Shale Gas Roundup

November/December 2012

Natural Gas Resource Center, Potter County, Pa.

Workshop Planned On Gas Lease IssuesMany property owners, eager to capitalize on the shale gas boom, signed leases during the 2008-10 frenzy. Then plummeting gas prices caused companies to postpone drilling. Now there are signs of an economic rebound as natural gas prices rise and companies revise their strategies. These trends have many property owners confused. They are the target audience for a pubic meeting scheduled for 6 to 8:30 pm on Thursday, Nov. 29, at the Coudersport Volunteer Fire Department Training Center. The program, “Already Leased? Here Are Your Options,” is sponsored by Penn State Extension. Cost is $15. Many leases did not take into account the production of gas from shale layers other than the much-ballyhooed Marcellus, such as Utica and Upper Devonian shale formations. New production technologies have opened wider areas for

exploration. Some landowners may have property leased for conventional gas production, but may be approached to have leases amended in order to meet unit size standards or other conditions of gas production. In certain instances, those leases that were signed for a multiple-year period (often five years) are moving closer to expiration without production taking place and without automatic renewal provisions in place. Registration is being taken at 887-5613. Agenda is as follows:

• Overview of trends in shale gas, by Tom Murphy, co-director of the Marcellus Center for Outreach and Research.

• Comparison of conventional and shale gas leases and drilling/landowner options, by Dan Brockett, Penn State Extension educator.

• Legal issues/panel discussion, with attorneys Thomas Pendleton and Robert Gandley.

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National Honors For Water Quality VigilanceA local conservationist was recently honored with a national award recognizing his role in organizing volunteer water monitors in the region. Bob Volkmar of Roulette was named recipient of National Trout Unlimited’s (TU) Trout Conservationist Award. He is a long-time volunteer himself and environmental chair of the TU Pennsylvania Council.Volkmar, an active member of the God’s Country Chapter of TU, has spearheaded a program that trains volunteers to test rivers, creeks and streams for pollution from shale gas development. He also helped write a training manual and has helped to implement a statewide stream monitoring training

program. PATU Coldwater Conservation Corps has trained more than 300 people to regularly test waters for short- and long-term impacts from gas drilling and pipeline construction. (For information on local training activities, see story below).“Thanks to Bob’s vision and expertise, Pennsylvania streams and rivers will be under the watchful eyes of conservationists across the state,” said Katy Dunlap, eastern water project director for National Trout Unlimited.Volkmar is the former director of the Center for Environmental Research and Education at Duquesne University. He has been involved with the Potter County Water Quality Work Group and is an avid fly fisherman and grouse hunter.

-------------------------Above: National TU representative Katy Dunlap presented the national award to Bob Volkmar, who was joined at the ceremony by local colleagues Dr. Pete Ryan (second from right), who is God's Country TU Chapter president, and Ted Bear, active member of God's Country TU.

‘Water Dogs’ Training Continues; Volunteers NeededAn organization of water monitors is seeking more volunteers to regularly check rivers, creeks and streams for signs of degradation. “God's Country Water Dogs” regularly schedules water monitor training sessions. Next training session is Nov. 17 in Coudersport (call 814-887-5613 for details). The local organization is affiliated with Trout Unlimited and Dickinson College's Alliance for Aquatic Resource Monitoring (ALLARM), among other partners. Data collection is important to, first, baseline of local water conditions and, second, monitor for signs of changes. Volunteers receive training to insure reliability of data. Although the forecasted increase in shale gas drilling inspired the God's Country Water Dogs to form, the organization prepares volunteers to check for signs of all forms of water quality degradation.

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More Than 100 Potter County Wells/Springs TestedWith deep drilling for shale gas forecasted to intensify in the region, Penn State Extension and partners recently set about establishing a baseline for hundreds of private water sources in Potter and seven other counties in the region. Headwaters Drinking Water Quality Project offered free testing of almost 700 wells and springs, with documentation showing a “chain of custody” that gave the results legal standing. Collection and testing services were funded by a $150,000 grant from the Colcom Foundation and settlement money from the 2006 Norfolk Southern train crash and lye spill near Emporium. Jim Clark, Extension water resource educator, welcomed the chance to help spearhead the project. He has been emphasizing the importance of water

testing and proper well construction and maintenance for several years.“Before the shale gas drilling phenomenon, some 45 percent of groundwater supplies and private wells in Pennsylvania had never been tested,” said Clark.Of the 108 samples taken from Potter County:

