Shale Play NEO 2-14-13

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S HALE P L A Y Energy companies counting on shale/9

Yellow Creek trustees cool to proposed agreement/21

COMPLIMENTARY — TAKE ONE

shaleplayneohio.com • EXPLORING LOCAL GAS AND DRILLING OPPORTUNITIES • Thursday, February 14, 2013

INSIDE

KENSINGTON

Marathon’s plan is a step closer to reality EAST LIVERPOOL, Ohio — Marathon Petroleum Corp.’s planned expansion in Wellsville is one major step closer to becoming a reality following action taken last month by the Columbiana County Port Page 3 Authority/P

Lawmakers urge expanded use of region’s natural gas NORTH JACKSON, Ohio — Using an analogy from the sports world, Tim Harrington, the regional president for BP North America Gas, explained the company’s presence in the Mahoning Valley and where it stands on the development of Pages 12-13 oil and natural gas/P

Photo by Patti Schaeffer

Three molecular sieve towers and the vast steel pipe rack begin to fill the crane-littered skyline at the M3 Midstream LLC gas processing plant in Kensington.

Gas processing plant taking shape

Shale Play 1500 Main St. Wheeling WV 26003

By KATIE SCHWENDEMAN S h al e P l ay KENSINGTON, Ohio — On a hill between Ohio 644 and Tunnel Hill Road, people from as far away as New Zealand are coming together to build Columbiana County’s first natural gas processing plant, and the surrounding area is already reaping the benefits. Baron John, a New Zealand native who came to the states by way of Australia, plans to make Minerva his home as he digs his heels into the three-phase, $400 million project that

will continue over the coming years. Other workers at the 170-acre site are also planning to stay long-term, he said. John is the M3 Midstream LLC construction coordinator of the project. Once completed, the plant will serve as a collection and compression site for the natural gas from Utica Shale wells being drilled in eastern Ohio. M3 is an independent midstream energy company, also know as Momentum, and has partnered with Chesapeake Energy and Enervest on the processing plant.

The company will extract natural gas liquids from the gas that is transported into the plant from other areas of the county through the 20-inch-wide inlet pipelines. The gas will then enter a 160-foot-tall cryogenic tower where temperatures will be dropped to minus 150 degrees. What’s left at the top is “pure gas,” John said. Impurities will be “cut” from the gas through that process and then tranported across Carroll County to a $500 million shale gas storage and transfer hub in Harrison County also operated by Momentum. • P le a s e s e e PLANT, page 4

Report: Not enough room in Ohio disposal wells By ASHLEY NEWMAN Sh a l e P l a y WARREN, Ohio — A report published last month by Kent State and Duke universities raises concerns that an influx of wastewater in Ohio may overwhelm the state’s underground disposal — Julian Boggs, an advocate for Environment Ohio wells. According to the study, fracking waste generated in Ohio has increased 570 percent since Out-of-state wastewater dis- year with complete records avail2004, and there is speculation the numbers will continue to increase posal is also cited as a cause for able, the study states that 12.8 million barrels of wastewater as new wells are approved across concern by the group. Using 2011 as the most recent were injected into Ohio’s underthe state.

“Ohio is fast becoming a dumping ground for Pennsylvania’s fracking waste in addition to its own.”

PRSRT STD US POSTAGE PAID WHEELING, WV PERMIT NO. 856

ground wells, with more than half coming from Pennsylvania or West Virginia. “Ohio is fast becoming a dumping ground for Pennsylvania’s fracking waste in addition to its own,” Julian Boggs, an advocate for Environment Ohio, said. “Industry and policymakers seem to have no credible plan for what to do with all this waste, and how to keep Pennsylvania’s trash out of our backyard.” • P le a s e s e e REPORT, page 6


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Thursday, February 14, 2013

Permit issued to Kraton for gas-fired boilers BELPRE, Ohio — A final air permit has been issued to Kraton Polymers to replace two coal-fired boilers at the Belpre plant, the Ohio EPA announced late last month. The company is spending $50 million over the next three years on the boilers, a new 10-mile natural gas supply line and a steam turbine to generate electrical power. The new boilers will be fired by cleaner-burning fuels. Kraton plans to fire the new boilers with natural gas, distillate oil and naphtha (a flammable liquid mixture of hydrocarbons that is a byproduct and is generally used as a solvent for various chemical industries). The final air permit establishes emission limitations to ensure that the new boilers will comply with federal and state air pollution control standards, laws and regulations in place to protect public health and the environment. The permit will allow facility-wide emissions to change. There will be a net emissions increase in carbon monoxide from the boiler replacement project, but net emissions will substantially decrease for nitrogen oxides, sulfur dioxide and particulate matter, the EPA said. The allowable air emissions rate for carbon monoxide under the final permit is 163.6 tons per year from both boilers combined. The installation permit will require the facility to implement best available control technologies and com-

FROM COAL TO GAS The company is spending $50 million over the next three years on the boilers, a new 10-mile natural gas supply line and a steam turbine to generate electrical power. ply with stringent hourly carbon monoxide emissions limitations. The EPA held a public hearing in Belpre on Dec. 19 about the draft air permit. The purpose of the hearing was to obtain additional information that was considered before Ohio EPA issued the final air permit. The final air permit is available online. Also, arrangements can be made to review or copy the permit and related material at Ohio EPA Southeast District Office, 2195 Front St., Logan, by calling 740-385-8501. An appeal can be filed with the Environmental Review Appeals Commission. Appeals generally must be filed within 30 days of issuing the final action; therefore, Ohio EPA recommends that anyone wishing to file an appeal contact the appeals commission at 614-4668950 for more information.

File Photo

Kraton Polymers has received a final air permit from the Ohio EPA that will allow the Belpre, Ohio plant to purchase two natural gas steam boilers.

SHALE PLAY is published as a joint project by the Morning Journal, The Review, Salem News and the Tribune Chronicle. It publishes on the second and fourth Thursday each month.

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In this file photo, Don Robicheaux, safety coordinator for Marathon, stands in front of a crude oil unit in Garyville, La. Marathon Oil Corp. is expanding its operations in Columbiana County, Ohio, to tap into the shale gas and oil rush.

MARATHON’S PLAN IS A STEP CLOSER TO REALITY By TOM GIAMBRONI S h ale Pl ay EAST LIVERPOOL, Ohio — Marathon Petroleum Corp.’s planned expansion in Wellsville is one major step closer to becoming a reality following action taken last month by the Columbiana County Port Authority. The Port Authority board voted to follow through with the sale of 3.6 acres of property to Marathon for $2.4 million, a tentative deal first announced last summer. The property is located at the Port Authority’s riverfront industrial park in Wellsville and next door to Marathon’s storage

tank and transfer terminal. The 3.6 acres being acquired would be developed into a staging area for trucks delivering oil and natural gas for transfer from Marathon’s terminal. Marathon has already entered into a joint venture with the Harvest Pipeline Co. to develop the staging area/transfer station and upgrade the terminal for the purpose of shipping oil and gas by barge from the Utica shale fields in the region. Harvest is an affiliate of Hilcorp Energy Co., a leading oil and gas producer that has become increasingly active in Ohio’s Utica shale play. When completed by the end

of 2013, the Marathon and Harvest facility will be capable of unloading 24,000 barrels per day from trucks, with the terminal able to load up to 50,000 barrels per day into barges bound for refineries. Port Authority CEO Tracy Drake said besides the obvious benefits of such a major expansion, the sale of the property to Marathon will mean the estimated 200 trucks per day bound for the Marathon terminal will be able to travel directly to the staging area instead of weaving their way through the streets of Wellsville. Under the terms of the deal, the Port Authority will keep

Allegheny County may get $40M gas drilling bonus

$1.8 million of the $2.4 million, with the village of Wellsville receiving the balance. The Port Authority also granted Marathon an “engineering study license,” which gives the company permission to begin performing the necessary engineering and environmental work on the 3.6 acres. Even though Marathon is now the property owner, Drake said the company preferred permission be granted allowing the company access to the property to perform the necessary engineering studies. “This is a big corporation and this is how they do things,” he said.

PITTSBURGH (AP) — Allegheny County Executive Rich Fitzgerald says the local airport authority could get a $35 million or $40 million upfront payment by leasing public land for gas drilling. That’s almost double initial estimates. Fitzgerald said that a deal with Consol Energy Inc. could also provide another $3 million to $4 million in yearly royalty payments.

“This is a big corporation and this is how they do thi ngs . ” — Tracy Drake, Columbia County Port Authority CEO

The final contract to drill on about 9,200 acres at Pittsburgh International Airport is still being negotiated, Fitzgerald says. The county chose Consol last month even though its initial bid with $21 million bonus appeared to be lower than one from EQT Corp. But officials said the Consol offer could end up being more profitable over the long term.


