Pittsburgh International Airport drilling deal could net $40 million
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A month ago, it looked as if the Allegheny County Airport Authority was throwing money away.
But county officials now say that a bid by Consol Energy Inc. to drill for shale gas on airport land will give the authority a lump-sum payment of up to $40 million, nearly double the original offer.
Allegheny County Executive Rich Fitzgerald said Thursday that he expects ongoing negotiations with Consol, which was awarded the project last month, will end with the energy company handing over a $35 million to $40 million bonus once the deal is signed.
A month ago, Consol offered only $21 million.
"It's not firm, but something we're working towards," Mr. Fitzgerald said.
In December, EQT Corp. and Consol subsidiary CNX Gas Co. LLC submitted bids to drill for Marcellus Shale natural gas on the authority's 9,300 available acres, currently a hodgepodge of brownfields and scattered industrial development.
EQT's proposal, a per-acre advance price of $4,750 netting a total $44 million, was more than double what Consol offered -- $2,250 per acre, or $20.8 million.
But the authority chose Consol's lower bid, saying its offer left leeway that could end up more profitable in the long run.
EQT representatives called the authority's decision-making "arbitrary," suggesting the bidding process was less than impartial.
"If it turns out the authority negotiated the price and terms with the sole bidder, this is certainly not an indication of a fair solicitation process," EQT spokeswoman Linda Robertson wrote in an email.
When submitting its bid, EQT did not include a deposit check representing 10 percent of the total lease bonus payment, which was required by the authority. Officials would not say whether that disqualified the company.
Mr. Fitzgerald has been vague in explaining why the authority took the lesser deal, repeating only that it was the better bargain. The bid includes an 18 percent annual royalty on natural gas proceeds, which the county believes could net $3 million to $4 million a year.
Indeed, specifics on how the drilling operation itself would progress are still sketchy. County officials still aren't sure how many wells would be drilled or how much gas would be produced.
But runner-up EQT may not be entirely out of the picture. When asked what leverage the county had to wring concessions from Consol, Mr. Fitzgerald answered, "We have a second bidder."
Some estimates put the total value of the project at $250 million over 30 years. Per Federal Aviation Administration regulations, any gas proceeds would have to be spent on improving the airport or its properties.
Mr. Fitzgerald wants to spend the money on improving infrastructure around the airport, which he hopes would spur industrial development.
"It's about jobs," he said. "That's very valuable land out there."
The executive plans to officially ask county council's permission to allow drilling on airport land on Tuesday, a necessary step before the rigs can move in. If all goes smoothly, drilling could begin within the next 18 months.
In his proposal to council, Mr. Fitzgerald said he plans to ask for a public hearing to be held in Moon or Findlay, near the affected airport land.
While the Allegheny County Airport in West Mifflin was included in the authority's request for drilling proposals, it isn't looking to bring rigs into the largely residential area yet.
Mr. Fitzgerald's proposal to council only requests drilling on the Pittsburgh International Airport land, although the authority may have to pay back some of the $40 million bonus should it never open the West Mifflin site to development.
"We have not drilled on public land," Mr. Fitzgerald said. "If we're going to do it, let's do it in an area that is industrial land. We're not exactly looking at pristine parkland."
First Published January 18, 2013 12:00 am