich Fitzgerald announced legislation for a contract between the Allegheny County Airport Authority and the company.
Joni Rabinowitz, a long time Pittsburgh activist, speaks first at public meeting against drilling for natural gas.
By Mark Belko and Jon Schmitz Pittsburgh Post-Gazette
For years, Pittsburgh International Airport has been viewed as an economic engine for the region. Little did anyone know that the big money -- half a billion dollars -- would be in the ground, not in the sky.
That appears to be the case, with Thursday's announcement that Consol Energy Inc. will pay an estimated $500 million over the next 20 years for the right to drill for shale gas on 9,263 acres surrounding the Findlay airport.
In discussing the agreement at a public hearing Thursday night in Moon, Allegheny County Executive Rich Fitzgerald said it would include an upfront bonus payment of $50 million and an estimated $450 million in royalties over the next two decades.
Mr. Fitzgerald said Cecil-based Consol also plans to invest another $500 million in drilling-related infrastructure and other costs.
"This deal is basically going to be a billion-dollar investment that Consol is making in this region without any taxpayer dollars," he said. "I feel good about what the taxpayers and the community are going to get out of this."
PG graphic: Gas drilling proposed on airport property (Click image for larger version)
The agreement is expected to go before the county airport authority board today for approval. The authority selected Consol in December even though it appeared that the other bidder for the drilling rights, EQT Corp., was offering a better deal.
At the time, Downtown-based EQT was offering a lump sum payment of $44 million, or $4,750 an acre. Consol countered with a payment of $20.8 million, or $2,250 an acre.
But Mr. Fitzgerald said Consol increased its offer over weeks of negotiation. In the end it was deemed to be "more financially lucrative" than what EQT was proposing, he said.
"This was viewed by the authority to be a better deal for the taxpayer," he said.
Consol will pay an annual 18 percent royalty on drilling proceeds, meaning the company will have to extract at least $2 billion worth of gas and liquids over 20 years to hit the estimated $450 million figure.
Although the deal allows Consol to drill at Pittsburgh International and Allegheny County Airport, the company indicated it likely won't drill in West Mifflin because of heavy residential development.
Mr. Fitzgerald said Consol is banking its estimates in part of its belief that the airport land is richer in deposits of higher-priced "wet" gas, or gas that comes loaded with hydrocarbons such as ethane and butane, than in "dry" gas. That is particularly important given the proximity of the proposed Shell Oil cracker plant near Monaca, which will break down wet gas compounds.
The county estimated that deposits of dry gas would have produced about $2,000 an acre in upfront payments compared to the $5,400 the airport authority will receive.
Mr. Fitzgerald expects Consol to begin drilling in mid- to late 2014, if all goes according to plan.
He said that the money generated from the drilling would be used to reduce the costs to the airlines operating from Pittsburgh International, for airport-related capital improvements, and to put in roads, utilities and other infrastructure on airport land targeted for development.
Federal Aviation Administration regulations require that any proceeds from gas drilling be used to improve the airport or its properties.
Once the money starts flowing, the county may ask the state to redirect $12.5 million a year in gambling money now designated to help pay down airport debt to its own coffers for general budget purposes, he said.
At the same time, Mr. Fitzgerald vowed that the drilling would be tightly controlled, with regular inspections and scrutiny from all levels of government.
An overflow crowd of more than 300, divided between supporters and opponents of shale gas drilling, packed Thursday night's public hearing of county council at Robert Morris University.
The audience first heard from Mr. Fitzgerald, who announced the deal with Consol; and Dennis Davin, an airport authority board member who said the lease will require Consol to meet or exceed environmental and aviation safety regulations; then two Consol executives, president Nicholas DeIuliis and vice president Craig Neal; followed by a parade of elected officials, most describing gas drilling as an economic bonanza for the region.
Mr. DeIuliis said the region has an energy opportunity like nowhere else in the world. "What could screw this all up? It's not operating within the letter and spirit of the law. Unless we're safe and compliant, our license is going to be taken away from us. We get that," he said.
Washington County Commissioner Diana Irey Vaughan said "in our region we have every reason to feel energized about the future. We are at the epicenter of the natural gas industry. ... The energy to power our region is directly under our feet."
Roger Creech, vice chairman of the board of supervisors in Morris, Greene County, said the small township has more than 100 gas wells and studies have found no adverse impact on drinking water.
It took more than an hour before the first citizen spoke, and Joni Rabinowitz of Pittsburgh's Park Place neighborhood began by saying, "Boy, what a whitewash, huh?"
"There are many dangers in this industry. As with smoking and asbestos, the dangers won't be fully known for years."
Lisa Graves-Marcucci of Pleasant Hills said the region is reinventing itself through science and technology. "Existing pollution has held us back and continues to hold us back. Now is not the time to add significantly more pollution to our region," she told council members. "We do want to see healthy economic development. Your rush to judgment ... is a mistake we will pay for with our health."
"There's been very little research and impact studies," said Terri Supowitz of Wilkinsburg. "Pennsylvania is the research. Pennsylvania is the experiment. Most of our legislators are not doing their due diligence. The public is being dismissed and forgotten."
"I'm tired of Pennsylvanians being the guinea pigs," agreed Bridgette Shields of Squirrel Hill.
Claudia Detwiler of Squirrel Hill said gas wells will spew toxic chemicals for miles. "Some people will get very sick, including children," she said.
Seventy-seven people registered to speak at the hearing.