• 32 percent were outside preferred range for pH (alkalinity/acidity)

• none tested above federal limits for sulfates

• 2 percent exceeded chloride limits

• 3 percent exceeded TDS limits

• 20 percent exceeded iron limits

• 16 percent exceeded manganese limits

• 68 percent contained coliform bacteria

• 38 percent contained e. coli bacteria

While some test findings did raise a few concerns, none were abnormally high or atypical. “Although we found elevated levels in some cases, overall water quality was within safe drinking limits,” Clark said. He added that high levels of coliform -- and specifically e. coli – bacteria can adversely affect human health. E. coli comes from human and animal waste and can cause gastrointestinal and kidney problems. Water quality specialists emphasize the importance of proper water well construction to reduce the risk of contamination. Approximately 20,000 new wells are drilled each year in Pennsylvania and there are no state regulations for construction. Legislation has been introduced but has not been passed.Clark emphazised the importance of periodic testing of private water sources: “A clean test doesn’t mean that problems can’t arise at another time. Staggering the testing means that you’re not testing your water at the same time every year and possibly getting the same results, even though you may have a seasonal problem.”

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Shale Gas Ripple Effect: Jobs, Economic GrowthDevelopment of shale gas is having profound economic impacts across Pennsylvania and the benefits are expected to multiply, according to PriceWaterhouseCoopers LLP, a respected investment/financial management advisor. Just over five years into development, some landowners and industries are seeing an impact. Beneficiaries include not only the expected land/royalty owners, but also a broad range of manufacturers, suppliers, state and local governments, local businesses and employees in the entire supply chain. Production of natural gas

from the Marcellus Shale will create an estimated 111,000 jobs by 2015, and 270,000 jobs by 2035. It will add more than $7 billion annually to the gross domestic product (GDP) in 2010, which is expected to rise to more than $42 billion annually by 2035. “With shale gas resources more abundant than previously thought, U.S. manufacturers can look forward to multiple new opportunities and a significant uptick in employment in the sector,” PriceWaterhouseCoopers reported. “Chemicals and metals companies are expected to gain the greatest benefit over the next several years . . . An underappreciated part of the shale gas story is the substantial cost benefit to manufacturers of low natural gas prices as more gas is produced.”

Experts Bullish On Natural Gas GrowthDeloitte Center for Energy Solutions has issued survey results supporting forecasts of expanded shale gas drilling. Peter Robertson, senior advisor to Deloitte, said, "When you combine unconventional oil supplies with the recently established increase in shale gas reserves, you could have the makings of a true energy renaissance.”It's not surprising that decision-makers are enthusiastic about the role of natural gas in our national energy future, given burgeoning supplies, America's comparatively low cost of extraction, and its relative cleanliness, noted John England, vice chairman at Deloitte LLP. "Interestingly, natural gas is a fuel source that we were aggressively preparing to import at high world prices just a few years ago,” he added. Looking at 2013, professionals see gas prices remaining quite low – with 40% predicting prices less than $3 per MMBtu, and a large majority (86%) predicting prices under $4 per MMBtu. With the large resource base of natural gas, industry professionals foresee growing liquefied natural gas exports and increasing use of compressed natural gas to replace refined oil products and fuel electricity generation and motor vehicles.

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Gas Drilling/Air Quality: ‘Stay Tuned’As thousands of shale gas wells are poked into the ground and compressor stations are installed across much of Pennsylvania, their impact on air quality is unknown. But federal laws that require states to limit emissions and protect public health are in place and will be enforced. Those were the central messages delivered during a recent public meeting sponsored by the Natural Gas Resource Center at the Gunzburger Building in Coudersport.Speaker was Nick Lazor, chief of the Pa. Dept. of Environmental Protection’s (DEP) Air Quality Monitoring Division. Lazor is responsible for the state’s Ambient Air Monitoring Network, which assures compliance with federal regulations.“Looking at the big picture, air quality is better in Pennsylvania,” Lazor said. “Are people still being adversely affected? Yes. But we’re pushing industries

continually and it will continue to get better.”He acknowledged that some people are frustrated by the complexities and delays that are inherent in the science of air quality monitoring, especially when it comes to wells, compressors, ponds, condensate tanks and other elements of gas production. Lazor said data from short-term air monitoring projects have been analyzed and a long-term study was launched in July. By next summer, the data will be collected and findings will be reported by early 2014 at the latest.“Is there going to be a significant impact on air quality from shale gas? We don’t have any answers yet,” Lazor said. “But we will know . . . My concern is not whether the number reads five or five thousand, but only that the data are scientifically valid.”He shared with the audience two findings from DEP’s short-term study:

• Concentrations of methane, propane, butane, and associated compounds were detected near shale gas drilling operations; elevated methane levels were detected at compressor stations and well sites. Certain compounds, mainly methyl mercaptan (element added to gas to produce an odor), were detected at levels which produce odors.

