Marcellus Shale drilling offers hope

HOUSTON, Pa. — Illuminated drilling rigs glow for miles from atop flattened hills when night falls in this rolling farm and coal country in southwestern Pennsylvania.

Tanker trucks back up traffic on two-lane roads, and Texans wearing heavy coats and muddy boots fill Shelley’s Pike Diner at lunch as land owners hope royalty checks will make them rich.

The deteriorating economy and a drop in natural gas prices has slowed a rush to snap up mineral rights to the thick, black rock called Marcellus Shale, which stretches deep underground from West Virginia to New York state and could become the nation’s most prolific natural gas reservoir.

But drilling goes on as exploration companies seek to make their investments pay off, changing places like Houston, an old iron and steel town near Pittsburgh which has become the epicenter of the exploration boom.

Even amid the nation’s economic troubles, the companies have a powerful incentive to keep going.

Natural gas produced and sold in the East commands a higher dollar than the gas now extracted and transported from fields in Texas, Louisiana and other mid-continent states.

“It’s in the middle of the best place in the world to sell gas,” said John Pinkerton, chairman and chief executive of Range Resources Inc. of Fort Worth, Texas.

Range Resources and several other major players say they even plan to increase their drilling in 2009, helping the Marcellus shale region avoid the bigger pullbacks happening in other, more established gas fields in places such as Texas and the Rocky Mountains.

So far, no more than several dozen wells have been hooked up to pipelines that carry the gas to customers, said Penn State University geoscientist Terry Engelder.

But that number could climb into the hundreds within a year, as companies extend pipelines and hook up the more than 400 wells that officials in West Virginia and Pennsylvania say are completed or almost complete.

Range Resources and Pittsburgh-based Atlas Energy Resources LLC have drilled nearly all of their 200-plus Marcellus shale wells in southwestern Pennsylvania, and many more are in the works.

“They’re just drilling them everywhere,” said Nancy McBane, a retiree whose house sits between a new well and sprawling processing station just outside Houston.

The massive gas formation is trapped 5,000 to 8,000 feet underground in an area covering more than 50,000 square miles — about the size of Greece — and stretching across New York, Pennsylvania, Ohio and West Virginia.

The industry has long known about the gas in the Marcellus shale — but it wasn’t until gas prices rose and a new shale-drilling technology was proven in Texas over the past decade that companies decided it was profitable to pursue.

If the Marcellus shale ends up producing even a small fraction of the recoverable gas that Engelder has projected to be there, it will be the largest gas field ever in the United States.

“It’s like having one of the giant gas fields from the Middle East under Pittsburgh,” said Pete Stark, a geologist and vice president of Colorado-based energy consultant IHS Inc.

Exploration of Marcellus shale is in the early stages as companies work to identify the best drilling prospects. It could be five or 10 years until production is fully engaged because there is a relative dearth of gas pipelines, rigs and trained workers in Appalachia to support the deeper, horizontal wells needed to extract gas from shale.

Perhaps the biggest bet is being made by Range Resources. The company has invested $700 million in the formation already, including a processing station just outside Houston that it brought online in October.

“Spending $700 million on one R&D project is a fairly risky thing to do, so we need to start making a return on investment,” Pinkerton said. “It’s time to put up or shut up.”

Range Resources is reporting about 30 million cubic feet flowing from its Marcellus shale wells — compared with the more than 50 billion cubic feet flowing from U.S. wells each day.

“It’s kind of like a little gold rush,” said Joe Myzak, who owns a construction equipment sales and service company in Houston.

Myzak’s showroom and lot are now jammed with new equipment — excavators, mobile light towers and more — that he has gone into debt to purchase in response to requests from drilling companies.

His revenue is up 20 percent over last year, and he expects the drilling will deliver the first influx of good jobs since a nearby steel melting shop shut down seven years ago.

Some of those new jobs may be with Cisco, Texas-based Frac Tech Services, which blends chemicals into the million or more gallons of water pumped into the wells to blast the shale and free up the gas.

It is looking for pump operators to work 60-hour weeks at $16 or $17 an hour. Salaried field supervisors, meanwhile, can make $50,000 to $60,000 a year — about twice Houston’s median income.

For now, the men on the drilling crews seem to be mostly from Texas, and they are providing steady business to hotels and restaurants.

“I have never heard of putting mayonnaise on french fries, but I guess things are different in Texas,” said Rick Adams, Houston’s mayor and owner of Rick’s Cafe Americana.

Land agents pursuing below-ground mineral rights have been knocking on doors, leaving messages on answering machines and poring through deeds at the county courthouse — sometimes waiting for a turn at the computers and index books.

Competition forced exploration companies to pay more than the symbolic dollar or two for a lease and the state-mandated minimum production royalty of 12.5 percent

Before much of the leasing activity stalled, landowners were getting up to $4,000 an acre and a 17.5 percent royalty, said Tom Vreeland, a lawyer in nearby Washington, Pa., who negotiates leases on behalf of interested landowners.

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Houston, Pa., an steel town near Pittsburgh, is epicenter of the exploration boom.

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