Smaller properties in Alle-Kiski Valley remain attractive to drillers
Arnold officials chuckled a few years ago when resident Dennis Haracznak suggested they look into leasing city-owned property for natural gas drilling.
Haracznak isn't laughing: “We want to make money. The city's in debt, and we're sitting on top of a trillion bucks.”
City officials were skeptical any Arnold-owned property would be large enough to support a natural gas well, particularly the larger pads needed for unconventional wells. They use an intensive hydraulic fracturing process and horizontal drilling to tap gas reserves in deep shale formations.
However, horizontal drilling technology means smaller properties that usually wouldn't have room for a large unconventional well pad still can be attractive to drillers.
“We represent multiple municipalities that are fairly small in size,” said Ed Bilik, a Greensburg attorney who formed Western Pennsylvania Gas Leasing Consultants. “We're able to lease their property and landowners' properties by developing proposed well sites that are a mile or two away.”
Bilik said horizontal drilling may never come to urban places such as the City of Pittsburgh, but the same is not true for small towns in close proximity to the farms and woodlands that are prime candidates for shale gas wells.
The key is having neighboring property owners willing to sign leases, creating a string of accessible land back to the well's origin.
Gas drillers “are going to have to find a corridor to you,” Bilik said. “My company tries to build aggregations so we can lease them.”
Bilik pointed to West Leechburg as a perfect example of a small town reaping the benefits of horizontal drilling.
At just 1 square mile sandwiched between the Kiski River and Allegheny Township, the borough may not look like a place that would be of interest to drillers, especially after its council last year limited the zones in which surface drilling can occur.
Council did not place limits on subsurface, or horizontal, drilling.
Because shale wells are anticipated in neighboring Allegheny Township, West Leechburg property can be accessed without needing a well pad in the borough.
EQT Production Co. agreed to pay the borough a $235,000 paid-up rental fee — informally called a signing bonus — for a subsurface lease on about 70 acres under the old ATI steel mill and former West Leechburg dam.
Leechburg Area School District collects an additional $26,000 bonus for leasing a meager 8 acres under a baseball field in West Leechburg.
Both the borough and the school district will receive 18 percent royalties on any gas or oil extracted.
Bilik said state law requires royalties of at least 12.5 percent, and the up-front fees can range from $500 per acre to $5,000, depending on the geology involved.
Since natural gas prices have dropped and there is uncertainty over what will happen with Gov. Tom Wolf's proposed severance tax on gas, Bilik said offers from drillers have dropped in both value and urgency.
“It's a market. It's going to go up and down with the price of natural gas,” he said. “We just went through a cycle of leasing that was very, very good in 2014.”
Ford City and Tarentum are two smaller municipalities that may be experiencing the lull in the market.
Tarentum last month invited drillers to submit proposals for leasing about 100 borough-owned acres, especially a 65-acre parcel off Tarentum-Bakerstown Road. The borough did not limit proposals to subsurface drilling, but only the largest property is available for a well pad.
“There's no offer at this point,” said borough Manager Bill Rossey. “They're waiting to see what the governor's going to do with the severance tax.”
Rossey said the borough will continue to keep the options open, hoping to capitalize on the land when the market rebounds.
Snyder Brothers offered to buy the mineral rights to land owned by Ford City, including ball fields and the former PPG Industries dump site.
Borough Council has not acted on the $150,000 offer, which paled in comparison to a $1 million lease offered by EXCO Resources in 2011.
A survey of nearly two dozen of the Alle-Kiski Valley's smallest communities — 1.5 square miles or less — did not turn up any other towns that had been approached for unconventional gas drilling, either surface or subsurface.
Ron Galinas, Cadogan's township secretary, said the supervisors signed a two-year lease with Penneco several years ago for 26 acres of former mining property owned by the township, but the lease wasn't for horizontal drilling and the contract has lapsed.
“Nothing came out of that,” Galinas said.
There are several unconventional wells not far from Cadogan's borders in North and South Buffalo townships, though they are permitted as vertical wells only, according to records from the Pennsylvania Department of Environmental Protection.
Other small towns in proximity to existing or proposed unconventional wells include Applewold, Ford Cliff, Freeport, Kittanning, Manorville, Saxonburg, West Kittanning and Worthington, according to DEP records.
Shallow wells more common
Several communities have signed leases for traditional shallow gas wells on municipal property, including Hyde Park, Springdale and Vandergrift.
Vandergrift Council President Brian Carricato said the borough in about 2007 signed leases for five wells, one at the borough garage, two on the hillside between Franklin Avenue and East Vandergrift, and two on a cemetery in Allegheny Township for which the borough owns the mineral rights.
“It's been revenue that's come into the town,” Carricato said. “They've definitely helped offset expenses.”
Springdale Councilman John Molnar said there are two gas wells at a borough-owned water reservoir, and two more at Agan Park, in Springdale Township but owned by Springdale and Cheswick boroughs.
“We've done pretty well on the Agan Park ones,” he said.
As the crow flies — or as the well bores — Springdale and Cheswick likely are within reach of horizontal Marcellus shale wells in Frazer.
Arnold is a similar distance, Dennis Haracznak points out.
“The well by Pittsburgh Mills is tapping Arnold gas, Lower Burrell gas, everybody's gas,” he said. “If the city can pick up $25,000, $50,000, $100,000 per year, why not?”
Ron Slabe of Upper Burrell has an answer for why not: “When you sign that subsurface lease, that's only going to bring the surface pad closer to your home.”
Slabe owns property in West Leechburg and protested the borough's lease, fearing a well might be drilled near the border shared with Allegheny Township.
He's unimpressed with the idea of accepting a lucrative subsurface lease that ensures a well pad in someone else's backyard.
Haracznak is not deterred. With Arnold “going after nickels and dimes” by considering a wage tax increase, he doesn't think the financially strapped city has anything to lose.
Arnold Mayor Larry Milito said the city has not been approached by anyone interested in Arnold property, such as Roosevelt Park or Riverview Park.
“Everybody around us is doing it,” Haracznak counters. “Go after it.”
Liz Hayes is a staff writer for Trib Total Media. She can be reached at 724-226-4680 or firstname.lastname@example.org.