Gas firms pull rigs, complain state obstructs Marcellus drilling

| Monday, Nov. 17, 2008

Some companies spending millions of dollars to tap a natural gas boom in Western Pennsylvania are moving their rigs to other states, saying the state's drilling requirements are confusing and inconsistent, and permits are slow in coming.

Atlas Energy Resources LLC of Moon, for example, shifted 40 percent of its well-drilling program for the winter and spring -- $100 million in investments -- elsewhere, primarily to Michigan, Indiana and Tennessee.

"That's too bad for Western Pennsylvania," CEO Richard Weber said but, "When there is this much regulatory uncertainty, it makes it hard to budget." Applying for permits in Pennsylvania can be a time-consuming, costly process, he said, forcing the company to wait for months.

State Sen. Mary Jo White, R-Venango, said she hopes the permitting process for companies using new well-drilling technologies can be streamlined.

"This is a wonderful opportunity, and we don't want to blow it," White said.

DEP spokesman Tom Rathbun said the agency has worked with the gas industry on statewide rules, but "we are not going to throw our environmental laws out the window."

The quest to pull natural gas from a region 6,000 feet or more below surface level -- known as the Marcellus Shale -- is being compared to the Pennsylvania oil boom that began in 1859 near Titusville. With the Marcellus "play" in its infancy, dozens of gas producers and contractors who work for them have set up or expanded local offices, hired more workers and drilled their first wells -- but many say the state's environmental rules for their methods have been unclear and inconsistent.

Much of the 1,200-mile-long Marcellus Shale region is in the western half of Pennsylvania, although it also stretches into West Virginia, Ohio and New York. Some say it holds enough gas to supply the United States for 14 years. The latest horizontal drilling methods can reach the clean-burning fuel effectively and capture more of it, at less cost, than traditional wells.

Dave Spigelmyer of North Shore-based Equitable Resources Inc. said Marcellus development over the next few decades could create 50,000 jobs in Pennsylvania. It could bolster the region as a hub for natural gas pipelines and storage, he said.

"Pennsylvania has lost a lot of manufacturing jobs. This is an opportunity to replace some of them," he said.

Companies hoping to tap the Marcellus region still compete with drillers in other states. In Texas or Louisiana, producers can submit a one-page application, promise to adhere to thick manuals and start drilling the next day, said Matt Pitzarella of Fort Worth-based Range Resources LLC, whose Washington County office has expanded from 20 workers to 150 in the past year.

"Here it's like you are writing sections of that manual every time, and that's where the delay is," he said. "People would say we want (permits) faster because we want less regulation, and that's not the case."

Terry Engelder, a Pennsylvania State University geoscientist who recently estimated Marcellus could hold more than double the gas previously thought, agreed the process for permitting horizontal wells could be made easier.

"The regulations do evolve in time -- they had to for vertical wells," he said. "Suddenly this new technology came along and everyone had to do a double take to adjust to the horizontal drilling rules."

Rathbun said the agency has written consistent rules about where companies can draw the 3 million or more gallons of water they need to drill each horizontal well and fracture the shale around it to free the gas. Traditional, shallower wells use up to 80,000 gallons.

Horizontal wells plunge into the Marcellus Shale, then turn and travel horizontally for thousands of feet -- often in several directions. Drilling rigs, trucks and water retention ponds occupy four to five acres for the three weeks or so needed to build a well, compared with a half-acre for a traditional, vertical well.

But the finished well uses only as much surface space as a typical worker's office, the companies say, with only a small regulator and related equipment visible. And there is one above-ground site, while a dozen or more vertical wells might have been needed to capture the same amount of gas.

Gas producers say they realize record numbers of permit applications to DEP in recent years partly are to blame for delaying the well-permitting process from the 30 days it once took to three to four months now.

But they remain frustrated over the department's add-on to the application that requires a plan for how they'll pull water from streams or other sources, the environmental consequences involved and how they'll store, treat and dispose of the water.

The Marcellus addendum has gone through several revisions, and different DEP officials interpret it differently, they said. Rathbun said final rules were approved in August.

"The rules are far from clear. How much water can you withdraw from a stream• What kind of analysis do you have to submit?" said attorney Tim Weston of Downtown-based K&L Gates, which represents a new committee that the state's two gas industry associations formed to talk with DEP about making the permitting process easier and clearer.

Exco North Coast Energy of Akron, Ohio, said it has hired five people just to prepare the hundreds of pages of documents needed to file for drilling permits in Pennsylvania.

"I would like to see an oil and gas manual. They used to have one -- if you didn't follow it, you were fined. I'd like to get back to that," Exco President Wendy Straatmann said, adding the company wants to follow environmental rules, and the confusion could resolve itself in time as regulators learn more about the new drilling methods.

Still, Exco has moved its drilling equipment out of Pennsylvania for now.

"A lot of our dollars are now being spent in West Virginia," Straatmann said.

Equitable Resources, citing Pennsylvania's more complex process, has turned its attention to drilling areas in West Virginia, although it will resume work in December in Greene County. Range Resources said regulatory hurdles have slowed its well development.

Gas companies said uncertainty over when they can drill plays havoc with budgets and drilling plans, especially now that credit is tight and market prices for natural gas are half what they were in May. Drilling rigs and other equipment rent for tens of thousands of dollars a day, they said.

Environmentalists, meanwhile, are raising questions about horizontal drilling procedures, and DEP has acted on a few complaints about gas drilling in the past year.

"There is a lot of concern about how all the drilling could impact our water resources," said Myron Arnowitt, executive director of Clean Water Action in Pittsburgh. Drillers not only use large volumes of water but also add chemicals for the fracturing, or fracking process, that could end up in the water supply.

"The important thing is that we not get caught up in an industry that is so important to us, that we aren't thinking about what it's doing" to the environment, as Western Pennsylvania has in the past, he said.

Gas companies argue their water use for one well is comparable to a community swimming pool's, and wells are sealed with pipeline and concrete to prevent seepage during fracking.

Gas companies said their biggest ongoing local dilemma is DEP's recent order that sewage treatment plants along 70 miles of the Monongahela River cut the volume of gas well drilling wastewater they accept to 1 percent of their daily flow.

"Basically, it shuts us down. We can't generate fluids we can't dispose of," said Lou D'Amico, executive director of the Independent Oil and Gas Association of Pennsylvania, a trade group.

Humphreys said recent high levels of total dissolved solids led to the order, though mine drainage and dry weather affect contaminant levels.

Gas companies that used the Mon argue their water had a negligible effect on river quality.

Weber said Atlas is sending its water to treatment plants outside the state, at greater expense. Environmental and industry experts agree the state likely will need more treatment plants to handle the fracking water.

Rathbun said DEP has added geologists to regional offices, involved watershed staffs in the well-permitting process and hired more inspectors for well sites. The department is on pace to issue 8,000 well permits this year, compared with 2,358 in 2003, though a fraction are Marcellus permits.

"If these companies find what they think they are going to find, and when they have their infrastructure in place, this is really going to boom," he said, adding regulators are trying to strike a balance between business and environmental concerns.

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