Thursday, October 28, 2010

Gas Boom Mints Instant Millionaires

TOWANDA, Pa. — In the hills of northwest Pennsylvania, the boom in natural gas production turned mechanic Chris Sutton into a millionaire practically overnight.

Sutton recently leased his 154 acres of land on the Marcellus Shale to Talisman Energy for a $900,000 up front check, plus a 20% cut of the revenue of the natural gas extracted from his land.

A half hour away it's a very different story. Truman Burnett's retirement home is ruined: His pond is contaminated by a drilling accident on land owned by a neighbor and his well water is undrinkable.

Burnett doesn't blame the neighbor for the mishap, but the fortunes of Burnett and Sutton illustrate just how dramatically the shale gas phenomenon is dividing Pennsylvania.

Some are getting very rich, while others see nothing but problems.

Nearly everyone appreciates the economic benefits derived from the development of the cleaner, domestic energy source in the Marcellus, which stretches under Pennsylvania, West Virginia, New York and Ohio.

But as shale gas production takes off in the Northeast and in other shale formations across the country, people should pay attention to Pennsylvania.

[A Millionaire's Retirement Plan You Can Use ]

Here, debate about the speed of development, the influx of out-of-state workers, the safety of the drinking water, and the changing character of the area is dividing this state's rural communities.

A Boom in Bloom

Towanda, a town of some 3,000 people about 60 miles northwest of Scranton, is in the midst of a full-on energy boom.

Hotel rooms are impossible to get — one hotel was booked through December. Rents on two-bedroom apartments have gone from $400 to $1,500 a month. The downtown is jammed with traffic, much of it tractor trailers loaded down with drilling materials and equipment. One resident counted over 100 passing his house in an hour.

"We're being invaded," Jim Stuart, a longtime Towanda resident, said from the counter of a downtown diner. "And I don't deal well with things being shoved down my throat."

The invaders, mostly workers from Texas and Oklahoma, are here for the vast deposits of natural gas.

It's been long known that gas exists in this part of Pennsylvania, but extracting it was too costly. But a few years ago, shale gas became economical. The reason: Higher gas prices and advances in drilling and hydraulic fracturing.

Known as fracking, hydraulic fracturing is a process that involves breaking the shale with vast amounts of pressurized water, sand and chemicals. It's being described as one of the biggest developments in energy in a long time.

It was pioneered in Texas, then Louisiana and Arkansas. Now it's in Pennsylvania.

"It's been the opportunity of a lifetime," said Jodi Edger, who runs a construction and excavating company that builds the well pads and services the rigs. "If it wasn't for the oil and gas industry, there wouldn't be a whole lot up here."

Edger has doubled the size of his staff in the last year or so, going from 50 employees to over 100.

Laborers get $14 an hour, and backhoe and bulldozer operators earn $18 or more. Everyone has full benefits and gets overtime, which adds up fast. He says his people are putting in 60 and 80 hour weeks.

"You hear the doom and gloom about what's happening with the economy on the national news, and then you see what's happening up here," he said. "I can't even find a truck driver."

On the other side of town, Joe Snell sells welding gas and equipment to contractors working the rigs.

Snell said his sales exploded from about $10,000 a month last fall to over $50,000 a month now.

Lunching with three of his customers at a local diner, it was all jokes.

"Working up here, we found out the difference between northerners and southerners," said one of the welders. "Down there we're rednecks, up here they're hillbillies." Everyone laughed.

For Brianna Morales, proprietor of the BriMarie Inn a half hour north of Towanda in the town of Sayre, the influx of workers has meant more business and the opportunity to meet new people.

"It's neat to learn some of the south's traditions, and the food they like," she said.

Hot Tempers

But the mood isn't always so light.

A few months back, there was a 15-person brawl outside a Towanda bar, supposedly over a girl. Such incidents are getting more common, said Mike Holt, owner of the Red Rose diner, who witnessed the rumble.

"These guys come up here, with their southern accents, all 'yes m'am, no m'am,' flashing lots of money, and the women are impressed," said Holt. "The local men feel intimidated."

At a bar in Sayre, one roughneck from Louisiana was seen carrying on with the local women, drinking, and pulling out a wad of bills.

After he left, one patron was overheard talking about the greed in town, and the damage this drilling may be causing the environment.

The Water

The traffic may be the most visible and most complained about thing in this region. But it's likely temporary — after the wells are drilled it'll be gone.

The longer lasting and more concerning issue is the impact this drilling is having on the water.

Much attention has been paid to the fracking process, and the federal Environmental Protection Agency is studying its safety.

But environmental officials in Pennsylvania, backed up by national environmental groups, say the focus on fracking, which happens thousands of feet below the water table under a mile or more of rock, is a bit misplaced.

"It's important to be clear about where the problems have been," said Pennsylvania Department of Environmental Protection Secretary John Hanger. "We have not had a single case of these [fracking] fluids coming back to the groundwater."

The problems have occurred near the surface. Fracking fluid has been spilled before being sent down the well.

The steel casing that lines the well holes has also failed, allowing natural gas and other chemicals to penetrate the drinking water. That's led to the much-publicized cases of people being able to light their taps on fire.

To remedy this, environmentalists and others are proposing a series of more stringent regulations, including tougher well casings, drilling farther from from water sources and people's homes, better treatment of the fracking fluid before it's discharged into the environment, seismic imaging of an area before it's drilled, and federal oversight of the whole process.

"I don't mind them extracting the gas, but take it at a slower pace, explore what's necessary to protect the quality of life," said Carol French, a landowner near Townada.

French has sold a lease to drill on her land, but is hoping it expires before gas production starts on her property. She said she'd sign again with better terms, but she just wants to make sure it's done right, "because I can't drink money."

Environmentalists give Pennsylvania credit for recently passing some additional regulations. Still, they they don't believe the regulations go far enough.

Outside analysts say additional regulations, particularly on water issues, will make gas production more expensive, but that the resource can still be developed economically.

"You're not going to kill the shale boom on the basis of these costs," said Robert Ineson, senior director for global gas at the consultancy IHS Cambridge Energy Research Associates. Additional regulations are "warranted, likely and affordable," he said, although he cautioned not to take them too far.

The industry is skeptical of such measures. The American Petroleum Institute pointed to a report showing that increased water regulations and federal oversight could slow development of this resource by about 20%.

But that, it seems, is exactly what many in Towanda want.

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