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Pl ant continued from page 1 The Kensington plant is expected to process 600 million cubic feet of natural gas a day. John said that while most of the plant’s workers—including the contracting company hired for the construction are from out of state, local involvement has been crucial, and will continue to be, he added. “We are pulling from all over. We try to get the locals involved as much as possible,” he said. Ten heavy duty equipment trucks, including the one John drives around the site, were purchased from the Huebner Chevrolet Subaru dealership in Carrollton, and local food is delivered on a nearly daily basis. Scott Cole, owner of the dealership, said the 2012 Chevy Silverado extended cab four-wheel drive trucks were bought by the company over a period of six months last year. “It’s great. It’s wonderful for business. I think establishing a relationship with some of these companies has been great,” he said. Cole passes by the plant twice a week on his way to church in the area and has kept an eye on how the plant is developing.

“It’s exciting to see it going in. I think it’s wonderful to see investment in the area,” he said. The dealership is already anticipating the sale of more trucks to Momentum in the future. “We have some additional trucks we have stocked for them so when they need a truck we have it. They have been a good customer, great to deal with,” he said. John said the structural steel that will be used to support the pipelines comes from Ohio companies, and Minerva Welding constructed the pipe supports. Smaller, plastic pipeline was purchased from Hanoverton Hardware. “We try to get as much local as we can,” he said. Other hardware items are purchased from local stores nearly every week. George Francisco, executive vice president of the company, said all indications are the facility is having a positive impact on the community. The “reaction from the community and community leaders has been positive,” he said. Workers at the site are adding to the economy by buying fuel at local service stations, eating local food and staying in local hotels, he said. The extra money won’t be

Thursday, February 14, 2013

Photo by Patti Schaeffer

Workmen install and adjust screw piles below three molecular sieve towers in place at the M3 Midstream LLC gas processing plant in Kensington.

going away anytime soon, either, since the facility will be in the county a long time, he added. The company also takes notice of how the project affects the local environment, and steps have already been taken to ensure that effect is minimal. During the initial construction that began on Nov. 5 settlement ponds were dug out to catch the silt from the work. The company is also using new “innovative” screw piles in place of concrete. The screw piles can be inserted into the ground easi-

ly and don’t take up as much ground space as concrete would. John also explained that while the site is 170 acres, not all of that will feature equipment. “We pick these sites carefully to make sure we have a good buffer zone from our neighbors,” he said. “We try to be good custodians of what we’re doing.” Another way in which the company hopes to keep its physical presence minimal is through the use of five 5,000-horsepower compressors that will alleviate the

noise of the production, which is slated to get under way in June. Francisco said the entire facility is designed to minimize impact on the local environment, both in terms of noise and emission, and the use of electrical compression aids in that impact. He explained that gasdriven compressors emit more noise than electrical compresssors. Electrical compressors also meet stricter environmental regulations. The compressors won’t arrive on site until closer to

June, however. “We intend to be good, long-term neighbors in that community and appreciate the cooperation thus far,” he said. He also said the company is on schedule and that 100 people are at the site on a regular basis. “Equipment is arriving by the truckload so it’s really coming together,” he said. Workers are all specially trained, including safety training, and the company posts jobs on its website, www.m3midstream.com, as they are available.


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Construction workers install railroad tracks that will connect the Dominion Natrium natural gas processing plant to the CSX Corp. railway along the Ohio River in Marshall County.

RAILROADS: Past and future By CASEY JUNKINS S h a le P la y WHEELING, W.Va. — Watching fleets of tanker trucks transporting water for natural gas fracking throughout the area on a daily basis, Ed Gorczyca believes drillers could move some of this water by rail. “With all of this gas activity, it makes sense. You could get some of those trucks off the road,” the Wheeling resident said during the Tuesday West Virginia Rail Authority public meeting regarding the state’s 20-year rail transportation plan at Independence Hall. Though the frigid temperatures kept attendance to a minimum, Gorczyca joined about a dozen others at the meeting to hear the possibilities for railroad growth in West Virginia, while also celebrating a bit of the past. “There is so much history with the railroad here. I have a picture of President (Dwight D.) Eisenhower campaigning from the back of a train here in Wheeling,” Gorczyca said. “Then, you have the B&O Building right here,” he added of the classic structure situated along 16th Street

“There is so much history with the railroad here. I have a picture of President (Dwight D.) Eisenhower campaigning from the back of a t r ain her e in Whee lin g. ” — Ed Gorczyca, Wheeling resident

Photos by Casey Junkins

Speaking at the end of the Tuesday West Virginia Rail Authority public meeting regarding the state’s rail plan are Colliers resident Larry Reed and Cindy Butler, authority director. that now serves as the main Corp. rail line running along said of this rail connection. building for West Virginia the Ohio River. According to the presentaNorthern Community Construction workers tion provided during the College’s Wheeling campus. have been building this con- meeting, West Virginia now Regarding the potential nection to tie the plant to the has about 2,200 miles of for increased natural gas CSX line, which is part of the freight rails in the state, with activity to coincide with historic Baltimore & Ohio 84 percent of these operated expanded use of railroads, Railroad. by CSX or Norfolk once the $500 million “Cars would be pulled Southern. Dominion Resources onto the siding (rail) and be The vast majority of the Natrium processing plant loaded — then taken away freight carried along these opens, the facility will fea- when full,” Dominion lines is coal. ture a connection to the CSX spokesman Charles Penn The presentation also

showed there are two existing passenger Amtrak lines running through the state. One of these stretches across West Virginia from Ohio to Virginia, while the other runs between Virginia and Maryland in the Eastern Panhandle. There are several “proposed for study” passenger lines that could include stops in Wheeling, Weirton, Parkersburg and Huntington. A draft 20-year plan, which will include input gathered from eight meetings such as Wheeling’s, is expected to be complete in April and available for viewing at www.westvirginiarailplan.com. Established by the state

Legislature in 1975, the authority was formed to oversee railroad transportation and commerce. It became a division of the state Department of Transportation in 1989. Some of the authority’s duties include: keeping an inventory of rail lines; monitoring planned line abandonments; and administering federal grants related to rail transportation. Those wishing to file written comments can send them to: Cindy Butler, director, West Virginia Rail Authority, 120 Water Plan Drive, Moorefield, WV 26836. Comments should be submitted on or before Feb. 28.


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Thursday, February 14, 2013

R e p o rt continued from page 1 Heidi Hetzel-Evans, a spokeswoman for Ohio Department of Natural Resources, countered that while she has not read the complete study, there are no current disposal concerns. “Ohio has adequate disposal space for both the instate and out-of-state wastewater we see coming in,” Hetzel-Evans said. Citing interstate commerce laws, she said Ohio cannot turn down out-of-state waste. Hetzel-Evans claims early indications from 2012 statistics show out-of-state wastewater numbers will remain static. “We have seen a small increase in our annual disposal figures, as expected, but we’re steady at about 55 percent of the waste coming from out of state.” Ohio currently has 179 injection wells for disposing brine wastewater, which can include salts, heavy metals, chemicals left over from fracking procedures and low-level radiation. Drilling has already been done at about 6,400 Marcellus shale wells in Pennsylvania, compared to just 200 so far in Ohio. Drilling in Pennsylvania generated approximately 20

million barrels of brine wastewater in 2011, with 7 million of those barrels ending up in Ohio injection wells. Jeffrey Dick, chairman and professor of the Department of Geological and Environmental Sciences at Youngstown State University, last week said ultimately new methods of disposal or treatment will have to be found to get rid of the waste water known as brine. “It’s a small problem now. It’s going to become a much bigger problem,” Dick said during a public presentation last week in Youngstown. Dick pointed to the high increase in the amount of brine now being routinely disposed of in Ohio’s Class II injection wells. “You will reach a point where the bath tub becomes full. We will reach it, and that will become a real problem,” Dick said. “It’s going to come down to a water purification question, I am quite sure of that.” Meanwhile, HetzelEvans explained that the industry is in its exploratory phase in Ohio, making it difficult to know exactly

File Photo

A new report states that Ohio’s injection wells, such as the one shown here near Youngstown, soon may not be able to handle all the drilling waste being produced in the Tri-State region. what to expect. “It’s really difficult to look too far into the future. We are not able to speculate even on production, let alone disposal,” HetzelEvans said. She also pointed to safety improvements made in Ohio’s brine disposal process over the last

year, including increased and unannounced inspections of the wells and seismic monitoring. “Ohio has a scrutinized, effective program. Rules were strengthened this summer and we are satisfied that are using safety standards that protect the envi-

ronment,” Hetzel-Evans said. “Since ODNR has taken over primacy for injection wells, there have been no cases of ground well subsurface contamination. That goes back 30 years since we’ve been running the program.” However, Dick noted that

while the plentiful amounts of water in Ohio has been a benefit for drillers, it may also be leading to overuse. “We are blessed here in Ohio because we have lots of water, but the down side is there is not much incentive to recycling the water,” Dick said.

