Penn State Natural Gas Summit - Key Presentations

I attended Penn State's first Natural Gas Summit last week (December 10-11) at State College. The web site shows the agenda and co-sponsors and, we were told, will eventually have copies of slides from the presentations. Penn State announced they would hold the conference annually.

The highlights were the kick-off talks by Terry Engelder and by John Pinkerton about the Marcellus Gas Shale Play and the dinner talk by John Matthews about experiences from the Barnett shale play in Texas. There were also separate tracks focused on legal, local government, workforce, and environment. I'll cover the legal and other tracks in another post.

Dr. Engelder is Professor of Geoscience at Penn State and has estimated the size of the Marcellus gas resources in the hundreds of trillion cubic feet (cf). Of course, those deposits underlie several states. In PA, the deposits seem best in a SW-NE corridor which includes Susquehanna County. He estimates recovery potential in the good areas at about 64 billion cf per section (1 sq mile) based on horizontal drilling techniques. This estimate is substantially higher than his earlier estimates and seems based on a few recent drilling data points; and he does hedge his estimates.

Mr. Pinkerton is the CEO of Range Resources, the company that has developed most of the novel drilling technology. Range Resources also has large leaseholds and several drilling operations in PA. He painted an optimistic picture of minimum environmental disruption and large potential revenues if the producers were not regulated out of profitable drilling. One example showed a single wellhead with 6 horizontal lines draining a 500 acre parcel. Other estimates indicated more lines or pads, depending on the rock structure which can force a shortening of the horizontal lines. Estimates of line length ranged from 2000 to 4000 feet. He projected that they would drill 250 horizontal wells in 2009 (up from 50 in 2008) in PA and that company investments would shift from 75% leasing to 75% drilling. With the decline of natural gas prices from $9/mcf to $6/mcf (m = thousand), we should expect lower rental/bonus prices in 2009 as well as fewer lease offers.

Before discussing the dinner speech, it may be worth noting that neither Cabot not Chesapeake were sponsors or speakers at this conference. Their views of the immediate future might be somewhat less rosy as indicated by this article in today's Wall Street Journal U.S. Drilling Activity Off Sharply : "Most industry analysts now expect hundreds more rigs to fall idle by the middle of next year. Some industry experts suggest a drop of as many as 1,000 rigs, which would represent a 50% decline from the peak set in September. That would leave fewer rigs running than at any time since 2003."

Mr. Matthews is a County Commissioner of Johnson County, TX, at the heart of the Barnett Shale play. The Barnett Shale play has been active for 20 years, covers much less geography than Marcellus Shale play but includes more developed areas including the Dallas - Ft. Worth airport. He seems to have foreseen that WSJ article because he reminded us at several points that the companies can turn off the pumps and leave for periods when the economics turn sour.He discussed the substantial growth of jobs in the 12 countys of the Barnett Shale play; noting that PA might experience less because the Marcellus shale covers so many more states and square miles.

The well drilling activity is very intense 24/7 in an area and then moves to another area. After initial fracing of a well, a second fracing often occurs 6 months later, then another after 18 more months, and another 2 years later. So, there are bursts of temporary work and then slowdowns in an area. He cited the need to adapt to this pattern and to protect residents by specific ordinances that address items like sound barriers and directional lighting around the drill rigs, water access for fracing and fraced water treatment and disposal (both of which need a lot of trucks), repair or rebuild of roads, and pipeline safety. He noted that Texas can fund localities and help the local county/towns deal with these issues better than PA with its current state laws. These laws often make it easier to negotiate "voluntary" road rebuilding by the companies. Roads are a big issue beyond damage by truck weight and volume. Big drilling rigs may need all of a road with height and width requirements that may close down a road and require takedown of powerlines. These issues go beyond much of what I've heard discussed locally and indicate a very real need for considerable flexibility in local preparation and action.

Interestingly, most of the gas explosions in Texas are on the pipelines not the well sites. This is important since the legal track revealed that the gas companies are lobbying heavily for Eminent Domain rights for pipelines. That could create a serious problem for farms and rural areas if the Legislature changes the law to allow it.