Potter County Natural Gas Resource Center participated in a recent seminar where some eye-opening statistics on the enormity of shale gas production in Pennsylvania were presented. Even more signifi-cant was the conclusion by energy industry experts that the flow of natural gas from shale formations found throughout much of Penn-sylvania, two miles or deeper underground, is only in its early stages. Matt Henderson from Penn State Extension said he has been study-ing the numbers spanning the first four years of shale gas produc-tion. In that short time span, Pennsylvania has evolved from a net importer of gas -- ranked 14th among all states in production -- to a gas exporter, producing four times as much gas as it consumes. That gap will only con-tinue to grow, he pointed out.

How does Potter County fit into the bigger picture? Analysts are not sure – geology is an evolving science – but initial findings suggest the county is somewhere in the middle of the pack. Drilling companies have found some prolific pockets of gas in northeastern and south-western Pennsylvania. The approximately 40 shale gas wells now in production around Potter County do not match those “sweet spots,” according to industry sources, but the flow is still significant and ad-ditional drilling is imminent.

Who’s Drilling in

Potter County?

See page 8.

P o t t e r C o u n t y , P a .

A p r i l - J u n e

2 0 1 4

Shale Gas Roundup

A q u a r t e r l y p u b l i c a t i o n o f t h e N a t u r a l G a s R e s o u r c e C e n t e r

New Company

Eyes Utica Shale

3

Students Forum

on Gas Issues

4

Boosting Local

Gas Consumption

5

Drilling Sand

Station Returns

to Emporium

5

Impact Fee

Revenue Coming

in June

6

Local Share of

State Forest Gas

Leases ?

7

I n s i d e t h i s i s s u e :

COVER STORY:

( s t o r y c o n t i n u e s o n p a g e 2 )

P o t t e r C o u n t y , P a . P a g e 2

The revolution is a result of rich gas deposits trapped in shale formations and accessed through horizontal drilling and hydrofracturing. Henderson said that, en-tering 2014, there were 4,917 producing shale gas wells in Pennsylvania, with another 1,225 wells drilled and ready to produce when pipelines and other infra-structure are in place. Property owners have earned billions of dollars in royalties. Top earners are: $564 million in Bradford County, followed in order by Sus-quehanna ($488M), Washington ($234M), Greene ($232M), Lycoming ($231M) and Tioga ($214M). Some

of the wells drilled into Marcellus Shale formations roughly 7,000 feet deep in Susquehanna County are gushers, Henderson pointed out. Chesapeake remains the most active gas com-pany in Pennsylvania, but second-ranked Cabot — which is concentrated largely in Susque-hanna County — owns 14 of the top 15 producing individual wells in the state. Rounding out the top six are Range, EQT, Anadarko and Talisman.

And it’s not just the Marcellus Shale that holds gas, Henderson noted. At least four other shale formations at varying depths are already confirmed as productive. One layer, the Utica Shale, is being tapped in Beaver, Butler and Lawrence counties. Royal Dutch Shell recently drilled a Utica Shale well in Tioga County that has fueled industry hopes of a significant gas yield in fu-ture years (see related story on page 3).

Henderson’s full presentation is archived on the Penn State Extension natural gas website, extension.psu.edu/natural-resources/natural-gas/webinars. Upcoming Penn State Marcellus Education Team webinars, which will also be archived, include the following:

April 17: “Pennsylvania Royalty Calculations and De-cline Curves,” featuring Jim Ladlee, associate director of the Penn State Marcellus Center and director of special initiatives for the Penn State Shale Training and Education Center.

May 15: “World Oil and Gas Resources, Consumption, and New Trends,” presented by Aloulou Fawzi, industry economist and project manager of the exploration and production team with the Energy Information Administration at the U.S. Department of Energy.

Previous webinars, publications and other information also are available on the Penn State site. They cover topics such as oil and gas best practices; Act 13 (Pennsylvania’s oil and gas law); seismic testing; water use/quality; gas-leasing considerations; gas pipelines and right-of-

way issues; impact of shale gas development on forestland; gas pipeline trends and others. ■

COVER STORY CONTINUED...