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GASTAR PUMPING 65 MILLION CUBIC FEET OF MARSHALL CO. GAS PER DAY By CASEY JUNKINS S ha le P lay PROCTOR, W.Va. — With large trucks traveling on narrow roads, Michael McCown knows the process of drilling and fracking a $7 million Marcellus Shale well can create plenty of disruption for a community. However, once the process is complete, natural gas producers leave behind a well head cap they refer to as a “Christmas tree.” “It is pretty quiet out here now. This is what is left when we are finally done with the wells,” said McCown, who serves as vice president-northeast for Houstonbased Gastar, while inspecting the well head at one of the company’s producing wells. During a tour of the site and Gastar’s Marshall County operations, McCown said the company currently is producing about 65 million cubic feet of natural gas per day from West Virginia’s Northern Panhandle. McCown said Gastar now has 47 wells in Marshall and Wetzel counties that are pumping gas or will be soon. “In 2012, our company invested $200 million — all in Marshall County,” he said, noting the amount was probably about $70 million in 2011. McCown said this year and in future years, his company will probably look to work more in Wetzel County. Gastar also is planning to acquire more acreage, working out of the company’s leasing office on Warden Run Road near Oglebay Park. “All of our gas goes to Williams” Partners, McCown said of the company that operates the Fort Beeler processing facility along U.S. 250 near Cameron, as well as a fractionation facility along the Ohio River south of Moundsville. “The one thing that is slowing us down a little bit right now is that it is taking Williams a little bit of time to catch up to us with their infrastructure, but we are very confident in them,” McCown said. Last year, Williams spent $2.5 billion to purchase the Fort Beeler plant and associated processing facilities and pipelines from Caiman Energy. Once Gastar’s gas goes to Williams, the wet natural gas liquids are separated from the dry methane gas so that all products can be sent to market. “The liquids-rich Marcellus is here. That makes the operations here so valuable,” McCown said. “This is not going to be a shortterm rush. We are in this for the long haul.” Gastar also is reinvesting in infrastructure, as the company repaved Rines Ridge and Burch Ridge in Marshall County, which suffered damage from heavy equipment traveling to drilling

“ This is not going t o be a short-term rush. We are in this f o r t h e l on g h a u l . ”

Gastar Exploration has drilled 47 Marcellus Shale wells in Marshall and Wetzel counties so far, helping the company produce about 65 million cubic feet of natural gas per day.

— Gastar Exploration Vice President-Northeast Michael McCown

sites. Gastar also spent about $5 million to build a private road exclusively for drilling truck traffic, relieving much of the truck traffic from the other roads. “The terrain is a significant challenge for drilling here in West Virginia,” McCown said. “By having our own road, we are able to keep our trucks off the public roads, which is especially good when school buses need to use those roads.” In another move to help reduce traffic and potential pollution, McCown said Gastar spent $4.5 million to construct facilities to pump fresh water from the Ohio River up to the drilling sites. “We are continuing to refine our drilling and completion techniques in an effort to achieve maximum efficiency, well economics and estimated ultimate recoveries,” said J. Russell Porter, Gastar president and chief executive officer. McCown said part of this efficiency effort is to drill as many wells as possible on a single well pad, noting the company plans to have 10 wells on a single pad soon. Though the exact numbers will vary for each well, McCown said one particular well currently being drilled will go roughly 6,000 feet deep before turning to go 5,000 more feet horizontally. Slightly different equipment is used to drill the vertical and horizontal portions of the well. “We are realizing improving internal rates of return in our Marcellus (Shale) program from increased yields of high-value liquids the further west that we develop the play, combined with lower drilling and completion costs and shorter drilling times. We are also seeing increasing reserves per well and declining total well costs,” added Porter. While McCown sees a prosperous future in Gastar’s Marcellus activity, he said the potential of increased scrutiny from the U.S. Environmental Protection Agency could curtail operations. “We feel that West Virginia’s (Department of Environmental Protection) is a fair and capable regulatory agency,” McCown said. “And as an industry, we are finding ways to be more environmentally friendly every day.”


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Big-money royalty ship may have passed By KATIE SCHWENDEMAN Sh al e P l a y EAST PALESTINE, Ohio — The village was behind the curve on oil and gas leasing and that’s why a lease hasn’t been offered yet, Bob Rea of Buckeye Mineral Development LLC told East Palestine Council last month. He said that had the village been represented by his company earlier last year it would have been included in a group of more than 1,100 acres that were leased to Chesapeake Energy. The village is looking to lease the surface rights of roughly 130 acres of municipal land, and Rea said companies aren’t interested in leasing a small amount of land in the county right now. “Everybody’s leasing endeavor has diminished considerably. We have shown your parcels and it has had mixed reviews. Some said they are going to pass on this quarter. We are going to put it back in front of them,” he said. The village approved hiring the BMD to negotiate on their behalf last summer after discussing the possibility of leasing for several months. Village Solicitor Shirley Smith was initially negotiating for the village but council opted to move forward with BMD after time went by and no leases

were offered. Rea said the for-profit organization is an offshoot of the nonprofit Associated Landowners of the Ohio Valley (ALOV) that operated out of Salem. He explained the ALOV couldn’t continue operating as a bargaining agent for landowners because of all the interest the volunteer organization generated. After forming in 2010, the group negotiated hundreds of thousands of acres in the county to oil and gas exploration companies. The group also negotiated several thousand acres for landowners and municipalities in neighboring counties. The development, he said, has the sustainability to continue, and isn’t just about a securing a lease. “What we wanted to do in the formation of this company is to realize we need to represent our mineral interests at large,” he said. He explained that most leases are for gas and oil exploration from the surface of the earth to the center, which can be a detriment to the landowner. Instead, landowners would benefit from leasing each shale formation independently. “You don’t want to sign away everything from the bottom of

“ T h e e a s te r n s i d e o f C o l u m b i a n a C o u n t y i s s o l e a s e d u p it’s hard to bring a competitor here and put it in with everything we want to show them. We have to work at th is.” — Bob Rea, Buckeye Mineral Development LLC

your foot to the center of the earth Potentially in this area right here you could have three producing zones, the Utica, Clinton formation and the Marcellus,” he said. Leasing in the Marcellus has not been done in the county. Its production is largely focused in the Pennsylvania area. Rea said that unlike other parts of the county, some Marcellus exists under the East Palestine territory and the village could benefit from leasing that layer in the future. “For you folks in East Palestine that Marcellus region has value,” he said. As for the Utica shale, the village is in a “sweet zone,” but

that is only a benefit if companies start showing an interest, he added. “One-hundred-and-thirty acres is pretty minimum. If we could offer them 13,000 or even 15,000 acres it would be a different look because they have to develop the pipeline to get to it” and that takes money, he explained. “The eastern side of Columbiana County is so leased up it’s hard to bring a competitor here and put it in with everything we want to show them. We have to work at this,” he said. He added that because Chesapeake Energy already owns “the lion’s share” of most of the leases in the county the

company likely doesn’t feel compelled to sign more at this time. Council members questioned how much the village could earn through a lease, and like Smith had advised over several months, Rea indicated that disclosing that information wouldn’t be prudent during negotiations. The group signs confidentiality agreements with the exploration companies it negotiates with, and therefore, several things cannot be discussed in a public forum, he said. “They don’t want their competition to pick up in the newspaper what is being discussed ... We tell our landowners in the county we aren’t going to bring you much of an update,” he said. A lease could be offered to the village within the next month, or a year, “I don’t know,” he said. He added that benefits of a BMD lease include being paid on the gross and not the net, the inclusion of environmental clauses that protect water supplies and the Pugh Clause, which means that whatever leased acreage that isn’t earning income for the landowner is no longer affected by that lease. The BMD leases have a fiveyear initial term and three-year renewal.


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LOCAL DRILLING PICKING UP Energy companies counting on shale By BRENDA J. LINERT S h a l e P l ay WARREN, Ohio — As the number of deep-well natural gas drilling sites continues to inch upward each month in the Mahoning Valley, energy companies also are raising their predictions for local success. Halcon Resources, already drilling one well in Burghill, now is preparing a well pad for its second local well. There also are indications the company may be developing as many as five local wells soon. Ohio Department of Environmental Resources spokeswoman Heidi Hetzel-Evans said that the permit application for Halcon’s latest well on Brunstetter Road in Lordstown is among three pending with the agency. Truck traffic to the Brunstetter site has been increasing steadily since the company inked a road use agreement last week with the Trumbull County Engineer’s office. In addition, records show the company has made application with ODNR for two other drilling permits: the Hall permit on Highland Avenue in Lordstown and the Williams permit in Jackson Township, Mahoning County. Trumbull County Engineer’s

official Don Barzak said his office also is working on another road use agreement for what could be the company’s fifth planned well, this one on Hewitt-Gifford Road in Lordstown. Houston-based Halcon began drilling early this month in Burghill, and has said that process will take about a month. After that, the company will drill horizontally and then, if all goes as planned, frac the well. These wells are Halcon’s first anywhere in the Utica Shale, a rock formation thousands of feet below northeast Ohio which geologists believe could hold the world’s largest single accumulation of natural gas. Halcon spokesman Vince Bevaqua said this week that the company will contract two rigs for drilling in the Utica Shale. While Halcon has not released any specific predictions for the Utica, other companies with local interests have expressed high expectations for the shale play. BP’s General Manager of global energy markets and U.S.Economics Mark Finley this week told the Tribune Chronicle the sharp increase in production that enabled the U.S. in 2009 to surpass Russia as the world’s leading producer of natural gas came from shale production.

