Amid natural gas drilling boom, conventional wells hold edge
By Tom Yerace
Published: Sunday, Nov. 18, 2012, 12:01 a.m.
For some time, the Alle-Kiski Valley has been considered part of the “Rust Belt” along with the rest of the northeastern United States.
What might be more accurate now is calling it part of the “Gas Belt” or maybe the “Energy Belt.”
According to the state Department of Environmental Protection, nearly 4,800 conventional or shallow natural gas wells operate throughout the Alle-Kiski Valley.
Marcellus shale gas drilling has garnered much of the public's attention and discussion in the past few years. That is because of a huge reserve of Marcellus shale throughout the state, the potential financial windfall it presents and the environmental concerns about the fracking gas extraction process Marcellus wells use.
However, far more conventional natural gas wells exist in the state, most of them drilled by independent operators, said Dan Weaver, director of public outreach for the Pennsylvania Independent Oil and Gas Association.
Weaver estimated there may be 5,000 Marcellus wells in Pennsylvania but said at least 50,000 are conventional wells.
There is good reason why that is the case, said Harold Brown of Lower Burrell. Brown owned Apollo-based Burgly Gas Co. for about 40 years and only recently sold the majority of his wells, about 350, to his son-in-law, Vernard Shumaker, who owns Shumaker Gas Co.
“We don't do any of the Marcellus wells. Those are for the big boys. They cost about $7 or $8 million apiece,” Brown said.
Weaver said by comparison, a conventional well might cost “a couple hundred thousand dollars.” He pointed out that the greater investment in Marcellus shale wells carries the potential for greater profit.
“A good traditional well might produce 250 cubic feet per day where you have these Marcellus wells that are producing 4 (million) to 5 million cubic feet per day,” Weaver said. “You are going to have a lot more invested into it, but you are getting more out of it.”
Yet, conventional wells continue to play a key role in the state's energy picture.
“The majority of our gas goes to the major companies,” Brown said.
In turn, it is the major companies such as Peoples Natural Gas, Equitable Gas and Columbia Gas that provide natural gas to heat homes.
Referring to companies like Brown's, Peoples spokesman Barry Kukovich said, “Probably 70 percent of the gas that we use is based on suppliers like this in our 16 counties. They have been our mainstays for years and are very important to us.”
Brown, 73, owned an industrial painting business for 15 years before getting into the natural gas business in the 1970s, when he bought Burgly and kept the name. His company drilled, owned and operated gas wells throughout most of the counties in Southwestern Pennsylvania. He said the gas business has its peaks and valleys like so many others and now it is in a bit of a valley.
“We're getting 1970 prices right now for the gas,” he said.
That follows closely what had been one of the high points for the independent gas producers.
“At one time, the gas was $10 a thousand cubic feet but it was overpriced then,” Brown said. “That was five years ago. It was nice. We were making money.”
Weaver said gas was selling at $3.76 per thousand cubic feet (MCF) near the close of business on Thursday.
“That's a huge difference from where it was back in 2008 when it was close to $12 per MCF,” he said.
“A lot of the small companies didn't drill a lot in the last few years because the gas prices have been so low,” Weaver said.
Also, Brown said that changes to DEP regulations because of the deep Marcellus wells have not helped.
“They made it hard to drill a standard well with the DEP regulations because you've got to play by the same rules as the deep well guys,” Brown said.
“Nobody ever said it was fair,” he added.
Weaver said that 1.3 trillion MCF of natural gas was produced in Pennsylvania, double the amount produced in 2010.
“Right now there is just so much gas out there from everywhere, the thing is now finding the end user,” he said.
The independent shallow well companies are getting creative in that regard. Weaver said one shallow well company in Clarion County is opening up a natural gas filling station along Interstate 80 to provide fuel for the growing number of vehicles that are being powered by natural gas instead of gasoline. He said two other companies are planning to open filling stations as well.
Despite the lower prices, Kukovich and Weaver both believe that conventional well companies will continue to play a major role in the future.
“I think they will be part of the mix,” Kukovich said. “I think they have to be part of the mix because more and more natural gas is going to be used.”
“The smaller companies will continue to supply gas to heat homes. I think you will see a lot of the Marcellus shale gas going into industry,” Weaver said.
Whatever happens, Brown intends to keep his hand in the business since he still retains ownership of about 80 wells.
“I'm not ready to go to the nursing home,” Brown said. “I'm going to stay active.”
He said a lot of Burgly's wells are in Kiski Township near the company's office. In fact, Kiski Township probably would be considered the gas capital of the Valley since it has 856 wells, about 18 percent of the region's 4,786 wells.
Tom Yerace is a staff writer for Trib Total Media. He can be reached at 724-226-4675 or email@example.com.
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