Pennsylvania

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    How Long Will Drilling in the Marcellus Shale Last?

    Nothing lasts forever, as the old cliché goes, and neither will drilling. While we are at the very beginning of what will be a life-changing event for many landowners, a natural question is, How long will it last? How long before the natural gas locked away in the Marcellus is largely mined from the ground?

    One person to address that question is Marty Muggleton, spokesman for The Larson Design Group and TerrAqua Resource Management, a wastewater processor newly permitted to handle flowback from Marcellus drilling operators. At a recent meeting of the Tioga County (PA) Development Corporation Board of Directors, he said:

    Drilling will last about 20 years…and locals should try to use the resulting income wisely. There will be new opportunities for jobs, culture, education, health care and more. Communities just need to plan so those benefits remain when the drillers leave.*

    So there you have it. Once drilling begins, plan to see drilling operators for about 20 years.

    *The Wellsboro Gazette (Mar 17) – Natural gas dominates TCDC agenda

    UPDATE: At the Natural Gas Development Summit held in Binghamton, NY on March 18, one of the speakers also addressed this issue. Larry Michael, Executive Director for Workforce Economic Development at the PA College of Technology, has studied jobs and drilling in the Marcellus extensively. He said while a single well may produce for 15-20 years, the activity of drilling in the various shales in our region will go on for 80-100 years total. It will span several generations, before all shale gas is mined.

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    Landowner Pipeline Group Forms in Northeast PA

    Some Susquehanna and Wyoming County, PA landowners are forming a group to force drilling and pipeline companies to “behave responsibly” with installation and operation of new pipelines as more and more Marcellus Shale gas wells are drilled and go online in Northeast PA. The group wants to arm landowners with information about their rights when negotiating “right-of-way” agreements for pipelines.

    Excerpts from an article in today’s WC Press Examiner:

    The Lemon Township Pipeline Group has been meeting for months and its members are looking at a range of easement and right-of-way agreements that leaseholders need to consider as more and more drilling companies come into the area looking to get the gas from the Marcellus shale to market.

    Such issues as price, nature, location, type, pipeline depth below surface, installation, road repair, pressure, timetable, abandonment, rights, restrictions and environmental responsibilities are among the many issues that individuals need to consider.*

    An email address is given for those interested in joining or finding out more: pipelinerowinfo@yahoo.com.

    *Wyoming County Press Examiner (Mar 17) – Landowners’ pipeline group forms

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    A Novel Approach to Signing New Landowners by Chesapeake Energy in Bradford County, PA

    Forget the landmen, Chesapeake Energy wants to talk directly to landowners and is throwing a “signing party” hoping to convince landowners in Bradford County to show up and sign up at the Wysox Fire Hall on March 20th.

    Chesapeake sent letters to unsigned landowners in Towanda, North Towanda, Wysox, Standing Stone, Monroeton, Asylum, Wyalusing and Herrick, inviting them to the event.

    Chesapeake tells landowners in the letter:

    “Our records indicate that you own certain oil and gas rights that Chesapeake is interested in leasing,” the copy of the letter states. “We will have personnel on hand to discuss with you an offer to lease [the oil and gas rights on] your property that will potentially allow you to share in the royalty pool to be established for wells to be drilled in your area.”*

    The letter offers unsigned landowners a 10-year lease for $5,000 per acre and 20% royalties. By comparison, just last September Chesapeake signed a deal with the Wyoming County Landowners group for $5,750 per acre and 20% royalties. Chesapeake has made an offer to Wysox Township to lease town land for the same terms ($5,750 per acre, 20% royalties). However, in January 2010, Northern Tier Career Center in North Towanda approved a five-year lease with Chesapeake for $6,500 per acre and 20% royalties on the school’s 73 acres.

    MDN has not seen a copy of the full letter, but a commenter on The Daily Review website states the Chesapeake letter was sent to landowners with less than 3 acres of land. Landowners with small parcels do not have as much negotiating clout as larger landowners or groups. Even so, MDN cautions landowners about just showing up and signing up. While it may be a good deal, the devil is in the details of a contract. There is no substitute for having a contract reviewed by legal counsel before signing. Landowner groups (who retain legal counsel) are often the best way to ensure your interests as a landowner are protected. If you cannot find a landowner group to join, make sure you retain a good lawyer with experience in mineral rights leases.

