Tuesday, August 26, 2014FINDLAY TOWNSHIP, Pa. -- Executives from Consol Energy Inc. and officeholders gathered at Pittsburgh International Airport Monday – not to draw attention to the aircraft flying thousands of feet above -- but to the strata of rock that lie thousands of feet below.
In a press event that drew reporters from regional, national and international news organizations, Consol kicked off a multi-well oil and natural gasl drilling program on 9,000 acres at the airport, a project executives say provides a $1 billion opportunity for both the energy company and the airport.
“We’re looking at a flagship project where, as little as a couple years ago, nobody in the region, myself included, would even contemplate that we'd be looking at this kind of opportunity of this scale and magnitude,” said Consol Energy CEO Nick Deluliis.
About two years ago, Allegheny County began accepting proposals to drill in the three shale plays -- the Marcellus, Utica and Upper Devonian -- deep beneath the airport land. Consol, based in Cecil Township just outside Pittsburgh, was chosen. It began the arduous task of working out the details of just how the company would venture into an airport drilling project the size of which has never been seen east of the Mississippi River.
Dallas/ Fort Worth International Airport has 100 wells that produce about $8 million in annual revenues. Denver International Airport has 76 wells that bring in $6.2 million.
When all six well pads are finished here, 45 wells will sit at Pittsburgh International; they are projected to bring royalties of $20 million and $25 million annually.
After a year of discussions that involved the townships around the airport, the Federal Aviation Administration, the Pennsylvania Department of Environmental Protection and Allegheny County, 23 conditions were established before Consol could drill at the sites. Most involved regulations on working hours, noise levels and traffic. The creation of a complaint hotline and the requirement that air quality be measured throughout the operation were also put into place.
With planes crisscrossing the sky above Pad Two every 10 minutes or so -- the drilling site furthest from the runway at Pittsburgh International and closest to the residences surrounding the property, Allegheny County Executive Rich Fitzgerald and Deluliis formally introduced one of the most unusual drilling projects in the country.
While most drilling sites elsewhere require units composed of several private properties, Consol will deal with just one property owner: the Allegheny County Airport Authority. Consol wells will not extend beneath any private properties that surround the airport's 9,000 acres, they said.
Still, those living nearby have raised concerns, to which Fitzgerald and Deluliis respond local government and the company are exercising the utmost care.
“Their roots are deep," Fitzgerald said of Consol. "They care about this community. Their employees live here. Their management lives here. Their president even lives and grew up here. When you have those kinds of roots and those kinds of concerns, it's not just about the bottom line of the company, it's also about the greater good of the community.”
Deluliis said Consol has never undertaken a project like this and pledged to be transparent with nearby residents.
“We want to keep the dialogue open every step of the way. This is a flagship and a demonstration for this region that goes well beyond the airport property,” he added. “We view it as an educational opportunity for the region at large.”
Concerns were raised about the safety of hydraulic fracturing after well fires, the death of a worker at a drilling site and the discovery that Chesapeake Energy had contaminated private water supplies in 2011.
“The environmental protections have been there. The workers understand it and the people with Consol understand it,” said Gov. Tom Corbett. “You have to keep in mind that in the instances where we have found bad actors, we have punished them … and it's not in the interest of companies like Consol to shortcut the environment because it affects their stock, it affects the expectations of their shareholders and, more importantly, it affects their lifestyle as well.”
The airport wells are projected to produce between 280 billion and 800 billion cubic feet of natural gas. For the airport, which will receive royalties of 18% from the gas extracted there as well as a $50 million bonus payment, that means an estimated $20 million to $25 million annually over the next 20 years. The airport’s current operating budget is $91 million.
“We'll probably get another $500 million in royalties that'll help the taxpayers,” Fitzgerald said. “It'll lead to improvements at the airport, fix up the infrastructure and get rid of some of the debt paid by taxpayer dollars.”
More important, the impact goes well beyond Consol and Pittsburgh International Airport, DeIuiis emphasized. The shale industry is directly and indirectly responsible for 240,000 jobs in Pennsylvania, according to the Marcellus Shale Coalition. Those jobs go from rig workers to hotels to restaurants.
The number of jobs at the drilling sites will fluctuate, Deluliis said. During drilling, there may be as many as 100 people working, but once the wellheads are in place, that number will drop.
“There are different lengths [of employment] in the chain of development. Drilling is going to conclude at some point on this project, but there's also the follow-up activity that needs to occur. Construction of the pipeline is going to end, but there's the operation of the pipeline,” the CEO said. “We're going to see an evolution of the job opportunities and the job growth over the years.”
In addition to those jobs, a cracker plant is expected to be built in adjacent Beaver County, which may process gas from Consol well sites, Corbett said, and other business are looking at the area.
“It's the future. It really is,” the governor said. “We're producing natural gas that's going to be producing energy, producing jobs and producing business.”
For now, Consol is sticking to drilling in the Marcellus shale, but Deluliis didn't rule out expanding into the Utica or Upper Devonian. Having all three formations at one site, he said, intrigues his company.
“The topography here is more interesting than what you'll find at Denver's airport or at Dallas-Fort Worth,” he explained. “It's an opportunity you don't often see in the Marcellus or the Utica shale plays themselves and it was certainly one of the characteristics that got us excited about this project to begin with.”
Over the past decade, after the former US Airways ended using Pittsburgh as its main hub, the airport has struggled financially. Since 2004, the number of flights in an out has been halved, down to around 300 every day.
The airport was built to handle 30 million passengers annually. Eight million came through in 2013.
Now, more than 40% of the airport budget goes to repaying debt incurred from expanding terminals, some no longer in use.
But the airport is likely to witness a remarkable reversal of fortune over the next two decades, which could lead to additional economic benefits to Allegheny County. With an estimated $500 million going toward paying off debt and renovating parts of the airport, Pittsburgh could once again become a destination for travelers and businesses alike, all because of an unprecedented drilling project, Corbett said.
The project will dwarf the revenues from energy extraction at airport projects in Denver and Dallas, not far from where hydraulic fracturing got its start. Deluliis said that he fully expects the project to become the “gold standard” for airport drilling projects.
“Our view is this is going to be the gold standard, the flagship for airport projects or even shale projects in general,” he declared.
For the Pittsburgh area, the project will have a noticeable effect on the economy that is already seeing growth from exploration of the Marcellus shale.
“The amount of money this is going to generate, through a $500 million construction project, is going to make an awful lot of jobs. People are going to be put to work, a lot of them have been put to work already,” said Fitzgerald, the county executive. “Pittsburgh is becoming one of the job capitals of the country. We have job growth that's better than the national average and has been for the last couple of years. We'll see an economic impact that this region hasn't seen for decades.”
Pictured: Nick Deluliis, CEO of Consol Energy, speaking to reporters at the press event.
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