Gas companies eager to tap Marcellus Shale

| Wednesday, March 17, 2010

Cracking the Marcellus Shale to gather natural gas has exploration-production companies competing to acquire each other to lease and/or purchase acreage, industry watchers said.

This rush to develop the Marcellus region, which has an abundance of the fossil fuel 6,000 feet below much of the state, could lead to an influx of new companies in Western Pennsylvania to take advantage of low-cost energy and a boom in blue-collar jobs, the experts said.

"This region will become self-sufficient in terms of energy. There's enough natural gas in the Marcellus to power this state for 180 years," said Kent Moors, director of Duquesne University's Energy Policy Research Group.

On Monday, coal producer Consol Energy Inc., based in Cecil, became the latest company to take advantage of the Marcellus Shale region, agreeing to pay Dominion Resources Inc. $3.5 billion in cash for its entire Appalachian Basin exploration-production business. Consol will combine that with its natural gas business that developed from extracting methane from coal seams.

"We're not getting out of the coal business; we're getting more into the gas business," Consol CEO J. Brett Harvey said.

"Short term, there will be fair number of jobs developed in this area to drill the wells," said Lester Lave, a Carnegie Mellon University professor and co-director of the university's Electricity Industry Center.

Long term, Lave believes the lure of cheap, close-by natural gas could make this region the place to relocate for those needing cheap power to operate.

"You could have a blue-collar boom here. Cheap gas really could stimulate industry, everything from glass making, to fertilizer, to power plants -- a lot of industries run on cheap fuel," Lave said.

Consol's deal with Dominion was preceded by other Marcellus-related transactions, including Exxon Mobil Corp.'s $41 billion deal in December to buy Houston-based XTO Energy Inc.; a $350 million investment in June by private equity firm Kohlberg Kravis Roberts & Co. in Warrendale-based East Resources Inc.; and Oklahoma City, Okla.-based Chesapeake Energy Corp's $3.4 billion sale of 580,000 Marcellus acres to Norway's Statoil in 2008.

The Marcellus formation stretches from southern West Virginia, through most of Pennsylvania and into upstate New York.

Talisman Energy Inc., one of the world's largest, independent oil and natural gas exploration-production companies, this year will spend $1 billion developing its Marcellus Shale reserves in the state.

The Calgary, Alberta, Canada-based company this summer will relocate its U.S. headquarters to Cranberry from Long Island. By year's end, 125 employees will occupy 50,000 square feet of new office space.

"Our land holdings in the Marcellus Shale region primarily are in Bradford, Tioga and Susquehanna counties, in the northern tier," said Talisman spokesman Mark Scheuerman. "But the Marcellus covers a wide expanse, and we felt from a recruiting perspective, the best place to put our U.S. shale headquarters was Warrendale."

"It's our opinion that the Marcellus formation represents a huge economic opportunity for Pennsylvania and New York," said Andrew Bradford, manager of energy market analytics for Bentek Energy LLC of Evergreen, Colo.

A Penn State University study last year projected that Marcellus-related activity by 2020 could translate into $13.5 billion of economic impact and nearly 175,000 related jobs.

The experts believe that potential obstacles to Marcellus Shale development can be overcome.

Water is a key component to a process known as fracking, which allows the natural gas to escape and be gathered. For each well, as much as five million gallons of water, mixed with sand and chemical additives is pumped at high pressure underground to fracture the shale, with 30 percent to 60 percent of the polluted waste water returned to the surface once the process is completed.

"I don't think fracking bothers the water table because it's performed well below the water table," Lave said. "Companies use a lot of water to frack, but Pennsylvania has been blessed with a lot of water, so I don't think we will run into a lot of water problems."

Bradford said the fracking process has been utilized worldwide for decades and that keeping drinking water safe shouldn't be a deterrent to development.

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