Marcellus Minutes is a subscription-based newsletter sent to all subscribers registered through the Marcellus Minutes website that contains information on legislation including bill tracking, committee hearings and news from the Capitol in Harrisburg. Access to the website is free and provided to those directly involved and those with an interest in Pennsylvania’s oil and gas industry.

House Environmental resources & energy hearing summary

The House Environmental Resources & Energy Committee held a hearing on Wednesday. The focus of the hearing was on the water issues related to the Marcellus Shale activity.  The first to testify were representatives from STW Resources that included Judith Herschell, Eric Pederson and Gene Brock. To read her testimony click here. To see a presentation of their Zero Liquid Discharge Facilities click here.

Gene Brock walked the members through his presentation. He noted that the level of salt in the flowback water will climb from the freshwater to over 200,000 milligrams per liter in a short period of time during a frac. He compared that level to ocean water which he said is 33,000 milligrams. The produced water which comes back when the gas is being produced is high Total Dissolved Solids (TDS) water. Representative Scott Conklin (Centre) asked how many plants STW has actually operated and how well it has worked with local municipalities (water treatment plants). 

Gene Brock answered that the units have been primarily used in the power industry. The closest to an oilfield is the Canadian tar sands. For STW, this would be their first plant. Representative Conklin asked how many facilities it would take in Pennsylvania to be used over the next five years and also how many jobs does a plant provide. Gene Brock said their plan is to put 4 plants up within the next few years which could handle 4 million gallons a day of water. 

The 4 plants will employ 80 people. Representative Tim Seip (Schuylkill) asked how the brine that results from the drilling process compares to the salt that PennDot uses on roadways. Gene Brock answered that it would be the same. Representative Greg Vitali (Delaware) noted that deep well injection has also been discussed and asked if STW had an opinion as to whether that is an appropriate disposal method. Mr. Brock said that deep injection wells can be found all over the world and that Texas has a high concentration and it appears to be a safe method in most areas. 

You can find some where the cement casing has failed. He noted one in the state of Louisiana. Representative Vitali again questioned the effectiveness of the method and the response was that if it is truly an isolated area then it is a safe means of disposal. Brock said the downside is that you lose the use of that water.

Representative Bryan Barbin (Cambria) asked what the costs of the plants are and whether STW was looking for state assistance in putting the plants online. Eric Pederson said that the cost of an evaporator system is $41 million. The chrystalizer is $34 million. The third element that produces the rock salt is $8 million. With regard to funding they would like to pursue both private and public funding sources. Representative Barbin then asked if the product produced reduces the cost of the overall project by allowing for the sale of by-products. Eric Pederson said yes, the distillate can be sold to power plants or used by steel facilities. The brine could be used on roadways and the calcium chloride could be used in industrial manufacturing processes.

Representative Houghton (Chester) noted that in addition to the brine it was mentioned that other chemicals will be removed and asked for a description. Gene Brock said that magnesium, strontium and barium would be removed. Representative Hutchinson (Venango) asked if STW has contracts/commitments with gas producers in advance of building these plants. Gene Brock said that they have a few and noted that the next presenter, Little Pines, was a customer. Representative David Kessler (Berks) asked what percentage of water used in a well is found on site. Gene Brock said that on a vertical well about a half million gallons while on a horizontal well uses approximately 3 & ½ million in the Marcellus. 40% of the water flows back in the first 25 days. 

The source of the water is piped or trucked in. He said that for the initial frac all of the water is brought in from remote locations. Representative Kessler asked if the gas replenishes. Gene Brock said wells can be refraced in 7 to 8 years. Next to testify was Hunter Hill from Little Pine Resources. Hill focused on confidentiality issues, frac flowback water and the need for more gas pipelines. To read the testimony, click here

Representative Conklin noted two issues from the testimony. One was the removal of water and the second was the pipelines that are necessary asking how close a site needs to be to the pipelines to be profitable. Hunter Hill answered that in the early stages of the Marcellus Play people are staying within a few miles of the pipeline. He noted that a company recently dropped their lease with on Commonwealth lands because the piping requirements were cost prohibitive.