    Go enjoy the free coffee and donuts, but be careful about signing anything on the spot.

    *Towanda The Daily Review (Mar 17) – Chesapeake to hold lease-signing event for Towanda-area landholders

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    Kane Borough Sewer Authority Making Money from Selling Effluent to Marcellus Shale Driller

    Kane Borough Sewer Authority in McKean County, Pennsylvania is planning to sell (sell!) sewer effluent to Seneca Resources for drilling gas wells. Seneca is the oil and gas drilling division of National Fuel Gas Company. Effluent is the treated water discharged from sewage treatment plants.

    According to a report given by Phil Lingenfelter, the foreman for the [Kane Borough] sewage treatment plants, more than 700,000 gallons of effluent is discharged daily from the two plants in “dry weather.”

    Jim Salvamoser, chairman of the five-member authority, endorses the plan to sell the effluent to Seneca Resources.

    “I think it’s a good idea,” Salvamoser said Monday. “It may give us a good source of revenue.”

    Lingenfelter said he still is talking with Seneca about the proposal. He said a price for the effluent has not been set. He said the state Department of Environmental Protection (DEP) has been made aware of the proposal and has not ruled against the effluent sale.

    “DEP thinks it’s a great idea,” he told the authority.*

    Seneca has already drilled one gas well in the area and is now drilling another, with plans to drill more wells in the near future.

    There are many municipal sewage treatment facilities located throughout the northeast and mid-Atlantic in the Marcellus Shale. Perhaps some other enterprising managers can tap this new revenue source for their cities and towns.

    *Kane Republican (Mar 16) – Kane plans to sell sewer effluent for well drilling

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    PVR Midstream Building New Pipeline and Compression Facilities in Wyoming County, PA

    From a Penn Virginia Resource Partners press release issued today:

    The midstream division of Penn Virginia Resource Partners, L.P. (NYSE: PVR), PVR Midstream, announced today that it has entered into an agreement to construct and operate gas gathering pipelines and compression facilities servicing a private firm’s Marcellus Shale natural gas production in Wyoming County, Pennsylvania.

    PVR Midstream will construct a 12-inch gathering pipeline and compression facilities with 25 million cubic feet (MMcf) per day of throughput capacity. This system is expected to become operational during the second quarter of 2010, with the potential for additional system extensions.

    PVR Midstream’s 2010 capital investment in this system is anticipated to range from $6 to $7 million, with potential future system extensions costing up to $10 million. PVR Midstream expects its investment to be accretive to distributable cash flow once the system is operational.

    See the full press release (Mar 16): Penn Virginia Resource Partners, L.P. Announces Gathering and Compression Agreement with Private Producer in the Marcellus Shale

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    Energy Companies in PA Must Now Disclose Gas Well Production Numbers Every Six Months

    Faster disclosure of gas well production data is coming to Pennsylvania. On Tuesday, March 16 the PA Senate passed a bill already passed by the PA House that would force drilling companies to disclose gas well production data every six months. The existing law, passed 25 years ago, allows drillers to keep production numbers secret for five years. No more. Gov. Ed Rendell has said he will sign the new measure into law.

    What does it mean for landowners in PA? You’ll now have access to the numbers to ensure your royalty payments are timely—and accurate.

    For more, see: Binghamton Press & Sun-Bulletin (Mar 16) – Pa. to reveal drillers’ secrets in gas shale rush

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    Talisman Energy Will Invest $1 Billion in PA Marcellus Shale, Opening Regional Office near Pittsburgh

    Talisman Energy (headquartered in Calgary, Canada) says it will invest $1 billion in Pennsylvania’s Marcellus Shale.

    Part of that investment is the creating of a regional office in Cranberry Township, in Butler County, PA. The new office will employ 125 people by the end of 2010. And Talisman is looking to hire:

    The company is in the process of recruiting and hiring geologists, landsmen, regulatory and legal experts, among others. It will relocate 35 from its New York office and 15 from the Calgary headquarters, and hire the rest.*

    Although Talisman’s 214,000 net acres in the Marcellus Shale are in northeastern Pennsylvania, the company decided to locate its regional office near Pittsburgh.

