Tuesday, May 03, 2011
Knight Ridder/Tribune Business News
by David Beard, The Dominion Post, Morgantown, W.Va.
The Independent Oil and Gas Association of West Virginia (IOGA) wants to see reasonable and responsible regulation for the Marcellus gas industry, but doesn't see a need for a special legislative session to enact it.
In order to gain some industry perspective on the recent Marcellus drilling boom, The Dominion Post sat down with IOGA representatives in April.
They included President Mike McCown, who is vice president-Northeast of Gastar Exploration (not the same person as state Budget Director Mike McKown); Executive Director Charlie Burd; and a trio of public relations staffers for Chesapeake Energy, the single biggest player in the north-central West Virginia Marcellus operations.
IOGA has more than 600 members, McCown said. While members operate in 53 of the state's 55 counties, the organization had kept a relatively low profile until Marcellus hit the spotlight.
"Here recently the world's changed," he said. "We've been compelled to be more proactive" with communicating with the public.
McCown touted some oil and gas industry stats. The industry employs 35,000 people at an average annual wage of $60,000. In 2010, it made capital investments of $771 million, paid $71 million in severance taxes and $106 million in property taxes. As many as 7,000 new jobs may emerge from the Marcellus industry.
"The growth that we've got planned is significant going forward," he said. "We're a significant player. We're proud to be here. We're stewards of the environment. We take safety very seriously. We're a good corporate citizen."
"What are the energy alternatives?" he asked, adding that many are not viable on a wide scale -- such as solar and wind.
"We drill wells. We drill wells in West Virginia. We drill wells in this county. We drill them correctly. We continue to improve. We're proud to represent the oil and gas industry."
The discussion covered a variety of topics, from roads to legislation regulatory details. Here's a look at IOGA's views and comments. Members noted that discussion of new regulation and fees should apply only to horizontal wells, not conventional vertical wells.
Legislative goals
McCown: "We would support reasonable additional regulation" limited to horizontal Marcellus operations. Given the current low price of gas -- $4.20 per mcf (thousand cubic feet) -- there are virtually no conventional wells being drilled.
"Conventional players don't need and can't afford additional regulation. ... Marcellus wells are more complex, it's a different animal."
IOGA is agreeable to a significant permit fee increase, site safety plan requirements and design criteria for impoundments. "So many of the things they [legislators and others developing the failed Marcellus bill] advocated, we agreed to. But the bill got more things bolted on and became unmanageable."
Asked if IOGA would prefer a special session or acting Gov. Earl Ray Tomblin's proposal to let the Department of Environmental Protect draft emergency rules, McCown said, "There is no need for special session."
Road wear and maintenance
McCown: Although no other industry is singled out for rulemaking policies, IOGA met with Division of Highways representatives during the summer. "We agreed to it."
IOGA supports identifying the prior condition of the road, paying a bond, and restoring the road to its original condition.
"That's something that shows that we're willing to do what needs to be done." They know large trucks damage small roads not intended for the traffic. Some roads began as cowpaths -- with no base. They were graveled, then tarred and chipped, then coated with asphalt, with no sturdy base. "Any kind of heavy equipment is going to cause damage."
Chesapeake: The company knows the conditions of the roads in Wetzel County, and has heard the residents' complaints. "We have repaired those" while drilling operations are going on. "We didn't just let them go."
Chesapeake has done maintenance for the DOH in agreement with the DOH. "I think the DOH has been satisfied, but I don't think the residents have always been satisfied." Chesapeake hired a roadway engineer and has had drilling crews out repairing roads.
"Some of those roads are traditionally horrible during the spring. But yes, clearly our traffic doesn't help."
Brock Ridge Road, connecting W.Va. 7 from New Martinsville with Wetzel County Route 89 and the Victory Field gas pads, is an example of a problem road. It had no base, and attempts to build one didn't work. Once asphalt, it's now dirt. "It's frustrating that money was spent and the road didn't hold."
Inspectors
McCown: "Inspectors have the right to inspect any time they want. The numbers don't concern me. They don't concern my company as an operator."
While legislators have complained that there are 12 working inspectors for 59,000 gas wells, IOGA looks at it differently. Wells primarily need inspection during construction, drilling and reclamation. There are only 37 active wells being drilled now. With 12 inspectors, "that's not too bad a ratio compared to when they were drilling thousands a year."
Once a gas well is drilled and it's just sitting out there, annual inspection is adequate. "We police our own business."
Surface owner notification
McCown: "Some limited additional notice period would be acceptable. We are receptive to extending the notice period for work on site."
The problem: If there's too much notice, surface owners could take advantage of rules regarding distance from watercourses and buildings, and build a structure or dig a pond or a well to ward off drilling. "The rub comes in when the mineral owner is not the surface owner."
Water use
The Dominion Post asked about suggestions raised by legislators that unscrupulous subcontractors may dump frack water in streams.
McCown: "We dispose of our water properly."
Burd: "As expensive as it is to move water in and out, you recycle every drop you can. ... I just challenge the validity of those accusations." IOGA supported a water management plan in bills introduced, but not passed, in 2010 and 2011.
Chesapeake: Recovered frack water is trucked to the next drilling site.
McCown: After repeated uses, when there's no more use for it, it's taken to a certified disposal well where it's injected deep underground -- thousands of feet below any aquifer. "I take offense to that [suggestion]. It's without any substance."
Chesapeake: An average well uses about 5 million gallons for drilling and fracking. New York City uses that in about seven minutes; a 1,000 megawatt coal-fired power plant in 12 hours; a golf course in 25 days.
Marcellus fracking is "the most efficient use of water for energy creation compared to coal, nuclear, biofuels" and the amount of BTUs a gallon generates.
McCown: "Granted the footprint of one of our pads is larger. ... The footprint is tiny in comparison to the reserves that we generate from today's technology. Technology enables us to buy energy resources at home instead of importing Mideast oil."
Regulations to disclose frack fluids
Chesapeake: On new wells, the company uses a closedloop drilling system that reuses frack water without introducing it into water supplies. This technology-driven industry makes shifts before regulators can. "Those things occur and are happening just because of wanting to be good stewards, to be a good neighbor, and make good decisions.
Material safety data sheets are available at drilling sites and at the state DEP website.
McCown: "The allegation that there's some mysterious concoction of chemicals is bull."
Permit fees
McCown: "If I go to get my driver's license renewed and it goes from $65 to $1,000, I'm going to get kind of excited. So going from $650 to $10,000 caused us to be excited."
Fee hikes should take into account multiple wells on the same pad, allowing for much inspection work to be done at one time.
"Half that is what we as an association were looking at and would support," with corresponding fee reductions for multiple wells on the same pad.
Workers -- in state and out
McCown: "I'm an out-ofstate worker. I came here 35 years ago from out of state, and I stayed here and raised a family here."
With the state's population dropping, "I like the fact people are coming in here." They may come in and stay, or they may go back home -- but they spent money while they were here.
Chesapeake: While the supervisors still come from out of state, the entire rig crew for its Nomac Drilling subsidiary is all local -- from the West Virginia-Ohio-Pennsylvania corner area.
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