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Avalon Eyes Two Injection Wells, Reports Club Membership Up
VIENNA, Ohio – Avalon Holdings Corp. chairman and CEO Ron Klingle says that his company is looking to develop two brine injection wells in the region, even as the state administers tighter regulatory scrutiny over the process.
"It's just an incredible opportunity for everyone," Klingle said after he presided over Avalon's annual shareholders meeting Thursday at Squaw Creek Country Club. "One of the things that has to happen along with the drilling is the ability to safely get rid of the brine waters and drilling muds that's generated in the process. If that can't be done, drilling will not occur."
That means Avalon is looking to own and operate injection wells to store this wastewater, a new venture for the company, Klingle said. Wastewater storage is a critical component to the business and such wells are needed if the Mahoning Valley wants to be a major player with energy giants now exploring in the Utica shale, he says.
He says his company has the expertise to handle and dispose of the millions of gallons of wastewater that's expected to be generated from energy exploration companies, an industry he thinks will transform the entire Mahoning Valley.
The wastewater is a by-product of hydraulic fracturing, a process that uses a mixture of water, sand and chemicals injected at high pressure into the well once it's drilled, and fractures the tightly packed shale rock. The trapped gas is then unleashed and brought to the surface at the well site, where it's stored and then transported.
The process also elicits hundreds of thousands of gallons of wastewater that either needs to be recycled or disposed of. Brine injection wells are the accepted means of disposing this water in the state.
Injection wells have come under scrutiny this past year since D&L Energy, Youngstown, started operating an injection well at the Ohio Works Business Park, near V&M Star. The injection well has been linked to a series of earthquakes that shook the Mahoning Valley between March 2011 and January 2012.
The well is now decommissioned, as are other D&L injection wells in the area, and the state of Ohio has issued new regulations on how wastewater is stored using this process.
"It's been our belief that by far, the best way to get rid of these brine waters is to put them back in the ground," Klingle said. "It can be done safely, and can be done without any issues whatsoever."
He said that the company is exploring approval for the injection wells "in an area to support the business that's coming in," but declined to be more specific. Thus far, no permits for new injection wells have been filed in Mahoning, Trumbull or Columbiana counties.
Klingle noted that the most appropriate site for these wells are old industrial areas that have road and rail access, but are removed from residential enclaves. "Our goal is to find locations where truck activity would have no impact on the local people living here."
Avalon stated earlier in its annual report filed with the Securities and Exchange Commission that it had purchased options "on a number of properties" that could be used to accommodate brine injection wells.
The company had earlier disclosed that it received $400,000 in bonus payments in return for leasing oil and gas rights on 200 acres it owns.
Klingle reinforced that there are hundreds of deep injection wells throughout the state, the majority of which have never had a problem.
The good news about the Youngstown well, he noted, is that the Ohio Department of Natural Resources has determined what caused the problems and has taken measures to prevent future issues.
New standards of disposing brine include prohibiting injection wells being drilled into the Precambrian basement rock and mandating that companies are to perform extensive geological testing before any drilling could begin.
"The bottom line is don't drill down to that strata" of rock, he said.
Klingle said that Avalon subsidy American Waste Management already has experience hauling and disposing brine water from drilling activity in western Pennsylvania's Marcellus shale. "Over the last 15 years, we have done a lot in servicing the shale activities in the Marcellus formation; we know a lot of the drillers and understand the issues they have."
Over the last five years, big energy companies such as Range Resources Corp. and Chesapeake Energy Corp. have descended on the Marcellus play, using a combination of horizontal drilling and hydraulic fracturing to unlock massive quantities of natural gas trapped in the rock formations.
Chesapeake is the most active energy company in the Utica shale, a large liquids-rich play that lies directly underneath portions of Columbiana, Mahoning and Trumbull counties, as well as more southern counties such as Stark, Carroll and Harrison.
Klingle said that he believes the Utica holds more potential than what he's already seen in the Marcellus. "What's going to take place here is much, much bigger than what's happened over in Pennsylvania."
Avalon's stock has climbed substantially since the annual report was issued in March. One day after the report was released, along with the prospect of developing injection wells, Avalon's stock shot up 26% to $4.29.
By mid-day April 26, the stock was trading at $5.34 a share, an 84.2% increase year-to-date.
Also in its annual report, Avalon said that it saw net income of $800,000, or 20 cents per share, during 2011 versus a net loss of $500,000, or 14 cents per share, in 2010.
At the meeting Thursday, shareholder Dr. Anil Nalluri, in the past a vocal critic of the company and its business practices, said he is very pleased at how the stock has performed and is optimistic about Avalon's foray into the gas business.
"Oil and gas means money," he said, and thanked Klingle as he left the meeting. "Super job."
At the meeting Thursday, shareholders re-elected by proxy Class A directors Kurtis Gramley and Stephen Gordon for a term of one year, and Class B directors Klingle, Timothy Coxon and David Bozanich for a one-year term.
Klingle also reported that memberships in Avalon's country clubs climbed by 700 last 12 months. "It's way beyond anything we've ever expected to get," he said. "We're very pleased where we're at right now."
Avalon owns The Avalon Golf and Country Club at three locations, the Avalon Lakes Golf Club, Warren; The Avalon at Squaw Creek, Vienna; and the Avalon at Buhl Park, Sharon.
As for new acquisitions, Klingle said that the company is "going to stick to what we have right now. We're going to continue to make these places better and better."
He projects that northeastern Ohio will become a major growth hub in the country because of the energy industry. "We want to create a situation here where the new people coming into town have some real nice places to spend a lot of their time at."
Copyright 2012 The Business Journal, Youngstown, Ohio.