After several years of nonstop drilling, too much gas and too few buyers have put the brakes on Pennsylvania's Marcellus Shale boom. Amid the lowest natural gas prices in a decade, energy companies say much of Pennsylvania's gas, while plentiful and clean-burning, is too cheap to make a profit.
Instead, they're looking west.
A Post-Gazette analysis of state Department of Environmental Protection data shows drillers are picking up stakes in northeast Pennsylvania, long the center of shale development, and moving in greater numbers to Western Pennsylvania and Ohio. Over the last year, the number of drill rigs boring wells in Pennsylvania dropped from 115 to 78, while drills in Ohio increased from 12 to 20.
Their target? "Wet" natural gas, which is expensive to process but comes laced with lucrative by-products and is abundant in the Utica Shale running through Western Pennsylvania and Ohio. This resource is shifting the balance of power to the west, bringing new life to old coal towns -- and new fears among shale veterans that this boom will inevitably lead to another bust.
BG Group, a British natural gas producer, said last week that it has reduced to one the number of drilling rigs in the Marcellus Shale.
In May 2010, BG (OTC: QX) acquired a 50 percent interest in 654,000 net acres in West Virginia and Pennsylvania held by Exco Resources Inc. (NYSE: XCO) and established a Pittsburgh-based joint venture with Exco.
BG said it took a $1.3 billion post-tax charge in the second quarter in connection with its shale gas business in the U.S. It said it would cut drilling activity to the one Marcellus Shale rig and five in Haynesville Shale, a decision due to the low natural-gas prices.
On Friday shale gas driller Encana Corporation, the largest natural gas company of Canada announced it had written down more than $1.7 billion in shale gas assets on its books, the majority from its U.S. shale gas operations as it posted its ominous 2nd quarter operating results. Encana Chief Executive Officer Randy Eresman went on record saying to expect his company to have to take additional shale gas asset write downs in the near future. Such asset impairment write downs directly affect the industry’s operating credit lines as reduced value assets on their books results in financial lenders lending the companies less cash going forward.
Encana Corporation is also the focus of a U.S. Department of Justice price collusion investigation regarding the allegation it has conspired with Chesapeake Energy to fix prices for shale gas land lease agreements with state of Michigan landowners. The investigation is ongoing.
Kampf defended the legislature’s controversial passage of Act 13—a law regulating the extraction of natural gas in the state—by first pointing out that it's almost certainly better than what it replaced: namely, nothing. Kampf reminded the audience that the first hydraulic fracking well was drilled in the state ten years back, but Act 13, the first meaningful regulation of the industry in Pennsylvania, was passed just six months ago. He called the law an “excellent start towards handling the shale” albeit one that was “well overdue.”
In defense of the law’s content—which critics charge benefits energy companies at the expense of the commonwealth’s taxpayers and gas-rich municipalities—he argued that it mandates drillers pay a steep impact fee and establishes water management, well permitting, and bonding requirements, and a host of other “pretty comprehensive” regulations.
By comparison, while there may be as much as 1.7 billion cubic feet in the formation beneath Montgomery, Berks and Bucks counties, the current estimate for the amount of natural gas trapped in the Marcellus Shale formation is closer to 84 trillion. As National Public Radio’s State Impact web site reported , “if you combine the undiscovered estimates from all five basins listed in this report, the Marcellus is 20 times larger than all of them combined.” In other words, State Impact reported, what’s trapped beneath our feet would not supply enough natural gas to supply U.S. needs for one month. As a result, given the current low-price of natural gas, most experts consider it unlikely that Southeast Pennsylvania will be facing a gas drilling boom any time soon. Nevertheless, the estimates contained in that report were enough to serve as the rationale for a ban on drilling in Montgomery and Bucks counties that was slipped into this year’s budget at the eleventh hour. The bill - introduced by Bucks County state Sen. Chuck McIlhinney, R-10th Dist. -says the state “may not issue well permits to engage in oil and gas operations within the geographic boundaries of the South Newark Basin as defined in the (USGS) report.”
That ban, in place until the potential of the reserves have been “adequately evaluated by the Commonwealth,” was intended to exempt those counties from the restrictions of Act 13 .
That law, signed by Gov. Tom Corbett on Feb. 14, removes local zoning and regulatory control of drilling operations from local municipalities and puts it in the hands of the Pennsylvania Department of Environmental Protection.
“My colleagues in Harrisburg never intended for the Marcellus Shale law to affect our region, and now that a newly discovered formation exists, they agree that a moratorium on drilling is appropriate to give us the same time to study and debate the issue for our local area,” McIlhinneysaid in a statement on his web site.
State officials are seeking a speedy review by the Pennsylvania Supreme Court of their appeal to a decision last week overturning statewide zoning for shale gas drilling.
That request, outlined in a legal brief filed on Monday, asks the Supreme Court to hear the case during its October session in Pittsburgh.
Attorney representing the Pennsylvania Public Utility Commission and the Pennsylvania Department of Environmental Protection are appealing the decision from a panel of Commonwealth Court judges, who ruled that Pennsylvania can't require municipalities to allow drilling in areas where their local zoning rules would prohibit it.