LOCAL UTICA SHALE DRILLING Utica Shale Well permits issued for Trumbull and Mahoning counties by Ohio Department of Natural Resources. Includes date permit issued; township; status; and operator. Trumbull County: ∫ 06/21/2012; Vienna; permitted; CNX Gas Co. ∫ 11/02/2012; Hartford; Not Drilled; Halcon Operating Co. Mahoning County: ∫ 05/04/2011; Milton; Inactive; Chesapeake Exploration LLC. ∫ 09/17/2012; Jackson; Permitted; CNX Gas Co. ∫ 08/29/2012; Jackson; Drilling; CNX Gas Co. ∫ 10/24/2012; Poland; Permitted; Hilcorp Energy Co. ∫ 12/14/12; Poland Township; permitted; Hilcorp Energy Co. BP, which has leased mineral rights for more than 80,000 Trumbull County acres, has said it will drill 10 wells in the Utica beginning in April. “Rising production of natural gas, oil and other fuels means that domestic energy production will be sufficient to meet 99 percent of U.S. energy consumption by 2030. That is compared to 70 percent in 2005,” Finley said. Still, Finley said the company does not worry about production outpacing demand.

In a company outlook report released last week, BP projected that by 2026 natural gas will replace oil as the leading source of energy consumption in the United States and that the country soon will become a net exporter of natural gas, subject to government permits. “Consumers and producers alike respond to changing market circumstances, so that supply always equals demand (except for minor factors such as inventory changes),” Finley said.

“Markets work: where they are given the opportunity to do so, energy consumers and producers respond to changing market signals. The U.S. has been at the forefront in developing new sources of energy supply because it has fostered a competitive marketplace that drives innovation. This holds the key for people interested in topics ranging from climate change to energy efficiency and renewable energy ... policies that bring market forces to bear and encourage innovation hold the best prospects for delivering tangible progress.” Another big player in the local gas drilling process, Consol, last week told investors the company’s first Portage County Utica Shale well as having “good shows of gas and oil.” The company also reported three Mahoning County wells were drilled last year, including the company’s first “multi-well Utica Pad” in North Jackson expected to be completed by June. Consol, which is operating a joint natural gas drilling venture with Hess Corp., said it expects to use its two horizontal drilling rigs to drill 11 wells in 2013. All are expected to be in Noble County, however, well south of the Mahoning Valley.

SURVEY: Residents believe shale will bring jobs B y C A S E Y J UN K I NS Shal e Pl ay WHEELING, W.Va. — Arrowsmith Fabrication owners Brett Francis and Michael Siebieda are welding and fabricating their way into the Marcellus and Utica shale boom that is rushing through the Tri-State. The business, located in South Wheeling, has manufactured the 6,000pound “cattle stop” for the Williams Partners natural gas processing plant at Fort Beeler. The owners hope this is the first of many contracts they will receive as the gas industry grows in the region. “We feel oil and gas is going to be our bread and butter in the future,” said Siebieda, explaining the “cattle stop” is a large steel device that Williams will place near the entrance to the Fort Beeler plant to keep animals out of harm’s way. “These operations are mostly out on farms, so they want to keep the cattle out of there.” As Siebieda and Francis perform work for Williams — and try to receive more jobs from other oil and gas companies — they are running a new business they know would probably not exist without shows that about 75 percent of West the burgeoning shale rush. A new survey by Huntington Bank Virginia residents believe there will be

Michael Siebieda, co-owner of Arrowsmith Fabrication in South Wheeling, performs some welding inside the shop on Wood Street. Photo by Casey Junkins

more jobs and companies coming to the state because of the opportunities shale presents. These jobs could involve welding and machining, as Arrowsmith is doing, or they could involve trucking, housing, chemical supply, or a number of other areas. “Huntington commissioned the survey by an independent research firm because we are committed to helping our customers understand the economy in our markets,” said Steve Steinour, chairman, president and chief executive officer at Huntington. “While many inside and outside of the energy industry are predicting growth, we wanted to find out how the residents of our markets perceive the potential economic impact of the industry on their communities.” Columbus, Ohio-based Huntington

maintains a number of banking offices in the local region. In Ohio, 58 percent of those Huntington surveyed believed the oil and gas industry would bring more business and growth to the Buckeye State. Those in western Pennsylvania also responded favorably when asked if they expected more economic activity due to shale drilling, as 79 percent there said they expected “significant opportunity.” “Many of these industrial areas have been known as the Rust Belt,” added Steinour. “With manufacturing growing again, and aggregate employment in these areas outpacing the national economic recovery, we prefer to call this swath of the country the ‘Recovery Belt.’” The Arrowsmith shop is an example of one of the many service businesses being created in the local area because the natural gas and oil extraction is taking place. Siebieda said he and Francis are also in contact with companies such as MarkWest Energy for potential work. “We prefer to hire services from local vendors and provide support to develop skills and services to address our needs ... as well as those needs of the communities near our operations,” said Williams Partners spokesman Scott Carney.


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Thursday, February 14, 2013

Europe to press on with shale gas WARSAW, Poland (AP) — Poland will likely adopt a muchawaited law to regulate shale gas production this year, opening the way for the potentially lucrative sector to kick into gear, Treasury Minister Mikolaj Budzanowski said. Poland has been the most aggressive country in Europe in pursuing shale gas, a form of natural gas that is trapped in porous shale rock and requires new technologies to extract. It has been produced in the United States since late 1990s, but environmental activists say the extraction process — called hydraulic rock fracturing — is highly polluting. International and Polish companies are exploring for the gas in Poland but are waiting for the new law — which will regulate taxes on production, terms for starting business and distribution of gas — before they commit to a longer-term strategy. “Foreign companies are undoubtedly waiting for the final version of the law, which should be adopted this year and take effect in 2015,” Budzanowski told The Associated Press in an interview. “It will certainly give a big impulse for intensifying gas exploration efforts in Poland.” A preliminary draft of the new law, which was demanded by the

European Union, calls for a combination of taxes totaling about 40 percent on financial gains made by shale gas producers. But companies say it’s the details in the new law that matter. Without its finalization, they cannot plan ahead. “Companies are slowing down work and waiting to see whether the new law, especially the tax, will leave enough commercial space,” said Pawel Poprawa, an expert on shale gas with The Energy Studies Institute in Warsaw. The government hopes shale gas will boost the economy, reduce dependence on Russian gas imports and cut energy prices. The State Geological Institute estimates Poland’s shale gas deposits may secure production for at least 25 years. The first commercial shale gas in Poland is expected to be produced on a small scale in early 2015. Shale gas will likely become a major energy source for Poland by 2020, but coal — which Poland is rich in — will remain the main source for another 50 years while technology efforts will focus on reducing carbon gas emission, Budzanowski said. Some 35 exploratory shale gas wells have been drilled so far, but the findings are “not always

AP File Photo

A rig of the Canadian-based Talisman Energy Inc. exploring for shale gas is pictured in the middle of muddy fields in the village of Szymkowo, in central Poland. Talisman is one among some two dozen international firms exploring shale gas deposits in Poland, but waiting with long-term strategy decisions for a law that would regulate gas production and distribution. exciting,” Poprawa said. More than 100 wells are needed for an assessment of the deposits. In the United States, production of shale gas has brought down gas prices on the U.S. domestic market to under $100 per 1,000 cubic meters, about a third of what gas costs in most of Europe, where the chief provider

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is Russia. Moscow charges Poland above the European average thanks to a contract between the two countries that dates back to 1993. Regarding environmental concerns, Budzanowski said Poland’s mining and research institutes should be involved in developing new, environmental-

ly-friendly forms of shale gas extraction that could be also used in other countries. In France, Germany and Bulgaria, environmental concerns were behind recent decisions to block or suspend exploration for shale gas. But countries like Russia or China are pursuing shale gas programs.


shaleplayneohio.com

Thursday, February 14, 2013

THE BAKKEN Every square mile in N.D. would be drilled By ELOISE OGDEN S h a le P la y MINOT, N.D. — When the day comes that the Bakken Shale is fully developed, it’s likely every square mile underneath the surface of western North Dakota will have been drilled. Alison Ritter, public information officer for the North Dakota Department of Mineral Resources in Bismarck, said, “Once this is all said and done, we’ll only be using a little over 200 square miles of surface usage compare that to the 15,000 square miles that the Bakken mature area really is. The impact will be underneath the ground. “This is how they’re going to do it, how they’re going to access those minerals,” Ritter said. “Each one of those well pads can have four to six sister wells, and sometimes more.” She showed a diagram of eight wells. “Four of those wells will be accessing the Middle Bakken and four of those wells will access the Three Forks,” she said, referring to those formations. Ritter said the N.D. Oil and

Gas Division, a division of the Minerals Department, has permitted 14 well pads outside of Williston. “That’s the biggest we’ve permitted to date,” she said, adding, “It’s all based on the geology of the area and what’s needed. Most wells now are 1,280acre spacing units. A spacing unit is two sections of land 1,280 acres so the minerals would be defined in those two sections or four sections, Ritter said. “We do have certain setback requirements to make sure that we’re protecting the rights of the mineral owners in that spacing unit.” In 2010, the North Dakota Industrial Commission organized about 10,000 or 15,000 square miles into North-South 1,280-acre spacing and drilling units. “They put an organizational pattern out there on the landscape so we just weren’t plopping things down all over everywhere. They organized it, but there is room for flexibility. It gave us some groundwork to start on and then continue to expand,” Ritter said.

