Tuesday, December 14, 2010

Marcellus Shale: The Environment Versus Jobs Debate

DECEMBER 14, 2010
Gas Rush Reshapes Town
Tiny Towanda Cashes In on Drilling, But Some Worry About the Changes

By KRIS MAHER, Wall Street Journal


TOWANDA, Pa.—Drill rigs sprouting up on dairy farms are transforming this once-quiet community and dividing residents who welcome the economic boost from those who worry about the effects of development.
On Towanda's Main Street, Select Energy Services LLC hires drivers out of a storefront office to haul the millions of gallons of wastewater generated at the wells. Down the street, though, the owner of the Red Rose Diner says he feels like this borough of 3,000 by the Susquehanna River is "under siege."Energy companies are investing billions of dollars drilling for natural gas in the huge Marcellus Shale, a 400-million-year-old shale deposit stretching beneath parts of Ohio, Pennsylvania, West Virginia and New York. Places like Towanda are especially attractive because they are close to gas users in Boston, New York and Philadelphia, and have high-producing wells.
A similar tension is echoing through the state. In November, Pittsburgh banned drilling over concerns drinking water could be contaminated from pumping water, sand and chemicals thousands of feet underground to fracture rocks and stimulate gas flow in a process known as hydraulic fracturing. Smaller communities have done the same."It's a mixed blessing," said Frank Bertrand, a real-estate appraiser who sold lease rights on 10 acres with a partner to a drilling company for $50,000 in June. He said he expects "collateral damage" to roads from truck traffic and even that some water wells could be contaminated from drilling. "We just have to hope that they use the best practices to do their drilling."
Gas-industry officials attribute much of the anxiety to residents' lack of experience with the natural-gas industry and the sudden influx of out-of-state energy giants, like Chesapeake Energy Corp., of Oklahoma City, and Range Resources Corp., of Fort Worth, Texas.
Environmental fallout from older industries like steel and coal that were less regulated decades ago is "rightfully putting a lot of scrutiny" on drilling, said Kathryn Klaber, president of the Marcellus Shale Coalition, a trade group. But she said stricter federal and state guidelines would ensure that the impact on water and land is minimal. "We want to be first and foremost safe and considerate of the communities we operate in," she said.
Some people believe the Marcellus Shale will transform the entire economy of the state.
This year, 286 Marcellus wells have been drilled in Bradford County, the most in the state. Chesapeake, the most active drilling company in eastern Pennsylvania, has paid out $300 million in lease bonuses and royalties since 2008 in the county, out of a statewide total of $1.1 billion. In Bradford, roughly 13,600 people, more than 20% of the county's population, have leased mineral rights to Chesapeake.At the very least, millions of dollars are being pumped into tiny outposts like Towanda, in the northeast corner of the state. It is the county seat of Bradford County, where the unemployment rate is 6.6%, among the lowest in the state.
Chesapeake has spent more than $94 million this year to pave or repair 300 miles of roads in Bradford and three other counties. That has benefited Leo Drabinski, who co-owns Calvin C. Cole Inc., a hard-rock quarry and construction company in Bradford County. He said demand for rock used for roads and well sites used by gas companies grew 10 times in the past year. He increased his quarry staff to 15 from six, and even started a van service to shuttle rig workers to their jobs. "We were so lucky," Mr. Drabinski said. "We're right in the heart of this natural-gas boom."
Business is also booming for truck dealerships, restaurants and motels. Some farmers have sold lease rights for $5,000 an acre, using the money to pay off debt, invest in new farm equipment or retire
Others aren't thrilled. Many worry drilling will impact drinking water. Since 2008, six wells in Bradford have been contaminated with natural gas as a result of drilling into the Marcellus, according to the state Department of Environmental Protection. The agency has tightened engineering requirements and said companies are providing drinking water to affected residents. "The vast majority of our wells have been without incident," Chesapeake executive Matt Sheppard said. "When we've had incidents we try to address them quickly."
The additional trucks on the road have led to more traffic and accidents. Gary Wilcox, safety director for the county, noted a 23% increase in 911 calls over the past year, mainly for car and truck accidents. Volunteer fire departments are straining to respond to calls, he said.
Then there's the jolt to real-estate values. An apartment in Towanda that would have rented for $425 a month two years ago is now fetching $1,200 to $1,500 a month, according to Henry Dunn II, a local real-estate agent.
Mike Holt, owner of the Red Rose Diner on Main Street, said most small towns in America "would die to have a resource to stimulate their economy." But he and other residents complain that most high-paying jobs are going to out-of-state workers.That is good news for some, but families have become homeless and children placed in foster care because of steeper rents, said Mark Smith, chairman of the county commissioners.
Chesapeake, whose Towanda offices are in a renovated department store, says it is working with local colleges so it can train an all-local work force. In the past year, the company increased its staff in the state to 1,100 from 250 and said more than 400 employees are state residents. It opened a facility last month to house 276 workers and help ease the rental crunch.
"There's no doubt Bradford County is a much busier place,'' said Chesapeake's Mr. Sheppard.
The rapid changes in Towanda are attracting attention from around the state. On a recent day, retirees Bill and Catherine Brubaker of Lancaster, Pa., came to see what they could be in for.
Mrs. Brubaker said they were impressed that drill sites didn't disturb much land. But her husband, sitting in the passenger seat with a pair of binoculars on his lap, remains wary. "We still have major, major questions about the chemicals and the groundwater," he said.
Write to Kris Maher at kris.maher@wsj.com

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