Airport Authority approves gas-drilling deal with Consol
By Tom Fontaine
Published: Friday, Feb. 8, 2013, 1:08 p.m.
A lucrative deal to drill for natural gas at Pittsburgh International Airport could bring more flights and spur development, officials said.
Analysts agree that Allegheny County and Cecil-based Consol Energy Inc. could benefit from drilling for “wet gas” from the Marcellus shale on 9,000 acres surrounding the Findlay airport.
Drilling could begin in two years, if County Council signs off on Feb. 14 on the $500 million deal the Airport Authority approved on Friday.
“The numbers we have been seeing are much, much better,” said Airport Authority board member Dennis Davin, the county's economic development director.
The authority expects to reap that much money over two decades in royalty payments of 18 percent on Consol's sales revenue from up to 50 wells. Consol would pay $50 million in about a month, when officials sign contracts, Davin said. The deal includes $5,000 per acre for drilling rights and a $3.7 million surface rent payment for well pads. Predicted royalties would average $22.5 million a year for 20 years.
“They're going to have to be gushers, gangbuster wells,” said Pittsburgh attorney James J. Brink, co-founder of ShaleAdvice LLC, which represents landowners in drilling deals. “Consol is a smart company. They must see something to pay $5,000 an acre. More power to them. I hope they hit it big. If they do, it will be good for all property owners.”
Bill Stewart, state director of the Keystone Energy Forum, a Harrisburg trade association formed by the American Petroleum Institute and the Pennsylvania Independent Oil and Gas Association, didn't contest Consol's projections.
“Prices are definitely going to go up. They're at all-time lows right now, because there is so much supply and nowhere to put it. As demand goes up, obviously the price will be going up,” Stewart said, pointing to planned conversions of power plants and vehicles to natural gas.
Davin said the authority would use the money from drilling to reduce rates and charges that airlines pay, which could help lure flights, and to improve facilities, which could spur development. The deal includes the authority's Allegheny County Airport property in West Mifflin, but Consol said it plans no drilling there now.
“The facts speak for themselves,” Consol President Nick DiIuliis told a County Council hearing audience on Thursday. “In 2010, development of the Marcellus shale in Pennsylvania alone ... generated over $11 billion in the regional equivalent of the (gross domestic product), contributed over a billion in state and local tax revenue, and supported almost 140,000 jobs.”
The Marcellus formation, he said, is the second-largest gas load in the world, with 500 trillion cubic feet underlying the shale. Natural gas consumption in the United States is 20 trillion to 25 trillion cubic feet a year, DiIuliis said.
Consol said it would invest $500 million to develop infrastructure around Pittsburgh International, such as roads and utilities needed for drilling, according to County Executive Rich Fitzgerald.
Davin said officials negotiated the higher up-front payment with Consol and the royalty number soared, “based on closer analysis of where we all think the price of gas and other components of ‘wet gas' is going.”
Wet gas contains hydrocarbon compounds such as ethane, propane and butane that can be extracted and sold for use in plastics and other industries.
“I'm not surprised by the estimates. Companies have the ability to take more out of the ground than they did a few years ago, and there are more uses for that product,” said Duquesne University professor Kent Moors, scholar in residence at the Institute for Energy and the Environment.
Moors said the use of natural gas as fuel for power plants is growing faster than expected, because it is used as “feeder stock” for petrochemicals needed to make everything from paints to plastics. Exportation of liquefied natural gas is expected to grow, he said.
Consol initially submitted an up-front bid of $20.8 million. A second bidder, Downtown-based EQT, offered $44 million up front but its one- to two-page proposal didn't meet all bidding requirements compared to a bid from Consol that Fitzgerald described as several inches thick.
“We're just incredibly disappointed in the process,” EQT spokeswoman Natalie Cox said.
Tom Fontaine is a staff writer for Trib Total Media. He can be reached at 412-320-7847 or firstname.lastname@example.org.
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