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After the Boom: The well runs dry for the little guy

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


After the Boom: The well runs dry for the little guy

This is the second article of a three-part series lookinginto what Marcellus Shale gas extraction did and did not do for an area in theheart of the shale boom and what comes next for residents, business andindustry. Partone examines whether bust must follow boom in the northeast cornerof Pennsylvania.Part three tells thestory of a big driller's faith in the area.

There were sad faces in sunny Happy Valley.Small-business owners hoping to stay afloat as vendors to the big boys in thenatural gas supply chain wanted to hear at an April conference that prices anddrilling were coming back. They were disappointed to learn they have anotheryear, at least, to wait.

BTU Analytics revealed a $3.50/MMBtu long-term priceforecast, but that will not come in time to save many of the small-businessowners gathered in the Penn Stater Hotel in State College at the Upstream PAconference.

This is thin gruel for business owners in places likeSusquehanna County who had invested heavily in the Marcellus Shale gas boomover the preceding six years to haul water, chemicals and sand to pads anotherlocal contractor probably built. Now the well had run dry.

"Market forces and government policies will stimulatethe use of natural gas for power," the U.S. Energy InformationAdministration's Michael Schaal said at the conference. But he expects pricesonly "to rise slightly through 2017." The bottom line for drillingservices contractors is that drillers are down to the best rigs drilling thebest land with the best crews, Schaal said, leaving little business forcontractors.

Baker HughesInc. reported that there were 16 rigs operating in Pennsylvania inthe back half of April, down one from March, down 33 from a year ago and downalmost 100 — or 86% — from the 114 rigs operated in January 2012.

'Diversify or die'

"We need to encourage manufacturing here,"Marcellus Shale Coalition President David Spigelmyer said, skirting the issueof when the drilling is coming back.

"We have the cheapest energy in the world. We've been aone-trick pony on this," Spigelmyer said of his member companies' focus onproduction.

Bore-sighted on production, Pennsylvania drillers inFebruary reported to the state Department of Environmental Protection justunder 14.4 Bcf/d of unconventional gas production, a global-scale amount — itwas slightly less than all of Canada's total of 15.6 Bcf/d — that would requirea Marshall Plan's worth of factories and power plants to burn. SusquehannaCounty accounted for 3.4 Bcf/d, or 24%, of that production.

"Diversify or die" was the message fromrepresentatives of two northeast Pennsylvania producers, andNational Fuel GasCo.'s SenecaResources Corp.

"We started with a three-rig program in January, thenit was two rigs, and now it's one rig," Rob Boulware, Seneca's stakeholderrelations manager, said of the producer's deflating drilling program for 2016.

"The reality is a lot [of businesses] have been throughthe ebb and flow and a lot will end up going under when the numbers won't besustainable," Boulware said. "The boom was good. It brought a lot ofpeople into the industry. It will come back."

"Northeast Pennsylvania has fewer rigs operating nowthan when the boom started," Cabot External Affairs Coordinator BilldesRosiers said. He said Cabot is working to send jobs to its vendors butwarned them that even when prices rise and pipelines are built, the boom of thepast eight years is over and they should begin diversifying away from naturalgas.

Competing with themajors

Neither executive had specific advice for the contractors inthe room, which Walter Veselka found frustrating. Veselka and his wife own theenvironmental consulting firm AllStar Ecology in Fairmont, W.Va., outsideMorgantown. He said the big independents talk a good game of looking for"competitive pricing" and then keep themselves hostage to big oilservice firms that "do it all."

"I do it, too," Veselka said. "Just give meyour number. What price do you need? I can work with that, but I can't even getin the room."

In Susquehanna County, now the third-largest gas-producingcounty in the second-largest gas producing state, Commission Chairman Alan Hallsaid the small drilling services businesses that are suffering failed todiversify and risk going out of business entirely.

"We have seen companies that have basically been turnedoff," Hall said of firms that hauled stone, lumber and water to drillpads, as well as rental property owners facing a glutted market now that theroughnecks have moved on.

Hall said he knows of one owner who has not had a tenant inhis temporary apartments for more than two months.

"Everybody's optimistic," though, Hall said. Thebiggest contributor to downtown store vacancies in the county seat of Montrose,Hall said, was not the decline in natural gas prices but the statetransportation department's decision to rehabilitate State Route 29, which runsthrough the middle of town. "People just couldn't get to the stores,"Hall said.

The flip side of Hall's observation is that the Route 29work was needed because of the huge increase in tractor trailer traffic duringthe boom.

Part three of theseries will look at a major driller's big bet on Susquehanna County.