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Airport authority weighs two bids for gas drilling on its land

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Wednesday, Dec. 5, 2012, 11:28 a.m.
 

Two Western Pennsylvania companies are bidding to drill for natural gas at Allegheny County's two largest airports in a deal that could provide a windfall to the authority that runs the airports and cash-strapped county government.

The up-front payments of between $20 million and $44 million would pale in comparison to royalties that could exceed $200 million over the life of 85 planned wells at Pittsburgh International Airport alone, based on industry averages and today's prices.

“This is a windfall that we want to leverage so the region as a whole benefits,” said Mike Wojcik, a former county solicitor who serves as a county Airport Authority attorney.

The companies submitted dramatically different bids to drill on a combined 9,263 acres at Pittsburgh International in Findlay and the county airport in West Mifflin. The authority made its proposals public on Wednesday.

EQT, a Downtown-based energy company, submitted a bid that would net the authority $44 million in up-front cash. A bid by Cecil-based Consol Energy was half as much, totaling $20.8 million, and it came with a deposit check of $2.1 million. Airport officials said they did not know whether a deposit is necessary and would review their bidding rules.

Both offers would provide ongoing royalties of 18 percent on gas produced, as specified in the authority's request for proposals. Industry and academic estimates show the average well drilled today produces between 4 billion and 4.5 billion cubic feet of gas over its lifetime.

“We look at this as a win-win opportunity, a chance for EQT to partner with its home county,” said company spokeswoman Linda Robertson.

If the airport authority accepts EQT's bid, Robertson said the company likely would move first to develop wells at the more expansive Pittsburgh International Airport and place five well pads there with 17 lateral lines reaching 10,000 feet in all directions as early as late next year.

“Given our detailed proposal, our demonstrated operational record of safety and compliance, coupled with our strong balance sheet, we're excited to be the leading homegrown energy producer up for consideration in this process,” Consol spokeswoman Lynn Seay said in a statement.

Federal Aviation Administration rules long required airports to reinvest any proceeds from drilling at the airports, but the FAA softened the rules in February to allow a sponsor or local government agency to spend some money on other transportation projects. The new rule applies only to general aviation airports such as the county airport, not commercial ones such as Pittsburgh International Airport, Wojcik said, so it's unclear what would happen with money from drilling there.

“There are a number of creative ideas that are being explored at the county and airport authority level,” Wojcik said, declining to elaborate.

County Executive Rich Fitzgerald didn't provide specifics on how the county might spend its share but said previously that airport and county officials agreed to split all proceeds 50-50. He reiterated that on Wednesday and said some proceeds could be placed in escrow while the county seeks FAA permission to use its share. He said he supports using some money to provide incentives to airlines to add domestic and international flights in Pittsburgh.

Airport spokeswoman JoAnn Jenny said the authority would put its share toward operating costs and paying down debt, which could lower airlines' costs and possibly spur them to add flights. The authority operates on a $187 million budget, about $104 million of which is derived from non-airline sources such as development.

Keystone Energy Forum state director Bill Stewart said the bids appear to be “within the range of what's going on statewide,” noting a number of factors could explain the wide range between bids, from differing perspectives on how much natural gas might be available there to different market opportunities.

The authority sought bids from drillers four years ago, but natural gas prices plummeted just before it put out a request for $4.5 million in minimum royalties during the first 18 months of a lease and ongoing royalties of 25 percent on gas produced. No companies submitted bids.

“We were thrilled when we saw the numbers,” Wojcik said.

Tom Fontaine is a staff writer for Trib Total Media. He can be reached at 412-320-7847 or tfontaine@tribweb.com.

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