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Allegheny County Airport Authority will negotiate drilling with Consol

| Friday, Dec. 14, 2012, 12:42 p.m.

The Allegheny County Airport Authority on Friday opted to negotiate a potential $250 million drilling deal with Consol Energy, which submitted what appeared to be the lower of two bids for the lucrative contract.

The Cecil-based company offered to pay $20.8 million upfront for the right to drill for natural gas on a combined 9,263 acres at Pittsburgh International Airport in Findlay and the county airport in West Mifflin. The bid included a deposit check of $2.1 million.

EQT, a Downtown energy company, made a bid that it said would have netted the authority $44 million in upfront cash. It did not include a deposit check.

“We went through both submittals very closely and felt the Consol submittal provided the best value to the authority,” authority CEO Brad Penrod said after a board meeting.

Penrod declined to elaborate.

Consol spokeswoman Lynn Seay said last week that the company believed its competitor's bid did not meet all requirements of the authority's request for proposals. She did not provide specifics. Penrod would not say whether that affected the decision.

“We're confident that this partnership will drive economic development and provide value across the board, to businesses and the community alike, by developing this natural gas in an environmentally responsible manner,” Seay said after the authority board's vote.

“We're surprised and disappointed. They left $20 million on the table. We have no idea about the reasoning behind (the authority's decision). No one informed us,” EQT spokeswoman Linda Robertson said.

County Executive Rich Fitzgerald said officials were “looking at more than just the upfront payment,” noting the most lucrative aspect of any drilling agreement would come from royalties. The authority required bidders to provide ongoing royalties of 18 percent on gas produced.

The average Pennsylvania well produces about 4 billion to 4.5 billion cubic feet of natural gas in its lifetime, according to industry estimates. That amounts to about $13.4 million of natural gas per well at today's prices. An 18 percent cut would amount to $2.4 million per well.

That does not include other commodities that could come from the natural gas, such as ethane, propane and butane.

“If the airport wells produce sufficient quantities of so-called natural gas liquids, then the gas would actually be worth more,” said Seth Blumsack, assistant professor of energy policy and economics at Penn State University.

Airport and Consol officials did not say how many wells they would drill. EQT's pitch called for at least 85 wells at Pittsburgh International Airport alone.

“We're anticipating at least $250 million (in royalties) over the long term, but that's all part of the negotiations,” said Fitzgerald, who has said county and airport officials intend to split the proceeds.

The authority operates on a $187 million budget, about $104 million of which is derived from non-airline sources such as development.

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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