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2013 budget reflects shift from coal to gas for Consol By CASEY JUNKINS Portage, Tuscarawas, S h a le P l a y Mahoning and Noble counties. BENWOOD, W.Va. — In the Utica Shale joint Despite the Shoemaker venture with Hess, Consol Mine in Marshall County drilled its first eight wells producing a record 5.3 milwith drilled lateral lengths lion tons of coal in 2012, ranging between 2,785 and Consol Energy officials plan 7,568 feet. The company also to continue to shift the comfracked four of these wells. pany’s focus this year — J. Brett Harvey, chairman and chief executive In 2013, Consol will toward natural gas. officer of Consol Energy receive the final annual Consol expects to invest installment of $328 million as much as $935 million in from Noble Energy for the 2013 to further develop joint venture the companies Marcellus and Utica shale natural gas assets in Ohio, West executive officer. signed in 2011. In 2012, the joint “In our coal division, once we com- venture saw Consol drill 64 wells Virginia and Pennsylvania. About $600 million of this will go to drilling plete the BMX Mine, we do not with Noble drilling 25. in the Marcellus Shale, while $160 expect to be investing in new major Noble began production in million will be used to maintain cur- coal growth projects,” he added of the Marshall County on July 31 with five mine now under construction in west- wells at the SHL 1 pad. Current prorent production. Consol anticipates that its joint ven- ern Pennsylvania. duction is greater than 39 million Consol’s natural gas producing cubic feet of gas and 300 barrels of ture with Noble Energy will drill 126 horizontal Marcellus Shale wells, subsidiary, CNX Gas Corp., now has condensate per day from these 20 including 90 wells in the liquids-rich active gas drilling operations in wells. area of the play. This wet gas is more Marshall and Wetzel counties, accordAlso turned into production at lucrative than the methane-dominated ing to West Virginia Department of Marshall County during 2012 were dry gas found in most of Pennsylvania Environmental Protection records. the eight-well SHL 3 pad and the Previously, Consol entered a $593 seven-well SHL 6 pad. Noble now has because it also contains valuable ethane, propane, butane and pentane. million deal for a 50-50 partnership one rig drilling in Marshall County, “Our net investment in 2013 with New York City-based Hess one in Washington County, Pa. and reflects both our ability to invest in our Corp. to develop Consol’s Utica Shale one in Gilmer County, W.Va. organic growth opportunities in coal, acreage across eastern Ohio. As a result of the expected gas Hess will operate in Belmont, investment, Consol projects its total gas, and liquids, while selling assets that have more value to others,” said J. Jefferson, Harrison and Guernsey 2013 gas production to be between Brett Harvey, chairman and chief counties, while Consol will drill in 170-180 billion cubic feet.

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Tim Harrington, regional president for BP North America Gas, center, answers questions at the company’s North Jackson facility. With him are, U.S. Rep Timothy J. Ryan, D-Ohio, and U.S. Rep. Bill Johnson, R-Ohio Photo by Ron Selak Jr.

LAWMAKERS URGE EXPANDED USE OF REGION’S NATURAL GAS Official: BP in early stages, prospects look good By RON SELAK JR. Shale Play NORTH JACKSON, Ohio — Using an analogy from the sports world, Tim Harrington, the regional president for BP North America Gas, explained the company’s presence in the Mahoning Valley and where it stands on the development of oil and natural gas. “We’re kind of on the second hole of an 18-hole kind of round,” Harrington said. “So we’ve secured the lease hole, so over the next two years we need to appraise it, so we don’t understand exactly what we have yet, so we need to understand the quality of the rock.” BP will in the near future begin drilling wells to understand the “producibility” and get a better look of the “resource base,” Harrington said. “We’re a long way from that, but we’re pleased on what we have now,” Harrington said. “The prospectivity looks good, but it’s too early to actually call what a development would look like.” BP is not producing in either Trumbull or Mahoning counties now, but the company has leased the mineral rights for thousands of acres in Trumbull County

and has plans to begin drilling those experimental wells as soon as April. The company also has numerous mineral right leases in Mahoning County, too, according to the county recorder’s office. Harrington met with the media Friday at BP’s facility in North Jackson after a tour of the building inside the Youngstown Commerce Park and a meeting between BP officials and U.S. Reps. Timothy J. Ryan and Bill Johnson. “We just want to make sure we’re engaged, whether it’s from a workforce development perspective, whether it’s for exporting, whether it’s for anything that could potentially be helpful and make sure we’re all on the same page,” Ryan, D-Niles, said after the meeting. The developing industry has the chance to bring the Valley and Appalachia Ohio,

Marcellus and Utica shale and resources we have here in Ohio to work for Ohioans.” The visit came on the heels of the request Ryan, Johnson and more than 100 other lawmakers made to Energy Secretary Steven Chu to expand domestic exploration of liquefied natural gas (LNG) and urge the administration to approve — U.S. Rep. Timothy J. Ryan, D-Niles LNG export permits to non-Free Trade Agreement countries. Opening the “wealth” of this resource to the world market, Johnson a large part of which is represented by said, would create and support jobs in Johnson, into a “period of prosperity,” not Ohio as well as ensure the continued proseen since the steel mill generation. duction of natural gas. It’s a market the “BP is just one of many companies, but U.S. doesn’t have a foot in now, Johnson they have a formula that appears to be said. working,” said Johnson, R-Marietta. “This “We can either import oil or we can is an evolving strategy and plan with a lot export natural gas and I think most people of money being committed already, and I would say, ‘let’s export it and create the think we’re on the right track to put jobs here,”’ Ryan said.

“We just want to make sure we’re engaged, whether it’s from a workforce development perspective, whether it’s for exporting, whether it’s for anything that could potentially be helpful and make sure we’re all on the same page.”

Thursday, February 14, 2013 — 13


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Thursday, February 14, 2013

Speakers discuss fracking, gas drilling

By BRETT DUNLAP S h a l e P l ay PARKERSBURG, W.Va. — Residents of Parkersburg learned last month about the safety of fracking and items that might be included in a natural gas drilling lease. The featured speakers were Robert Chase, professor and chairman of the Department of Petroleum Engineering and Geology at Marietta College, and Peggy Kirk Hall, director of the Agricultural and Rural Law Program at Ohio State University. “Things are looking very bright in Ohio in regard to the Utica Shale,” Chase said. “Things are heading this way.” One Utica Shale well has been drilled in Washington County, Ohio. There has been more activity in the Utica Shale deposit north of Washington County, he said. Some of the world’s largest energy producers are currently doing business in the Marcellus and Utica Shale deposits. “These aren’t the little mom and pop operations; these are some of the biggest companies in the United States and the world, companies like Chevron,” Chase said. He noted in Ohio, 45 wells are currently producing natural gas and oil.

Robert Chase, professor and chairman of the Department of Petroleum Engineering and Geology at Marietta College, discusses the development of the Utica Shale during an educational meeting sponsored by the West Virginia University Extension Service. Photo by Brett Dunlap

The infrastructure is not in place to handle more production, he said. Many wells are exploratory to see if it would be worth the investment to begin production,

Chase said. Chase addressed concerns people have had about fracking: the use of sand, water and chemicals injected at high pressures to blast

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open shale rock and release the trapped gas inside. “Hydraulic fracking is not this demonic process people have made it out to be,” Chase said. “It

is not a new process. We have been using it in Ohio since 1952.” Over the last 100 years, more than 200,000 oil and gas wells have been drilled and are in production in Ohio. Methane has ended up in water a number of times during that period, he said. “Just because someone has gas coming out of their water faucet doesn’t mean it is coming from fracking,” Chase said. “You can frack responsibly if you practice proper earth-control methods.” Hall talked about terms of a lease, time frames, exploratory periods versus production periods, payment terms, and how property damage might be handled. Hall discussed things people may see in a lease agreement offered from a company wanting to drill on property.


