Concerns Come With Increase in Natural Gas

Most robust reserves seem to be outside of W.Va., where fewer companies will drill

Charleston Daily Mail
30 November 2009
by George Hohmann, Business Editor

CHARLESTON, W.Va. -- Although the increase in natural gas supplies has created excitement in the industry about what it may mean for jobs and West Virginia's economy, the prospects for expansion bring concerns, too.

Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association, is worried that most of the development of natural gas from the Marcellus Shale has so far occurred in Pennsylvania.

DeMarco pointed out that Pennsylvania does not have a severance tax on natural gas but West Virginia does. A recent Penn State study estimated that because Pennsylvania has no severance or property tax, wellhead revenue there is about 11 percent higher.

Lloyd Jackson, president of Jackson Gas Co. in Hamlin and chairman of Energize West Virginia, a nonprofit organization that promotes the natural gas industry, said that at least initially, the most robust Marcellus Shale reserves seem to be in New York and Pennsylvania. "That is not short-term good news for West Virginia," he said.

"We've seen an incredible amount of investment dollars flow to those areas that might have flowed to West Virginia," Jackson said. "Companies that drilled hundreds of wells in West Virginia a few years ago will drill only a handful this year."

Jackson believes that as the market price for natural gas increases, drilling activity in the Marcellus Shale will move south.

Several companies have decreased their presence in West Virginia in recent months. Most notable is Chesapeake Energy Corp., one of the biggest natural gas producers in the United States. The company still has significant holdings in West Virginia. But Chesapeake made headlines in February when it scrapped plans to build a regional office in Charleston and announced that 215 of its Charleston-based employees would either be moved to Oklahoma City or eliminated.

Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association, is worried that most of the development of natural gas from the Marcellus Shale has so far occurred in Pennsylvania.

DeMarco pointed out that Pennsylvania does not have a severance tax on natural gas but West Virginia does. A recent Penn State study estimated that because Pennsylvania has no severance or property tax, wellhead revenue there is about 11 percent higher.

Lloyd Jackson, president of Jackson Gas Co. in Hamlin and chairman of Energize West Virginia, a nonprofit organization that promotes the natural gas industry, said that at least initially, the most robust Marcellus Shale reserves seem to be in New York and Pennsylvania. "That is not short-term good news for West Virginia," he said.

"We've seen an incredible amount of investment dollars flow to those areas that might have flowed to West Virginia," Jackson said. "Companies that drilled hundreds of wells in West Virginia a few years ago will drill only a handful this year."

Jackson believes that as the market price for natural gas increases, drilling activity in the Marcellus Shale will move south.

Several companies have decreased their presence in West Virginia in recent months. Most notable is Chesapeake Energy Corp., one of the biggest natural gas producers in the United States. The company still has significant holdings in West Virginia. But Chesapeake made headlines in February when it scrapped plans to build a regional office in Charleston and announced that 215 of its Charleston-based employees would either be moved to Oklahoma City or eliminated.

"It's a little bit perplexing to me because right now Canonsburg, Pa., is natural gas central for the eastern United States whereas three years ago I thought it was going to be Charleston," DeMarco said. "If I'm the governor of this state I'm going to be real worried about it. The back-office jobs, the families, the things that make a vibrant industry are going to be in Canonsburg. Now that they have bricks and mortar in Canonsburg, it's going to be harder to get it in West Virginia."

Jackson said that long-term, pipeline capacity "is going to be constraining if we don't deal with it. The system in West Virginia has not been upgraded for years."

Some transmission projects are in the planning stage. For example, Dominion Transmission, Dominion Resources' natural gas transmission and storage subsidiary, has proposed the Appalachian Gateway Project to deliver Appalachian natural gas production to markets in the eastern United States.

The project would include the construction of about 110 miles of pipeline between West Virginia and Pennsylvania as well as four new gas compressor stations. The project would cost an estimated $600 million, Dominion spokesman Bob Fulton said.

Some states, particularly New York and Pennsylvania, have raised concerns about the treatment of water that is used in the drilling process.

Ben Hardesty, president of Dominion Exploration and Production Inc., said he believes technology will help overcome such challenges and that they will be dealt with in an environmentally acceptable way.

DeMarco said, "We enjoy a relationship with the West Virginia Department of Environmental Protection that New York and Pennsylvania don't necessarily have."

Contact writer George Hohmann at busin...@dailymail.com or 304-348-4836.