    *Pittsburgh Business Times (Mar 12) – Talisman Energy opening office north of Pittsburgh

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    Chief Oil & Gas Drilling Wells in Dauphin and Somerset Counties, PA

    Chief Oil & Gas (based in Dallas), is in the process of drilling wells in Jefferson Township in Dauphin County, and Addison Township in Somerset County, both in Pennsylvania. According to a Chief spokesman, if those wells do well, it “could lead to large-scale development in the region.” Chief owns the rights to 580,000 acres across the entire Marcellus Shale area.

    For more details on Chief and a recent meeting they held for area residents, see:
    Somerset Daily American (Mar 11) – Gas reps seek community support

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    Drilling in the PA Marcellus Shale Sets Blistering Pace in 2010, On Course for $7 Billion Investment

    The Philadelphia Inquirer has an excellent roundup of drilling activity in the Marcellus Shale, with a listing of the top 20 active energy companies in the PA Marcellus Shale. Well worth reading and bookmarking!

    The article starts with this:

    So far in 2010, natural gas exploration companies have broken ground on three Marcellus Shale wells in Pennsylvania every day, triple the pace of a year ago.

    The Marcellus Shale Coalition, the industry trade group, estimates that up to 1,750 wells will be drilled this year, up from 763 last year.

    At $4 million a well, that’s a $7 billion investment – not counting land-acquisition costs or royalties on gas produced.*

    New York needs to wake up NOW. Marcellus Shale drilling is here to stay, especially in Pennsylvania. It’s having a huge impact on jobs, investments and taxes. New York could use an extra $7 billion in investment right about now!

    *Philadelphia Inquirer (Mar 14) – Gas Drilling Going Deep

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    New Marcellus Wastewater Treatment Plant Set to Open in Westmoreland County, PA

    The Pennsylvania State Department of Environmental Protection has issued a permit for a new Marcellus drilling wastewater treatment facility to begin operations in April in western PA.

    Stephen Frobouck, a partner in Reserve Environmental Services Inc., said the treatment facility at the former American Video Glass plant in East Huntingdon, Westmoreland County, is ready for operations to begin in April.

    "We will have the capacity to handle (water from) 500 to 600 wells a year," Frobouck said Friday, declining to say how much the firm paid to prepare the plant for its new use.*

    *Pittsburgh Tribune-Review (Mar 13) – Plant near New Stanton to treat gas wastewater

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    Nytis Exploration Sells Lease for 11,657 Acres in the PA Marcellus to Northeast Natural Energy

    From a press release* dated March 11:

    Northeast Natural Energy LLC (“NNE”) announced today that it has closed the acquisition of 11,657 net acres in the core of the Marcellus Shale and associated shallow conventional oil and gas wells from Nytis Exploration Company LLC and from Nytis Exploration of Pennsylvania LLC (“Nytis”), both private exploration and production companies. Financial terms were not disclosed.

    “We are very pleased to establish a significant acreage position in the core of the Marcellus Shale,” said Mike John, NNE’s President. “The acreage, which is very high in quality, is located in some of the most attractive areas in the Marcellus including Armstrong, Clearfield and Westmoreland Counties, Pennsylvania. This transaction provides a platform for future bolt-on positions in the region and establishes NNE’s position as a key participant in the development of the Marcellus Shale. We look forward to drilling this acreage as we continue to evaluate many other substantial opportunities in the Marcellus.”

    *Business Wire (Mar 11) – Northeast Natural Energy Acquires 11,657 Net Acres in the Marcellus Shale from Nytis Exploration Company

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    PA Gas Compressor Facility Causing Grief for Some Neighbors

    In states where drilling is now happening, particularly Pennsylvania, there appears to be issues with some (not all) compressor stations used to pump gas from local wells to nearby processing facilities. One such station is located in Mount Pleasant Township in Washington County, PA. Mount Pleasant is the location of the very first horizontal gas well drilled in the Marcellus.

    The compressor station in Mount Pleasant is operated by MarkWest Energy, a company that operates more than 100 other such facilities in the U.S. MarkWest has made application to add a fifth compressor to the facility to meet increasing demand, and some of the nearby neighbors are objecting to the noise, lights and odors that come from the facility. An article in the Pittsburgh Post-Gazette, although taking an anti-drilling tone, exposes the tensions that occur in some locations between compressor operators and the people that live close by. It also highlights the debate over where regulation of these facilities lies—with local municipalities? Or with the state?

