No. 4: Marcellus 2012: Infrastructure developing, some issues re - WOWK 13 Charleston, Huntington WV News, Weather, Sports

No. 4: Marcellus 2012: Infrastructure developing, some issues remain

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Did the regulatory certainty gas producers received with December 2011's Horizontal Well Control Act spur activity?

It's hard to say, because prices plunged at the same time: from $4 per million British thermal units in mid-2011, all the way under $2/mmBtu by April 2012. Many producers pulled back in self defense, with Chesapeake Energy Corp. announcing in January that it would cut drilling by nearly half and some others following in kind.

Prices recovered a little through the year, hovering in the low $3s in mid-December.

The state's Marcellus production had been rising steadily and steeply, up from 1 million thousand cubic feet, or mcf, in December 2009, to 5 million mcf in December 2010 and 16 million in December 2011. But while 2012 production numbers won't be available until the second quarter of 2013, other signs of change and growth have been noticeable.

Production and infrastructure

Number one West Virginia shale gas producer Chesapeake had to scale back activities even beyond drilling in 2012 due to financial problems. The company sold its midstream assets in the Marcellus Shale and other plays in December.

But number two producer Antero Resources of Denver, which was gaining on Chesapeake's production in 2011, continued to expand, announcing in December that it would build a 50,000-square foot Marcellus headquarters in Bridgeport. And even as Chesapeake shed its Marcellus midstream operations, EQT Corp. announced in December that it would sell its distribution arm, Equitable Gas Co., in order to focus on production and midstream in the region.

Midstream infrastructure grew. New processing capacity came online to separate liquids from gas — for example, MarkWest Energy Partners' facilities in Doddridge and Wetzel counties. Dominion's Appalachian Gateway Project to carry gas from northern West Virginia Marcellus fields came into service, and its major new fractionation plant at Natrium, which will separate the natural gas liquids from each other, will start up in early 2013.

On the subject of infrastructure, questions about the maintenance and inspection of pipelines crossing the state may get more attention following this month's explosion at a Columbia Gas Transmission pipeline in Sissonville.

Tax revenues and jobs

Even with production rising, low gas prices have hurt oil and gas severance tax collections. Revenues distributed to local counties dipped in 2010 and have not yet fully rebounded in 2012: from a 2009 total of $8.4 million to just $6 million in 2010, $6.1 million in 2011 and $7.3 million in 2012. Better news ahead, perhaps: The West Virginia Center for Budget and Policy wrote in December that projections show those numbers rising each year to nearly $30 million in 2035.

How many jobs? Five years into the development of the Marcellus, it remains one of the big open questions. After much public dialogue, the Legislature chose in December 2011 not to require companies to report their in-state and out-of-state employment numbers.

Here's one way to think about it. The state's first Marcellus well started to flow in December 2007. For the following four years, from 2008 to 2011, employment in core oil and gas sectors rose by less than 1,000 in the state, WorkForce West Virginia reported in November.

Then, a  study funded by the industry and the U.S. Chamber of Commerce and released in December reported that "unconventional oil and gas" — in West Virginia, that's essentially the Marcellus — supported almost 12,000 jobs in the state in 2012. But it also reported that, nationwide, about a quarter of jobs in unconventional oil and gas are "direct" industry jobs. That would be 3,000 jobs in 2012 and a significant leap from the 1,000 created from 2008 to 2011. Concerns that the better jobs may be going to out-of-state workers remain unanswered.

Coming up

After years of wrangling, lawmakers expressed Marcellus fatigue following their December 2011 achievement.

But some issues are yet to be resolved — among them, surface owner rights. A Doddridge County surface owner, in one court case, argued that he should have the right to appeal a well permit the state Department of Environmental Protection had issued EQT on his property. The state Supreme Court ruled in November that state code, which offers only after-the-fact remedy to surface owners, is outdated and that the Legislature should revisit it.

Finally, studies mandated by the Horizontal Well Control Act are coming due. The DEP has to report to the Legislature by Dec. 31 on whether location restrictions for horizontal wells are sufficient given the noise, light, dust and air emissions and by Jan. 1 on the safety of pits and impoundments. It also has to report by July 1, 2013, on whether further regulation of air pollution from well sites is needed to protect human health and environment, on rules regarding drilling in karst terrain, and on wellbore casing and cementing standards.