Representative Jim Wansacz (Lackawanna) quoted that the testimony noted that a partnership was needed on the pipelines and asked what kind of investment the state would have to make to put the proper infrastructure in place. Hunter Hill said the dollar amounts will vary and ideally you would have several companies partnering and the state would sponsor with municipal bonds. He said initially you could start small with several million dollars but to get the amount needed to fully implement would be close to a $billion. 

Mr. Hill also noted that there are two types of lines. The local gathering systems to get gas to homes and the transmission lines that go a long distance. Representative Wansacz asked if he saw companies making investments in water treatment facilities. Mr. Hill said yes but suggested a critical mass of producers is needed to build up demand. Representative Wansacz’s last question was what type of skill set companies are looking for in workers. Mr. Hill said his company has hired local folks mainly on the title abstracting side. Going forward folks with excavation expertise will be needed to build the pad sites and clear the roads.

Representative Mark Cohen (Philadelphia) asked what a reasonable timetable for the Marcellus Shale development will be and his judgment on how that will affect the state’s tax revenues. Mr. Hill answered that the existing tax structure in terms of corporate tax revenue generated will be low minor because of the amount of reinvestment in wells. A severance tax would initially do very little to generate revenue and might actually hurt it because the margins for the majority of the oil and gas operators, shallow wells in particular are so small that a tax would make the wells uneconomical. Revenue generated will depend on how quickly the play develops.

Representative Barbin asked if in order to expedite the development you would need to provide some credit for nonconventional wells and also put the infrastructure in place. Hunter Hill said yes and also to eliminate the 5 year confidentiality period on well data and establish monthly reporting. Representative Brendan Boyle (Philadelphia) referenced the mention made of a subsidy and asked what the scale of such a subsidy would be. 

Mr. Hill said that using a system like the one STW will use may require an estimated 50 cents per barrel to make it competitive. Representative Jeff Pyle (Armstrong) asked if anyone has done an estimate of the overall pipeline needs. Mr. Hill said he has not but knows that some companies have but did not know how extensive those projections were.   Representative Houghton asked if it was accurate that a site needed 5 acres of clearing around each pad. Mr. Hill said yes Chairman George asked if industry would take issue with posting a bond for a third party to do repairs to land if necessary. Mr. Hill said in principle no and it is something to look at. The last panel was Tom Murphy from Penn State Cooperative Extension and Ross Piefer from the Penn State Dickinson Agricultural Resource Center. To read Tom Murphy’s testimony, click here. To read Ross Piefer’s testimony, click here.

Murphy’s testimony focused on the general issues of the Marcellus Shale while Piefer’s focused on litigation and the Minimum Royalty Act. Chairman George said he was told that if there is no ownership recorded as far as the gas is concerned a driller can go on the property and a landowner can’t claim it but the driller can and it can be drilled whether he has the ownership or not according to DEP. He asked Ross Piefer if that is factual to which the response was that if the grant stated that it was generally a mineral estate under old PA case law that does not include natural gas. 

Then the natural gas would belong to the successors in title. Rep. Barbin noted that previous testifiers said that most other states do not have the confidentiality requirements that exist in PA and asked whether or not confidentiality agreements should be changed. Peifer responded that he was aware anecdotally that PA confidentiality agreements are longer in duration but he wasn’t prepared to give an opinion on what impact that would have. Murphy said they have heard considerable frustration from landowners that they are not aware of all of the implications during lease negotiations. 

He said if some of the information were available that would be helpful to the landowner as they negotiate. Representative Pyle noted that many counties are undertaking GPS plot mapping and asked if Penn State has undertaken a comprehensive analysis of who actually owns leases and if not would they be interested. Murphy told Representative Pyle that they have not followed the acreage issue.

He noted they have discussed that extensively but it demands too much manpower. They have found that educating landowners is more important. Rep. Wansacz asked if the state should require natural gas developers to test water before and after drilling operations have begun and concluded. Murphy said it would be worthwhile and is done in many cases.   He said the cost is minimal and the public perception would be helped along with that type of an approach.

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