14 — Business Indiana, Friday, January 31, 2020
Conventional wells stable as shale falls off
By PATRICK CLOONAN pcloonan@indianagazette.net T here is still a natural gas in- dustry in Indiana County, for both shallow, conventional wells and deeper, unconventional ones — though local production of the latter pales by comparison with other areas in the multi-state Utica and Marcellus shale regions. “There’s not a lot of shale pro- duction,” said Brad Gray, chief op- erating officer for Diversified Oil & Gas LLC. “The majority of the pro- duction in Indiana County is con- ventional.” And a recent price decline has combined with drillers finding so much gas that there’s an over-sup- ply. “The price is so low, the drillers are going to go to the fields that they already know,” said Dave Bro- cious, an Indiana-based expert on automotive and energy industries. “(Compared to when theMarcellus boom began in 2007-08), gas was selling for about $13, $14 an MCF (1,000 cubic feet), per unit of gas. Today it is at $2.” So, instead of blasting out new roads and wells, unconventional drillers are going to familiar territo- ry in such counties as Tioga, Brad- ford and Susquehanna in Pennsyl- vania’s Northern Tier and Greene and Washington in the southwest- ern corner of the state. A difference between conven- tional and shale drilling is in what’s expected once the drilling is done.
“When a new shale well comes online, there are initial declines that are extremely steep, from 40 to 70 percent of production in the first year,” Gray said. “They then start to flatten off over time. Our wells are already at a 2 to 5 percent decline per year, a flat decline or terminal decline phase, which is the mature phase of the well pro- duction.” A result is that a conventional driller can hedge those volumes and manage their way through price declines. “That price is putting a tremen- dous amount of stress on compa- nies that are built on growth and production,” Gray said. “We are not a drilling company; we are a pro- duction company. Our production is both predictable and stable. Low prices do impact us but not to the extent that it impacts companies that are drilling.” Diversified, which has a regional office near Indiana County’s air- port, has become a top producer in Indiana County through its acqui- sition of wells from other compa- nies involved in conventional drilling, such as Alliance and CNX. Diversified has “slightly over 200 employees” in the Indiana- Brookville region with “good jobs and good benefits,” Gray said. There is a bright side for users of natural gas. “It is a huge win,” Brocious said. “For the people who are involved in the upstream part of the natural gas industry, the drillers, the serv-
ice companies around Indiana County that provide water, con- struction services, the consultants, engineers … they’ve seen a con- traction in the past year just be- cause the commodity prices con- tinue to slide.” Still, Diversified is setting down roots along with well operations that could continue to produce for 30 to 50 years, he said. “We’re very committed to Indi- ana County,” the Diversified offi- cial said. “We actually provide four scholarships to (Indiana University of Pennsylvania). We’re focused on students who are in studies that would support the oil and gas in- dustry. That’s our primary commu- nity involvement.” The number of natural gas users and the volume of their use could increase in the years ahead, de- pending on what happens with cracker plants that can turn natu- ral gas into other products. Shell Co. plans to use a plant in Beaver County to isolate ethane from nat- ural gas and produce 1.6 million tons of polyethylene for use in products ranging from food pack- aging and containers to automo- bile components. “They’re looking at a 20- to 30- year investment horizon,” Bro- cious said. That plant is scheduled to begin operation early in this decade, after which there could be more plants built in the tri-state region around Pittsburgh. An American subsidiary of Thai-
land’s PTT Global Chemical is looking at Belmont County in Ohio. Brocious said PTT is doing due diligence, along with its part- ner, South Korea’s Daelim Industri- al Company. In addition, ExxonMobil is re- portedly looking at what would be a second Beaver County petro- chemical plant. If there is a plus side to the future for natural gas, there also is a minus side. Brocious said Gov. Tom Wolf has been supportive of the natural gas industry — in some ways. Wolf has supported natural gas pipeline projects and the use of compressed natural gas to fuel trucks and buses, including a CNG station at the Indiana County Tran- sit Authority facilities in White Township. On the other hand,Wolf has con- tinued to press for what he has called “commonsense” severance tax. “We believe there already is a tax on production of the Marcellus and the Utica formations,” Gray said, referring to the impact fee on drilling. “All producers would be affected by an additional tax. We do not be- lieve an additional tax would be good for the business or for the res- idents of the state.” Also,Wolf embraced the Regional Greenhouse Gas Initiative, a plan opposed locally by the Indiana County Chamber of Commerce. Wolf wants the state Department
of Environmental Protection to de- velop a rulemaking change “to abate, control or limit carbon diox- ide emissions from fossil-fuel-fired electric power generators” no later than July 31. Wolf wants such rules to “be suf- ficiently consistent” with rules in the other RGGI states of Connecti- cut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Ver- mont. In response, state Sen. Joe Pittman and state Rep. Jim Struzzi, both Republicans from Indiana, introduced bills requiring legisla- tive authorization before Pennsyl- vania can enter into RGGI or any other multi-state program that could impose a carbon tax on em- ployers engaged in electric genera- tion, manufacturing or other in- dustries. They are the lead sponsors on, respectively, Senate Bill 950 and House Bill 2025, both of which have been turned over to Environ- mental Resources and Energy committees in the two chambers. The Indiana County Chamber of Commerce has also expressed its opposition to RGGI. While Wolf’s supporters have said the drillers won’t leave Penn- sylvania’s gas fields, Brocious is not so sure. “The capital can flow like water to where the best return is,” he said. “If the rules are always chang- ing, it is hard for (drillers) to plan their future investment.”
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