• Results did not identify concentrations of any compound that would likely trigger air-related health issues. Sampling for carbon monoxide, nitrogen dioxide, sulfur dioxide and ozone did not detect concentrations above federal standards at any of the sites.

“The results confirm that the natural-gas production infrastructure in general is a source of pollutant emissions through fugitive and/or direct means,” the report stated. Now, Lazor said, DEP needs to have the larger collection of data to determine any specific or cumulative effect that could be a risk to the environment and human health.“At this point, the best we can say is, ‘stay tuned’,” he added.

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State’s Abandoned Wells Challenge ‘Overwhelming’Pennsylvania is grappling with a troubling legacy of abandoned gas and oil wells spread out across a wide swath in many northern and western counties. Gene Pine, the man who’s charged with systematically locating and supervising the “retirement” of these wells, will be meeting with the Natural Gas Task Force of the County Commissioners Association of Pennsylvania in November to share details and discuss steps local governments can take to help. Among task force members are Tioga County Commissioner Erick Coolidge and Potter County Commissioner Paul Heimel. In this report, Scott Detrow from StateImpact Pennsylvania reports on the complexities of the issues awaiting regulators, energy companies and others who must come to grips with this environmental challenge.---------------------------------

(ABOVE: Gene Pine, who heads the Department of Environmental Protection's abandoned wells unit, shows off a "sucker rod" found inside a well drilled long ago. When early drillers did attempt to plug their wells before moving on, they tended to do it with whatever debris was lying around. The wooden “sucker rod” — a beam pumped up and down to coax oil out of the ground — was fished out from a well drilled in 1874.)

Oil and gas development in Pennsylvania was launched in an unregulated environment. Many drillers simply walked away from their wells once the oil and gas stopped flowing.It wasn’t until 1955 that the state passed a law requiring operators to report the locations of their wells. The result is that western and northern Pennsylvania are pockmarked with hundreds of thousands of wells whose locations are unknown.Even without active drilling nearby, these wells can lead to problems. State regulators have investigated dozens of instances where gas has traveled through abandoned wells and reached the surface. At times, the methane has pooled into buildings and triggered explosions.“We know they’re out there,” says Gene Pine, with the state Department of Environmental Protection (DEP). “It’s just that in the decades since these wells have been drilled, towns have been built over top of them, vegetation has covered them up, and the physical signs of wells – metal casing and pipes – have been removed by scrap collectors.”Pine runs the DEP division in charge of finding abandoned wells and plugging them with cement so that they won’t do harm. The best guess of both the state and the energy industry is that somewhere in the neighborhood of 325,000 wells have been drilled in Pennsylvania. Of those, about 120,000 have state permits on file. A spreadsheet on DEP’s website lists the location of 8,257 abandoned and orphaned oil and gas wells.

(continued on next page)

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(Abandoned Wells/Continued from page 6)

