Pittsburgh Airport Offered $44M Shale Drilling Lease Offer

100bullsThe Pittsburgh International Airport is about to get a huge cash infusion from the shale drilling industry—and it’s not from more passengers passing through the terminal (although that’s happening too). The airport previously floated a request for bids to allow drilling on and under its 9,263 acres. Wednesday morning they opened bids from two drillers: CONSOL Energy and EQT. One bid offered twice the lease payment per acre of the other bid.

Here’s the bid details (and a Marcellus and Utica Shale Databook lease offer map to provide context):

Two energy companies submitted the equivalent of multimillion-dollar bids this morning to drill on public land at Pittsburgh International Airport in Findlay and the Allegheny County Airport in West Mifflin.

EQT Production Company submitted a per-acre lease bonus bid of $4,750, while Consol Energy offered a per-acre lease bonus of $2,250.

The lease bonus would be applied to 9,263 acres of Allegheny County-owned land at the two airports, meaning the EQT bid could generate $44 million in up-front payments to the county’s airport authority.

The Consol bid would provide $20.8 million in up-front payments.

Lease bonus payments would be in addition to ongoing royalties of 18 percent being sought by the authority on all gas, oil and hydrocarbons produced by the drilling.

The Consol bid was accompanied by a $2 million check, representing a deposit of 10 percent on its lease bonus bid. EQT did not provide a deposit.

JoAnn Jenny, airport authority spokeswoman, said she did not know if the lack of a deposit would disqualify EQT.(1)

CONSOL followed the rules and provided a $2 million check. Does that mean they’ll win the contract? I wouldn’t bet on it. If we were on the airport board, we would be on the horn to EQT telling them to get a check in but quick. Double the money is a no-brainer, provided the company has a good safety record, has sizable resources and a good reputation, which both EQT and CONSOL have. So all things being equal, why wouldn’t you take double the money?

However, technically, neither EQT nor CONSOL qualifies under the airport’s strict requirements (SEE CORRECTION BELOW):

According to the airport’s bid request, a qualified bidder must have “at least five or more years of experience in producing natural gas through directional/horizontal drilling.”

That might exclude both EQT and Consol, which drilled their first horizontal wells in June and January of 2008.

Using a five-year range with the bid due date as the deadline, the only companies to qualify would be Range Resources, Atlas Energy, EOG Resources Inc. and Chesapeake Energy.(2)

Just theorizing once again, but we’d lay good money the five-year requirement clause will be loosely interpreted as we are almost at the five-year mark now for both of them. We’d say “close enough” if we sat on the airport board.

CORRECTION: MDN has been alerted by an astute MDN reader that both CONSOL and EQT both have at least (if not more) than five years of experience in drilling horizontally fracked wells—it’s just not five years of experience in the Marcellus (but instead five years in other shale plays). The Pittsburgh Airport’s specification did not stipulate it had to be five years of experience in the Marcellus. Therefore, they both qualify.

Below is a lease offer map from the Marcellus and Utica Shale Databook with icons added to show where the Pittsburgh Airport properties are located. The map shows other lease offers in the region, to give you context for the bids from CONSOL (of $2,250 per acre) and EQT (of $4,750 per acre). Our thanks to Databook partner Ed Camp from ShaleNavigator for providing this custom map. (By the way, Volume 3 of MDN’s Databook comes out in January 2013, loaded with more maps like the one below. Get the first two volumes right now!)

Click on the map for a larger view

Marcellus-Utica Lease Offer Map

(1) Pittsburgh Post-Gazette (Dec 5, 2012) – EQT, Consol bid on Marcellus drilling near Allegheny County airports

(2) Pittsburgh Business Times (Dec 5, 2012) – Airport receives gas lease bids, but are they valid?