Thursday, February 14, 2013

shaleplayneohio.com

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Gas, coal key in property value increase

B y J.W. JOH NSON JR. Sha le Play MOUNDSVILLE, W.Va. — Marshall County is undergoing a transformation, evidenced by a property value increase of nearly $1 billion in just two years. Most of that increased value is being driven by the natural gas boom, as several new processing plants have been built in the county During a special session of the Marshall County

Marshall County Assessor Chris Kessler speaks to the Marshall County Commission about increased assessed property values while James Buzzard looks on. Photo by J.W. Johnson Jr.

Commission in late January in which members sat as a Board of Review and Equalization, county Assessor Chris Kessler outlined the anticipated $577.2 million increase in assessed values for the 2013 tax year. Coupling that increase with 2012’s $335 million increase, Kessler said the county is experiencing something “extraordinary.” Kessler indicated once the public utility values are provided by the West

Virginia Tax Department, total taxable assessed value of all property in Marshall County is expected to be about $2.7 billion. With tax exempt property added, Marshall County will have a total assessed value of slightly less than $3 billion, doubling what it was in 2007. Kessler said the natural gas industry is the main reason for the increase, as new construction at processing and fractionation

facilities continues and new wells and pipelines are installed on a monthly basis. As that infrastructure is installed, it allows companies to begin production, resulting in new taxes on the minerals, as well as taxed royalty payments for lease holders. However, Kessler was quick to note that for the first four years of the increase, investments made in coal mines and preparation plants

increased values in a large way. He said that trend continued for 2013, and he doesn’t anticipate it changing anytime soon. Despite dramatic increases in assessed Class III, or industrial property, values, Kessler said Class II property, which is designated as owner-occupied residential property, declined for the first time since 1993. He said he believes the decrease is “a blip on the

radar” reflecting the national housing slowdown and not a long-term trend. “Ten years ago, we didn’t see the housing boom like other areas, and I don’t think we will see the (crash), either,” he said. Kessler said it is important to remember there is lag time in assessments, with sales and construction activity between July 1, 2011 and June 30, 2012 being analyzed for the 2013 tax year.


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Thursday, February 14, 2013

Pennsylvania is moving to limit the amount of air emissions from compressor stations such as this. File Photo

Pa. moves to limit air emissions from gas industry PITTSBURGH (AP) — Pennsylvania’s natural gas compressor stations will have to meet tighter air pollution standards under a mandate from the state environmental agency. The Department of Environmental Protection said its revised permit for compressor stations requires a 75- to 93-percent reduction in air emissions for the largest, most common types of engines used to power the facilities, which pressurize natural gas taken from the Marcellus Shale formation for movement along pipelines. Environmental groups and some residents have expressed concern over air

quality as more compressor stations are permitted and built. Residents who live downwind have complained of headaches, breathing trouble or other health problems they blame on air emissions from the compressors. The new DEP permit imposes stricter limits on volatile organic compounds, formaldehyde, nitrogen oxides and carbon emissions. The agency also announced it will accept public comment on a separate plan to reduce wellhead emissions. “The steps we are taking now mean far lower emissions at well sites and

“ D E P ’s ef fective and robust oversight will d e liv e r o n th e p ro m is e o f c le a n e r ai r f ro m the inc reas ed u se o f n atu ral g as. ” — Michael Krancer, DEP secretary

more efficient compressor stations, resulting in cleaner air as development, production and transmission take place,” DEP Secretary Michael Krancer said in a statement. “DEP’s effective and

robust oversight will deliver on the promise of cleaner air from the increased use of natural gas.” The Marcellus Shale Coalition, an industry group, said it supported the new standards.

The revised permit will “further leverage technologies that continue to reduce our industry’s footprint,” said coalition president Kathryn Klaber. Pennsylvania has more than 400 compressor stations, including older stations that handle natural gas produced from conventional wells. DEP has been criticized by environmental groups over rules that govern when it treats compressor stations as individual, minor sources of pollution and when it groups them together with related natural gas facilities like wells and pipelines, for purposes of aggregating their air emissions. Major sources

of pollution are subject to stricter controls. State Rep. Jesse White, a Democrat from Washington County, said the announcement “totally ignores the real problem, which is that DEP refuses to aggregate emissions results. So if there are 10 compressors right next to one another, DEP monitors emissions of each one separately, even though the combined emissions of all 10 are coming in through your kitchen window.” Krancer has called the aggregation rules a “practical, common-sense and legally sound approach” used by many other oiland gas-producing states.

Triad awaits OK from U.S. Coast Guard on brine hauling B y EV A N B E V I N S Sh ale Pla y NEW MATAMORAS, Ohio — A local disposal company says transporting brine from fracking operations in Pennsylvania to New Matamoras by barge is a better method than trucking, but the U.S. Coast Guard must sign off on it first. Some people are concerned about the risks of moving the wastewater on the Ohio River, but John Jack, vice president of business development for

GreenHunter Water, a division of Triad Hunter, said the process is safer and better for the environment. “For every one barge accident, there are 2,100 accidents by truck,” he said. GreenHunter Energy leases a site on Ohio 7 south of New Matamoras to keep the material before taking it to one of the company’s Class II injection wells. Bringing brine to that facility by barge instead of truck will

significantly reduce wear and tear on roads, he said. “Every one barge tow removes 1,050 trucks from the road,” he said. The Coast Guard, which regulates the nation’s waterways, will have the final say on whether it’s allowed. In hydraulic fracturing, a mixture of water, sand and chemicals is used to “fracture” shale formations deep underground and release the oil, natural gas and other minerals within.

The concern is that fracking wastewater can contain trace amounts of heavy metals, natural radioactivity and some of the chemicals used. Jack said the water GreenHunter transports is tested extensively and is non-hazardous. Jann Adams, a member of the local Southeast Ohio Fracking Interest Group, has reservations about moving brine on the river. There “is always a possibility of accidents, no matter what you

do,” she said. “A spill on land is one thing, but a spill on water ... that would just be monumental.” For now, trucks are still bringing about 3,000 barrels a day of wastewater produced in hydraulic fracturing to the New Matamoras site, Jack said. A number of hazardous materials are already transported on the river, Jack said. The oil and gas industry should simply be treated the same under existing rules, he said.


shaleplayneohio.com

Thursday, February 14, 2013

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McClendon to retire from Chesapeake B y CA SE Y J U N K IN S Shale Play Chesapeake Energy Chief Executive Officer and President Aubrey McClendon will retire as of April 1, he announced to the corporation’s board of directors in January. McClendon, whose company is the most active driller in West Virginia’s Northern Panhandle and also holds extensive Utica Shale assets in Ohio, has led the energy giant since founding it in 1989. “I am extremely proud of what we have built over the last quarter of a century, and I am confident that Chesapeake is in a great position to continue to grow and achieve great success in the future as it realizes the full value of its outstanding assets,” McClendon said regarding his retirement. “Over the past 24 years, I have had the privilege of developing Chesapeake into one of the world’s premier energy companies,” he continued. “While I have certain philosophical differences with the new board, I look forward to working collab-

“ I a m e x tr e m e l y p r o u d o f w h a t w e h a v e b u i l t over the last quarter of a century, and I am c o nf i de n t t ha t C h e s a p e a k e i s i n a g r e a t position to continue to grow and achieve great s u c c e s s i n th e f u t u r e a s i t r e a l i z e s t h e fu l l v a l u e o f i ts o u t s t a n d i n g a s s e t s . ” — Aubrey McClendon, Chesapeake Energy chief executive officer

AUBREY McCLENDON oratively with the company and the board to provide a smooth transition to new leadership for the company.” McClendon has been under intense scrutiny

since it was discovered that he had been taking a 2.5-percent personal stake in the local drilling operations via private firms he controlled such as Jamestown Resources and

Larchmont Resources. This led Chesapeake investors to question whether McClendon should continue heading the Oklahoma City-based company that is publicly traded on the New York Stock Exchange. Chesapeake’s board continues reviewing McClendon’s practice of taking the 2.5-percent stake, formally known as the Founder Well Participation Program. McClendon has since

agreed to end this practice by June 30, 2014. Noting the board has conducted an “extensive review” of the program, the company said McClendon has not engaged in any improper conduct. McClendon will also resign his seat on the board once his CEO successor is appointed, but he will receive his full compensation and other benefits to which he is entitled in accordance with the terms of his employment agree-

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&

ment. Archie W. Dunham, chairman of the Chesapeake board, thanked McClendon for building “an unmatched portfolio of natural gas and oil assets in creating one of the world’s leading energy companies.” “However, as the company moves towards more fully developing the value of its outstanding assets, Chesapeake is at an important transition in its history, and Aubrey and the board of directors have agreed that the time has come for the company to select a new leader,” Dunham said. “Going forward, the company will strive to continue as a low cost producer of oil and gas while further enhancing and strengthening its balance sheet,” Dunham added. “By forging ahead with a new chief executive officer, the company’s strong management team and talented employees will continue to develop the industry’s best assets to create substantial value for shareholders and themselves in the years ahead.”

