Good deal? Time will tell on Consol's airport drilling lease
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The 20-year deal that the Allegheny County Airport Authority just approved with an affiliate of Consol Energy Inc. sure sounds good.
The agreement to allow Marcellus Shale gas drilling on 9,263 acres near Pittsburgh International Airport will bring about $50 million in up-front payments and the promise of as much as $450 million more over its lifetime, in the form of 18 percent royalties on whatever gas, oil and hydrocarbons are extracted from an expected 40 to 50 wells.
An industry expert judged the proposed royalty payments "excellent," although the county's initial explanation of the deal led to confusion.
Late last year, officials had said CNX Gas Co. LLC, a Consol affiliate, was offering $2,200 an acre and that EQT Inc. offered $4,600 an acre. For that reason, it was surprising that it was Consol that got the go-ahead after further negotiations with county officials, talks that resulted in the offer that averages about $5,400 an acre.
Dennis Davin, the county's economic development director, said CNX submitted the only bid that conformed to the county's formal request for proposals. He said the county's request filled a large binder, but EQT's response was only a handful of pages long. By contrast, CNX's bid was voluminous and sufficiently responsive, plus it was the only one that included the required check representing 10 percent of the total lease bonus payment.
The airport authority expressed no skepticism about the offer, and county council is expected to OK the pact, too.
This deal still demands a cautious approach, however. Naturally, CNX's drilling operations must meet or exceed safety and environmental standards.The county must be certain that all drilling occurs far enough away from airport operations and does not hamstring future development efforts on public land. And the county airport authority must be scrupulous in how it uses the dollars it earns on the deal.
Yes, the contract with Consol sounds good, but it may be years before anyone can know for certain.
First Published February 13, 2013 12:00 am