    Read the article for more details:
    Pittsburg Post-Gazette (Mar 14) – Neighbors take a stand on noise, odor of gas drilling

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    New Drilling to Begin in Luzerne County, PA in May or June

    According to an article in the Wilkes-Barre Times Leader, drilling company Encana Energy Corp (from Canada) will begin drilling a Marcellus gas well in Lake Township, PA (Luzerne County) starting in May or June. At a recent town meeting, some residents expressed concerns about trucking activity on local roadways. More meetings are planned to answer local residents’ concerns.

    For more information, see: Times Leader (Mar 11) – Lake Twp. antsy about gas drilling

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    Landowners Beware of Post-Production Expenses Deducted from Your Royalty Checks

    An informative article with a lot of background on the issue of gas royalty payments and the practice of deducting post-production expenses from those payments is published in today’s The State Journal. The article covers in detail the case of Tawney v. Columbia Natural Resources that was settled by the West Virginia Supreme Court in 2006. That decision said, in essence:

    [G]as producers cannot deduct “post-production” expenses — those incurred between the wellhead and market, such as dehydration, compression and transportation — from royalty payments unless explicitly spelled out in the lease.*

    West Virginia is in the minority of states that have ruled against post-production expenses. Other states disallowing post-production expenses (unless specifically spelled out in the lease) include Arkansas, Colorado, Kansas and Oklahoma.

    However, because gas “at the wellhead” is not in “marketable condition,” a number of other states do allow deduction of post-production expenses from royalty payments in cases where it’s not specifically enumerated in the lease. Those states include Louisiana, Mississippi, Texas, California, Montana, New Mexico and some others.

    Kentucky and Pennsylvania have not yet ruled on the matter, although the Pennsylvania Supreme Court is due to rule soon in Kilmer v. Elexco Land Services Inc.

    The lesson for landowners: Make sure the language in your lease is spelled out in detail about what kinds of post-production expenses can and cannot be deducted from your royalty checks. And if you have a contract that is not specific, get legal advice and be sure you’re receiving the money you’re owed.

    *The State Journal (Mar 11) – State Courts Continue to Evaluate Gas Royalties

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    PA DEP Staffs Up with More Gas Well Inspectors

    The Pennsylvania Department of Environmental Protection is hiring more inspectors for gas and oil wells. Right now there are 125 inspectors statewide. By the summer, an additional 68 will be on board bringing the total to 193 inspectors. Which is a good thing according to the York (PA) Dispatch, which notes:

    In the last year, to cite two examples, inspectors noted that a brine pipeline operated by Range Resources Corp. was spilling production fluids into the ground at Cross Creek Park near Avella, resulting in a $23,500 penalty for the Texas-based company; and Atlas Resources was fined for violations at 13 of its wells in Washington, Fayette and Greene counties.*

    MDN agrees. More inspectors are a good thing. It keeps everyone honest, and reassures the general public that drilling can be done safely.

    *York Dispatch (Mar 10) – Marcellus Shale: Drilling inspectors welcome

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    New Pipelines Coming to Lycoming, Tioga and Bradford Counties in Pennsylvania

    PVR Midstream, a division of Penn Virginia Resource Partners, has signed an agreement with Range Resources to construct and operate pipelines and compression facilities for Range’s drilling in the Marcellus shale in PA.

    According to the press release:

    PVR Midstream and Range have agreed to an area of mutual interest (AMI) that covers parts of Lycoming, Tioga and Bradford Counties in north central Pennsylvania, in which Range currently holds a substantial acreage position. Within this AMI, PVR Midstream will construct approximately 16 miles of 24- and 30-inch gathering trunklines, smaller-diameter field gathering lines and compression facilities required to gather Range’s production from the AMI. The gathering system will have over 700 million cubic feet per day (MMcf per day) of throughput capacity, and the initial phase is expected to become operational in the fourth quarter of 2010. The agreement provides Range significant firm gathering capacity in the system, and PVR Midstream will be compensated for the gathering and compression services provided to Range through a combination of volumetric fees, with no direct commodity exposure. Excess capacity on the system and the location within a core area of Marcellus Shale development should allow PVR Midstream to develop additional revenue by providing gathering and compression services to area producers.