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SHALE PLAY

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Thursday, February 14, 2013

This photo shows an oil pump jack in a field adjacent to a sub-division near Fredrick, Colo. Citizen fears about hydraulic fracturing, a drilling procedure used to pry oil and gas from rock deep underground, have made “fracking” the hottest political question in Colorado. AP Photo

Rules to limit effects of drilling get initial approval in Colorado DENVER (AP) — Colorado regulators gave initial approval this month to rules meant to limit the effects of oil and gas drilling on homes, including a rule increasing the distance that rigs must be from occupied buildings. The rules approved by the Colorado Oil and Gas Conservation Commission are expected to take effect this summer. One requires wells to be 500 feet from buildings, up from a 350-foot buffer proposed by the commission earlier. Environmentalists wanted even bigger buffers, while farmers and homebuilders were among those saying the larger distances could limit development or hurt loan values on their land. Also, state health and natural resource officials announced the launch this summer of a study of how oil and gas emissions behave and their characteristics in areas along the northern Front Range, which has become a hotbed for drilling. A second phase would study possible health effects. Environmentalists said the state-sponsored studies are too little, too late, and amount to using people as “lab rats” to

determine if they may be suffering health problems because of drilling. The actions came at the end of a three-day hearing to consider updating the state’s oil and gas rules. Earlier, the oil and gas commission approved rules requiring groundwater sampling both before and after drilling to ensure drinking water supplies haven’t been contaminated. The rules that got preliminary approval include requirements for operators who plan to drill within 1,000 feet of occupied buildings to meet new measures on limiting noise, odor, dust and emissions and to protect against spills. They’d also have to give expanded notice to residents. Plans to drill within 1,000 feet of schools, hospitals or other high-occupancy buildings would trigger a hearing in front of the commission. State officials said testimony during the rulemaking hearing reinforced views of industry and environmental experts that better science is needed for oil and gas emissions. The study “marks another important step in our aggressive efforts to ensure oil and gas development is conducted with the highest

standards of environmental protection,” said Mike King, executive director of the Colorado Department of Natural Resources. Mike Chiropolos, who represented a coalition of environmental groups at the hearing, said heart-wrenching testimony from property owners who believe they have been harmed by drilling operations failed to sway regulators who are considering exceptions to the rules. “Everybody agrees more studies are needed, but the state has not been doing its job. Regulators have been hearing from citizens of Colorado who don’t like living in a science experiment while these studies continue. They don’t like being lab rats,” Chiropolos said after the meeting. In May, a Denver district court judge threw out a lawsuit filed by a family from the Western Slope claiming oil and gas drilling caused illnesses. The judge said lawyers for the family failed to provide enough evidence of chemical exposure or any proof the drilling company was responsible for their burning eyes and throats, rashes and headaches. King said that strong science

is needed along with strong regulation to build public confidence in an industry that is critical to Colorado’s economy. Last year, Colorado developed a national model for the disclosure of chemicals used in hydraulic fracturing fluids. Regulators also opened a water-quality database to the public and strengthened rules to reduce emissions. Dr. Chris Urbina, executive director of the Colorado Department of Public Health and Environment, said his agency will work with Colorado State University on the study. It will be similar to an ongoing university-led study of oil and gas emissions in Garfield County on Colorado’s Western Slope. The first phase of the study is projected to last through June 2016. A second phase to develop a health risk assessment would begin in 2016. Gov. John Hickenlooper, an industry supporter, is seeking $1.3 million from the Colorado Oil and Gas Conservation Commission’s Environmental Response Fund to get the project off the ground. The money for that fund comes from oil and gas development.

THE RULES The rules that got preliminary approval include requirements for operators who plan to drill within 1,000 feet of occupied buildings to meet new measures on limiting noise, odor, dust and emissions and to protect against spills. They’d also have to give expanded notice to residents. Plans to drill within 1,000 feet of schools, hospitals or other high-occupancy buildings would trigger a hearing in front of the commission.


Thursday, February 14, 2013

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WVU PROFESSOR: One Gulfport well worth about $100,000 per day By CASEY JUNKINS Sh a l e Pl a y BARNESVILLE, Ohio — The positives keep coming for Gulfport Energy’s Utica Shale operations, as the Stutzman well in southwestern Belmont County could be producing about $100,000 worth of revenue per day. “Add in the 945 barrels of natural gas liquids at $50 per barrel, and you are talking about something well above $100,000 per day in revenue,” said Tim Carr, the Marshall Miller Professor of Energy at West Virginia University. The Stutzman well tested at a rate of 21 million cubic feet per day of natural gas, in addition to the 945 barrels per day of ethane, propane, butane and other liquids. “Twenty-one million cubic feet per day is very impressive. That is $63,000 per day at $3 per Mcf,” Carr said of the natural gas production per 1,000 cubic-foot unit. “If those numbers hold up for a few months, the well will certainly be profitable.” Also, Gulfport’s Clay well — located in the area of U.S. 22 and Ohio 800, near the northern portion of Piedmont Lake in Harrison County — is producing daily averages of 747 barrels of condensate, 761 barrels of natural gas liquids and 5.9 million cubic feet of natural gas. These wells are in addition to the company’s Shugert well that has been producing about 28.5 million cubic feet of gas per day deep within the Egypt Valley area near Morristown. Carr, with many years of experience in the natural gas industry, finds Gulfport’s

different categorization for condensate and NGL somewhat unique. “That is the hydrocarbon liquids in a very saturated natural gas that come out of solution when the pressure drops,” he said of the condensate. “I think when they are distinguishing condensate from NGLs, they are referring to pentane or what is referred to as natural gasoline.” Gulfport notes the company drilled the Stutzman 9,020 feet vertically before turning the well horizontally for an 8,634 lateral leg. The company hopes to have the gas flowing into a sales pipeline by June. Many Eastern Ohio residents who originally signed leases with Wishgard LLC or Tri-Star Energy have seen those contracts turned over to Gulfport, while Gulfport has also signed many county landowners to their own leases. Terms of the leases can range widely depending upon when they were signed and a multitude of other factors. However, some property owners have received at least as much as $5,900 per acre, with as much as 20 percent of the production royalties. Gulfport is also supplying gas from Belmont and Harrison County wells to the Cadiz MarkWest complex that is now up and running. The interim refrigeration plant is the first phase of the new plant to open, with many more operations still to begin at the large facility, just off Ohio 9 south of Cadiz. Hundreds of construction workers and pipeliners are now working at the plant, while they should continue doing so until 2014.

“Add in the 945 barrels of na t ur a l g a s li qui ds a t $ 50 pe r b a r r e l , a nd y o u a r e ta l k i n g a b o u t s o m e th i n g w e ll a bo v e $10 0, 000 p e r d a y i n r e ve n u e . ” — Tim Carr, Marshall Miller Professor of Energy at West Virginia University


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Thursday, February 14, 2013

Austin Mitchell, left, and Ryan Lehto work on an oil derrick outside of Williston, N.D. The United States is on pace to pass Saudi Arabia as the world’s top oil producer within two years, and North Dakota is at the forefront — as long as federal regulations don’t get in the way, the state’s top oil regulator said. AP File Photo

N.D. OIL REGULATOR: Fed rules may threaten industry BISMARCK, N.D. (AP) — Increased federal regulations and competition from other U.S. oil players could drastically cut production in North Dakota’s oil patch, the state’s top oil regulator said. Lynn Helms, director of the state Department of Mineral Resources, told the North Dakota House Appropriations Committee that the state’s oil industry is healthy but threatened by onerous federal regulations, increased competition from emerging oil fields and a struggling worldwide economy. “It’s not all roses and sun-

shine,” Helms told lawmakers. “There are some serious risk factors.” Helms appealed to lawmakers to keep a $1 million fund available to challenge the federal government if it imposes additional hydraulic fracturing regulations or other rules that North Dakota finds excessive. Hydraulic fracturing is a process that uses pressurized fluid and sand to break open oiland gas-bearing rock up to 2 miles underground. The technique tapped the rich Bakken shale and Three Forks formations in North Dakota, propelling the

state to the nation’s No.2 oil producer behind Texas. In other states, hydraulic fracturing has been blamed for endangering water quality. Helms said water sources in North Dakota are protected by thousands of feet of geologic formations atop fracking operations that can extend 2 miles horizontally. Elsewhere, hydraulic fracturing is often done at much shallower levels, he said. North Dakota should have the authority to set its own regulations when it comes to oil drilling and hydraulic fracturing, Helms said, and it should have a million-

dollar war chest available to challenge onerous federal rules. About a dozen other oil-producing states have similar funds in reserve, he said. “There are some heavy hitters with big budgets backing us up,” Helms said. The $1 million fund in North Dakota “is enough to make sure we’re in the fight,” he said. Mitch Vance, of Bismarck, said he intended to submit comments to lawmakers over the fund, saying the state should not be using taxpayer money to fund lawsuits against the federal government.