Pine’s abandoned well team has a range of responsibilities. There’s a full-time geologist, and a staffer charged with using mapping software to plot the location of wells. Other DEP employees coordinate contracts with the well-plugging teams hired to cement abandoned wells shut. They may fill the entire wellbore with cement. Or they may plug only portions of the well that intersect with oil and gas-bearing formations and fill the rest of the space with a gel-like substance.The program has never been funded at a level anywhere close to the scale of its job. The 1984 law included a surcharge to create the Abandoned and Orphaned Well Program. The program started slowly, plugging just seven wells in 1989. It maintained that slow pace for the next decade, plugging more than 20 wells a year only two times, and spending an average of $226,000 a year.Things changed in 2000, when a state bond issue called “Growing Greener” passed. The bond money added an average of $1.1 million annually over the ensuing decade. The state plugged about as many wells in 2000 as it had in the previous decade.But Growing Greener revenue has decreased, and the Orphaned and Abandoned Well Program is back to subsiding on its relatively meager surcharge money. In all, Pennsylvania’s efforts have plugged 2,871 wells.Lack of funding forces DEP to triage the unit’s work according to which wells pose the greatest danger.“We can’t plug every well. We don’t have the resources to do that, nor do we have the contractors,” Pine says. “If there’s no evidence a well is leaking oil or gas, and it’s not near a home or body of water, then that would be given a lower priority than a well that clearly is leaking into a stream, or is near a back yard.”Pennsylvania isn’t unique in this respect. Many states have large numbers of abandoned wells with little resources to do anything about them. Despite that, the program is moving forward with efforts to streamline and improve its database of known wells. DEP is collecting maps and other relevant documents from state and county historical organizations. Deputy Secretary Scott Perry has sent a letter to oil and gas drillers, asking them to forward along any maps or documentation they have about where old wells might lie. The goal is to merge this data with modern digital maps, in order to create a more comprehensive record of abandoned wells.A pilot program in southwest Pennsylvania showed encouraging results: “In addition to the wells we know about, we found 15,000 additional new wells,” says Gene Pine. That total (which has since been increased to 17,000) includes active wells, too, so it doesn’t necessarily mean the list of abandoned wells has suddenly tripled.But documentation or no documentation, Pennsylvania won’t come close to finding its 200,000 lost wells for a long, long time.

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Local Governments Receive ‘Impact Fee’Local townships, boroughs and county governments have received payments from the state’s new “impact fee” on shale gas drilling. Amount of each check from the Pennsylvania Public Utility Commission (PUC) is based on gas production that took place in 2011. Annual allotments will continue in future years based on the previous year’s production.PUC sent $554,536 to the Potter County Commissioners. Regulations that were passed by the legislature as part of Pa. Act 13 restrict how counties can use the revenue.Each county will also receive $50,000 from a state-operated “legacy fund” and can use that money for greenways, natural areas and other environmental projects.

Breakdown of payments coming to the townships and boroughs in Potter County is as follows: Abbott $23,660, Allegany $51,922, Austin $8,624, Bingham $19,159, Clara $60,635, Coudersport $43,578, Eulalia $26,432, Galeton $16,016, Genesee $16,155, Harrison $30,702, Hebron $28,837, Hector $48,939, Homer $11,371, Keating $39,171, Oswayo Borough $2,769, Oswayo Township $12,021, Pike $7,798, Pleasant Valley $131,985, Portage $3,185, Roulette $28,915, Sharon $22,189, Shinglehouse $7,454, Stewardson $3,983, Summit $6,481, Sweden $44,018, Ulysses Borough $9,109, Ulysses Township $16,083, West Branch $167,020, Wharton $32,359.About $204 million has been collected by the PUC statewide. Of that, $108.7 million is being distributed: 36 percent to county governments with wells subject to the fee; 37 percent for host municipalities with wells subject to the fee; and 27 percent for all local governments in counties with wells.Both the PUC and the Pa. Dept. of Environmental Protection (DEP) have posted information about the Act 13 impact fee and related topics on their websites.

News And Notes Of Interest

Local Meeting On Water Treatment Planned. A Natural Gas Resource Center formed as a partnership between the Potter County Board of Commissioners and Potter County Education Council is off and running. Members of the center’s volunteer steering committee are laying the groundwork for their next public meeting, to be held in early 2013. Spotlight will be on the latest trends in waste water treatment, including facilities being developed in northcentral Pennsylvania.

Details will be announced. The steering committee is made up of people with involvement in employment and training, environmental stewardship, energy production, public safety, economic development, housing and public education. A major focal point for the Resource Center is a website designed as a one-stop shop for public/general information, business connections, job training, employment opportunities, government agencies and community resources for Potter, McKean and Cameron counties. The site can be accessed at www.naturalgasresourcecenter.com. Phone number for the Natural Gas Resource Center is at (814) 260-5625.

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Webinars On Timely Topics. Penn State’s Marcellus Education Team offers free webinars that bring participants timely information on many issues related to natural gas productions. Webinars run from 1-2 pm, with time for questions and answers. Upcoming schedule is as follows:

• Nov. 15, Analyzing the Options for Monetizing the Shale Gas Resource. Uday Turaga, founder & CEO of ADI Analytics LLC, will provide an overview of gas production and demand, including new uses that will drive production, such as electricity generation, motor vehicle conversions and broader use of compressed and liquefied natural gas.

