Peter Behr, E&E reporter
“We created a great friendship, and a lot of their subcontractors came over here,” said the store’s purchasing manager, Lisa Nicodemo. Sales of fire-retardant clothing used in drilling operations spiked, along with business at the company’s companion store, Wilkof Industrial Supply, handling industrial equipment and tools.
“Two years ago, we were running this place with four people. Now we’re up to nine,” said Nicodemo, whose company has added a mobile store that goes to drilling sites. “This is just the beginning.”
Indeed, tapping into the Utica Shale resource is just beginning. Oil and gas companies have secured 405 permits, nearly all of them since the beginning of last year, and have drilled 171 exploratory wells. The U.S. Geological Survey, in its first estimate of the Utica Shale this month, pronounced it a potential gold mine, with 38 trillion cubic feet of technically recoverable natural gas, 940 million barrels of oil and 208 million barrels of natural gas liquids.
But moving the Utica’s production — in particular, the valuable natural gas liquids — into markets has hit a bottleneck with gas prices stubbornly low. In June, 24 horizontal wells were drilled. In September, the number had dropped to three.
“These companies are very anxious to get going,” said Tom Stewart, executive vice president of the Ohio Oil and Gas Association. “But the lack of adequate midstream capacity is a throttle on drilling activity,” he added, citing the lack of infrastructure, notably the processing facilities required to separate ethane and other gas liquids from pipeline gas, so that both can be sold.
The midstream projects are coming, said Stewart. MarkWest Energy Partners is completing the first phase of a gas processing plant in eastern Ohio’s Harrison County. NiSource Inc., the parent of Columbia Gas of Ohio, and a Chesapeake Energy subsidiary have also announced projects, the latter in partnership with M3 Midstream LLC and EV Energy Partners LP.
They are key, Stewart said. “The drilling won’t accelerate until producers can get the full value of the production.”
“What industry is seeing is a lot of joint ventures, with a midstream company partnering with exploration and production company to build these massive midstream processing plants,” said David Karpinski, vice president of NorTech, a Cleveland-based nonprofit economic development organization. “Once those are clear, you’ll see an acceleration of the wells.”
“Everyone is exploring their leases,” said Craig Kasper, CEO of Hull & Associates Inc., an engineering firm in Dublin, Ohio. The major energy companies active in the region have not started their programs yet, he said.
The rate of drilling is likely to increase next year, Kasper said. “If the play is the way we hope it will be, 2014 is when we’ll see 40, 50, 100 rigs operating versus 10 or 20 we have running around now.”
An advocacy ‘revival’
Environmental activists don’t agree that the road is open yet.
“Our board’s position is that fracking should be banned,” said Nathan Rutz, campaign organizer for Ohio Citizen Action, a statewide advocacy group based in Cleveland that is organizing protest meetings against shale development. “It is intrinsically dangerous because of potential contamination of groundwater from the entire process, from fracking to the disposal of wastewater,” he said.
“Everybody wants this to be done as carefully as possible,” said David Kaminski, director of education and government affairs at the Canton Regional Chamber of Commerce. The state needs to show that it can scale up its well inspection operations in pace with drilling, but the former journalist said he believes that will happen, adding, “In 33 years of newspapering, I can’t remember a story where a water system was contaminated by mineral drilling.”
The state is experiencing “a revival of the environmental battles of the ’70s and ’80s,” said Cleveland attorney David Nash, a specialist in environmental law with the McMahon DeGulis firm. “There are certain citizens and environmental advocacy groups that don’t want to see it under any circumstances. No matter what the analysis shows, they don’t want it.
“At the same time, there are those on the other extreme,” Nash said. “As long as minimum legal requirements are met, it’s ‘Drill, baby, drill.’ The state is making progress in beefing up laws and regulations. Whether the right compromises have been made remains to be seen,” he said.
“I think the environmentalists are kind of in the minority,” Karpinski said. “The opportunity this presents for citizens and residents is compelling. There are opponents, but they aren’t slowing it down.”
The pause is on the industry’s side, and it has divided Ohio’s large and growing Utica Shale cheering section into two camps. One includes a relatively few fortunate companies like Nicodemo’s store that are riding high with the first phase of development. The industry, and much of the rest of the state, is like the kin of a rich, benevolent elder uncle, awaiting its geological bequest.
The first phase of development has been a boon to a fortunate few.
CESO Inc., a civil engineering and architectural firm in Dayton, has tripled in size in the past 18 months after landing a relationship with Chesapeake Energy and opening a Canton office next to Chesapeake.
“We do a majority of their road improvements and share [drilling] pad design with another firm,” said CESO Vice President Steven Olson. “We were in the right place at the right time, and they’ve been very supportive of our efforts to grow, and we’ve committed the resources they’ve need to grow in Ohio,” he said.
Evets Oil and Gas Construction Services, in Gerard, Ohio, handles every part of well development, from excavation to installing piping, pumps, compressors and electrical stations, said Dominic Spelich, corporate development manager. It operates in other shale plays, but the Utica is in its backyard, he said. “Our business has doubled since Marcellus [in Pennsylvania] and Utica started,” he said.
The Atwood Lake lodge, in Dellroy, Ohio, east of Akron, is both an immediate winner and a hopeful beneficiary. Built in 1965, the lodge looks down on a postcard view — a broad ribbon of blue water cradled in trees, its shore lined with boats. But the inn had become a big money loser in middle age. It had been closed for nearly two years and had a wrecking ball in its future until its rescue by the Carroll County Commission.
The commission acquired the property for free from the Muskingum Water Conservancy District, a state agency, and received the mineral rights on the 515 acres surrounding the lodge, as well, said Commissioner Thomas Wheaton.
“We would not have been able to take it without that. That’s our income,” Wheaton said. Sierra Buckeye, the independent oil and gas developer from Houston, is paying $4,500 an acre to lease mineral rights on the site, Wheaton said. That is worth $2.25 million — equal to nearly half of the county’s annual general fund budget.
Radius Hospitality, the lodgings firm that has a five-year lease to run the lodge and restaurant, has refurbished and reopened it, to the relief of local residents, said company principal Randy Budd. Radius is seeking to sign two-year contracts with drilling companies to reserve some of the rooms for their managers and employees. That would be a cushion of cash flow during a two-year development, he said.
Under the county agreement, shale gas revenues must be reinvested in the lodge to modernize it and expand the golf facilities and have it live up to its new name — resort and conference center — said the regional operations director, John Logsdon, as he led a visitor around the building, describing the plans.
“You have to have a vision of what it can be,” Logsdon said.