“I don’t feel that it’s an appropriate expenditure and it’s fiscally irresponsible,” Vance said. “I don’t think the state should be going to battle for the oil industry.” Helms said many oil producers in North Dakota also are drilling in other oil and gas fields across the U.S., and especially in Texas’ oil- and gas-rich Eagle Ford Shale region. “We want to be careful what we do with tax rates and things like that,” Helms said. “A single decision in a board room can move our rigs to another play ... it would be very easy to shift their capital dollars into Texas.”

Oil, gas boom fuels Harrison safety issues By MIKE PALMER S h a l e P l ay CADIZ, Ohio — Ohio’s natural gas boom is rumbling full-steam into Harrison County. It’s also causing plenty of grumbling among local residents. Along with the natural gas and oil wells that are being drilled into the ground, a large pipeline network to transport the natural gas also is taking shape. This means that scores of large trucks are on the roads — and that those roads are being damaged. This prompted Harrison County commissioners and Sheriff Ronald J. Myers to

address road conditions and traffic safety at a meeting in late January. “The safety of the residents, and the condition of the county’s roads, are major concerns for us,” said committee chair Don Bethel. Myers recently hosted a safety meeting with area drilling companies during which concerns with the increased truck traffic were discussed. “Chesapeake was tired of getting complaints of its vehicles speeding on the roads over in Carroll County and they have been proactive on that issue,” Myers

told the board. “They purchased signs which state a speed limit for Chesapeake traffic and these signs also take photos of vehicles, which they can check for any violations. “Most of the county and township roads, which were part of our discussion the other day, are 55 mph. Chesapeake has posted speed limits which are below those legal limits.” Myers said his office regularly receives speeding complaints on truck traffic, particularly on Bower Road. The number of vehicles needed to bring one well into production, about

1,184 loaded trucks, has the equivalent impact of years of normal traffic, Myers said. “They are unfamiliar with the roads and some of these vehicles are going too fast for the winding highways here in the county,” Myers stated. “I have driven a truck here in the county and I can tell you that if they just slow down 5 or 10 mph, they can travel the roads safely, maintaining their own lane.” Myers attended Chesapeake’s safety meeting on Jan. 17 in Canton and set up his own meeting with Atlas, Gulfport,

Chesapeake, Hess and Chevron representatives to address the issues in Harrison County. “We brought up traffic safety issues ...,” Myers said. “The meeting went very well, we discussed the issues and decided that we will conduct these safety meetings once a month.” Doug Crabtree brought a road use agreement before the board at which time Bethel took the opportunity to introduce an amendment to all future contracts that will specify authorization from the engineer’s office must be obtained to cross any highway, adding that

the county must approve and coordinate any transportation detours. “I feel they are a little bit confused as to what they can and cannot do, and specifically, I do not want anybody cutting across any roads,” Bethel said. “We are aware that this has been happening. “One recent example is a pipeline that crossed county road 2 and my concern is that there are no stipulations as to how the road must be restored,” Bethel said. The sheriff announced that Feb. 25 will be the next safety meeting to be held at the Cadiz Library.


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Trustees cool to proposed agreement By RICHARD SBERNA S hale P lay YELLOW CREEK, Ohio — The persuasive powers of a representative from Chesapeake Energy were resisted by Yellow Creek Township trustees during their meeting last month. Brett Bankert, a field representative with Chesapeake, presented the board with a road usage maintenance agreement or RUMA, that would cover a short stretch of Forbes Road near the border with Madison Township. Bankert sought to assure trustees that Chesapeake would take responsibility for damage incurred by trucks hauling drilling equipment,

water tankers and other heavy loads. Forbes Road is part of a planned route that would take the trucks north up Route 45 from Wellsville, west onto Osbourne Road in Madison Township, then south down Forbes Road, possibly across the border into Yellow Creek. Chesapeake is said to be exploring the possibility of a well site in the border area of Forbes Road, which would necessitate the use of those roads. “It’s not on our schedule right now, but that could literally change tomorrow morning,” Bankert said.

FORBES ROAD Forbes Road is part of a planned route that would take the trucks north up Route 45 from Wellsville, west onto Osbourne Road in Madison Township, then south down Forbes Road, possibly across the border into Yellow Creek. Bankert pointed out that the agreement had already been signed by county engineer Bert Dawson, noting the significance of Dawson’s approval. Bankert also stated that representatives from CESO, Inc., a civil engineering firm retained by Chespeake, were presenting a nearly identical

RUMA to Madison Township trustees at their meeting. Yellow Creek trustees pressed Bankert on the agreement that Chesapeake would restore any damaged roads to the same condition as they found them. Although Bankert stated that roads are sometimes repaired to

better-than-found condition under certain circumstances, trustee Larry Brewer wondered why the agreement couldn’t state that a damaged Forbes Road would be repaired to superior condition, regardless. In reply, Bankert said the road would technically be improved, with a gravel overlay and double chip-and-seal, prior to usage so it could stand up to the strain imposed by company trucks. Without a guarantee of improvements up to the level of repaving, however, trustees were reluctant to sign the agreement. It was tabled pending further study.

Magnum Hunter drilling on Ormet land B y CA S E Y J U N K IN S Shale Play HANNIBAL, Ohio — Magnum Hunter Resources Corp. is busy at work in Monroe, Wetzel and Tyler counties, highlighted by the natural gas drilling alongside Ohio 7 on land owned by Ormet Corp. “We have recently drilled and cased two new Marcellus wells on our Ormet acreage located in Monroe County, adjacent to leases where Utica potential exists,” said James W. Denny III, president of Triad Hunter, the local operating division of Magnum Hunter. Magnum Hunter officials affectionately refers to the company’s Marcellus and Utica operations as the “Magnum

Rich” region. The company drills wells locally under the Triad Hunter division in Monroe, Wetzel and Tyler counties. As another one of Magnum Hunter’s divisions, Eureka Hunter, has been boring under the Ohio River to connect the Ohio wells to the West Virginia processing plant. Three additional Utica/Point Pleasant wells are planned in Monroe County. Production from these Utica wells — along with the 12 “Magnum Rich” Marcellus wells — will be gathered and delivered to the MarkWest processing facility at Mobley, W.Va. The Ohio River bore will extend the 20-inch “Pursley

Lateral” from Wetzel County into Monroe County near Sardis. The crossing enables Eureka to expand its footprint to include gathering of Utica and Marcellus production in Monroe and Washington counties in Ohio. “We are very excited to begin accelerating our testing program in the Utica formation located in Ohio. Development of this exciting and highly productive unconventional play could have significant impact to our company,” Denny said. “We are planning to complete these new liquids rich Marcellus wells this summer when Eureka Hunter, our midstream division, has completed the necessary infrastructure,” he added.

“ W e h a v e r e c e n t l y d r i l l e d a n d c a s e d tw o new Marcellus wells on our Ormet acreage located in Monroe County, Ohio a dj a c e n t t o l e a s e s w h e r e U t i c a p o t e n t i a l e xi s t s . ” — James W. Denny III, president of Triad Hunter, the local operating division of Magnum Hunter


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CHESAPEAKE TO SUPPLY GULF COAST FACILITY WITH METHANE B y C A S EY J U N K I N S Shale Pla y WHEELING, W.Va. — The Upper Ohio Valley’s most active natural gas driller, Chesapeake Energy, will supply a Gulf Coast methanol plant with fuel for 10 years following a new agreement with the Methanex Corp. The methane will supply the new Methanex plant that is set to open in Geismar, La. by the end of 2014. In natural gas production, some of the dry gas is dominated by methane, so it requires little if any processing. However, wet gas streams — such as those found in the Upper Ohio Valley — also contain ethane, propane, butane and pentane, so they require processing before delivery to plants like the Methanex. John Floren, president and chief executive officer of

Vancouver, Canada-based Methanex, said his company is thrilled to work with Chesapeake, the second largest producer of natural gas in the U.S. “This contract will enhance our ability to reliably supply quality product to our U.S. customers for at least the next 10 years,” he said. “The agreement is structured so that the natural gas price is linked to the methanol price, and both Methanex and Chesapeake will share in the risks and rewards resulting from the changing price of methanol over the decade of this contract. “Having a 10-year contract in place for 1 million tonnes of methanol production per year reduces our exposure to short-term natural gas price fluctuations, which will lower the natural gas price risk for

the site if we decide to relocate a second plant to Louisiana,” Floren added. “We are excited to support the ongoing revitalization of the U.S. manufacturing sector through our long-term gas supply arrangement with Methanex, the world’s leading methanol producer,” said James C. Johnson, Chesapeake’s senior vice president of marketing. “The unique structure of this transaction provides return certainty and price diversification for Chesapeake while providing margin protection and price stability for Methanex. Furthermore, Methanex’s investment and plant relocation to Louisiana demonstrates the compounding economic and employment benefits to be derived from the shale gas revolution,” Johnson added.

“The unique structure of this transaction prov i d e s r e tu r n c e r t a i n ty a n d p r i c e d i v e r s i f i c a ti o n for Chesapeake while providing margin protecti o n a n d p r i c e s t a b i l i t y f o r M e t h a n e x . ” — James C. Johnson, Chesapeake’s senior vice president of marketing

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