• Dec. 20, Shale Gas Energy and Water Impacts: A Review of Recently Published Research. (see story on page 8, ‘Public Meeting On Water Treatment.’)

• Jan. 17, America’s New Industrial Revolution: A Renaissance for U.S. Chemical Manufacturing (discussing ethane cracker plants).

• Feb. 21, The Science Behind Best Management Practices.

Registration is not necessary, and all are welcome to participate by logging in to https://meeting.psu.edu/psucems. If you have questions concerning the webinars, please contact Carol Loveland by email at cal24@psu.edu or telephone 570-433-3040 or 570-320-4429. Previous webinars, publications and information also are available on the Penn State Extension natural-gas website, http://extension.psu.edu/naturalgas.

ShaleNET Job Training Continues. Not everyone is cut out for a job in the gas industry. But opportunity abounds for those who have the skills and flexibility companies are looking for. They’re seeking drivers, roughnecks, derrick hands, soil scientists, equipment

operators, sales representatives, cement mixers, land agents and more. A job-seeker who is trained and is willing to travel stands an excellent chance of being hired. Seneca Highlands Career & Technical Center in Port Allegany, in partnership with the Potter County Education Council (PCEC), is a federal ShaleNET training partner. That allows PCEC to offer free training for those who are interested in landing a job as a floor hand. Topics include employability skills; basics of natural gas; rig components and electrical systems; hydraulics, pressures and forces; well control; spill prevention; safety; driving; aerial work platform basics and rough-terrain forklift. There is no tuition, but participants are responsible for pre-admission clearances, physical examinations, and drug testing. Another ShaleNET training session is going to be scheduled in the coming weeks. Anyone interested in learning more should call (814) 545-1333.

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More Calls For U.S. Energy Policy. It’s not just the environmentalists and think tanks that believe the U.S. needs to develop and follow an energy plan. Industry representatives have increasingly been joining the chorus in urging federal lawmakers to act decisively. George Biltz is vice president for energy and climate change at Dow Chemical. Dow relies on natural gas and oil as raw ingredients to make petrochemicals and plastics. Biltz’s job is to think about energy supplies, and plan ahead. He says: “The U.S. should step back and say with all this new energy changing the game, let’s

revisit how we want energy to work for this country – what are the best ways to use the energy we have and where do we want to get? And then create a new energy narrative, a story that talks about how this energy will be used to advance the country not just this quarter, or next year but the next several decades.”Biltz says the U.S. is way behind other countries when it comes to setting priorities:.“Energy is the one thing that affects the economy and how it grows. Energy drives lifestyles, which drives general satisfaction about life. So, you have it developing on two issues – our lifestyle and economy, and our environment. And these pieces all put together talk about the future of a nation.” He said politicians must stop avoiding questions such as whether we should keep domestic fuel at home, or sell it abroad; or how much of our domestic energy resources should go toward manufacturing, or transportation. “Instead, they establish symbolic benchmarks for future years. And we know how easy those deadlines are to miss.”

It’s All About The Shale. There were no major mergers and acquisitions related to development in the Marcellus Shale during the third quarter, the first time no big-dollar deals have been registered since early 2010. Experts cite a dwindling supply of available foreign investors and stubbornly low gas prices that have pushed producers toward other regions. There is a finite number of viable international investors, one analyst said, and "the folks who wanted to have a toe in the water got their toe in previous years." In addition, foreign and domestic interest remains in more liquids-rich formations, where oil and natural gas liquids can be extracted and sold at higher prices than plain natural gas. The Marcellus is primarily a

natural gas play, and that doesn't encourage major deals with price dynamics as they are. The trend toward liquids-rich shales has perked interest in the Utica Shale, which contains more oil and liquids. Still, the number of major Utica deals remains small, since companies are still leasing property that they can later sell in bulk as plots of contiguous land. "The pieces need to be in order to build the critical mass," he said. "If Marcellus is a toddler, then Utica is still in its infancy."

This publication is produced by the Natural Gas Resource Center in Coudersport, Pennsylvania. Previous editions are available in the website, pottercountypa.net. Anyone with story ideas or comments should contact Paul Heimel (pheimel@pottercountypa.net).

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