S h a l e G a s R o u n d u p P a g e 3

Another energy company has announced ambitious plans for shale gas development in Potter County -- but with a new twist. JKLM Energy LLC has purchased subsurface rights in Sweden and Hector townships to drill some exploratory wells that will be watched with great interest. They are just the start of a more am-bitious plan by JKLM, a new player in the industry with ties to Terry Pegula, former owner of East Resources and current owner of the Buffalo Sabres professional hockey team.

Several big energy firms have poked holes in Potter County to develop shale gas resources in Marcellus Shale formations roughly two miles down. JKLM has its eyes another gas field in the Utica Shale. Generally located a few thousand feet below the Marcellus, Utica Shale has already proven its ability to support commercial gas production. Until recently, geologists had consid-ered northwestern Pennsylvania to be the most promising region for Utica development.

However, a “sweet spot” that was recently tapped in Utica Shale underneath Tioga County is changing their thinking. And at least three other shale formations found in Pennsyl-vania are also believed to contain enough natural gas to spur future drilling.

JKLM’s recent entry into the dawning shale gas industrialization of Pennsylvania is just the latest in a series of big-dollar transactions as energy companies from around the world buy, sell and trade to position themselves for an intense period of development that experts insist is imminent. (Source: Endeavor News) ■

New Company Eyes Utica Shale Bounty

Natural gas is believed to be stored in undetermined volumes

within the Utica range shown in orange, while “wetter” gas

and oil deposits are found in the green area.

Appellate Court Backs ‘Local Control’ Of Drilling

Local governments still have the power to control natural gas drilling within their borders, under a Pennsylvania Supreme Court decision. Advocates for local control successfully argued that a provision of Pa. Act 13, passed in 2011, was unconstitutional because it stripped them of their rights to control energy development through zoning. The decision has little impact in Potter County because no local townships

have adopted zoning ordinances. ■

Page 4 Potter County, Pa.

Unraveling Mystery Of Local Water Sources

Thousands of people across the region rely on public water systems, but the source of some of these water supplies has always been somewhat of a mystery. With increased gas drill-ing being forecasted and the land-disturbance activities con-tinuing, Triple Divide Watershed Coalition, which represents all of the public water providers in the county, has signed on for a comprehensive sourcewater “geo-mapping” partnership with Tioga County.

Scott Zubek, head of the Tioga County GIS Department, explained that the digital subsurface mapping project will include an unprecedented level of detail about water sources and infra-structure, including groundwater deposits and movement. The survey will require a large amount of field work. The two county coalitions will be seeking funding to cover equipment

and data collection costs. ■

Students Quiz Panel During Forum On Gas Issues

About 20 environmental science students at Oswayo Valley High School participated in a panel discussion about gas production and related issues, interacting with a panel of four people who are well-versed on different aspects of the topic. Faculty member Bruce Kemp organized the discussion, which touched on environmental issues, economic/employment forecasts, regulatory standards, media responsibilities and many other topics. The students were well-prepared for the forum and posed some challenging questions. They were fielded by Mark

Stephens, a geologist and water protec-tion specialist with the Pa. Dept. of Envi-ronmental Resources; Paul Heimel, Potter County Commissioner and member of the County Commissioners Assn. of Pa. Natural Gas Task Force; Jim Maxson and Brice Ben-son, independent gas and oil producers; and Monica Thomas, local news reporter and columnist. Maxson and Benson dis-cussed some of the career opportunites that could be available to students who want to remain in the area after gradua-tion. All of the speakers agreed that natu-ral gas production is likely to increase sig-nificantly in the coming years. The conver-sation also focused on the importance of protecting water quality and the interac-tion between regulators and energy com-

panies. ■

Participating in a natural gas forum at Oswayo Valley High School

were, from left: front – gas industry representatives Jim Maxson

and Brice Benson, reporter Monica Thomas; back – biology

teacher and moderator Bruce Kemp, Commissioner Paul Heimel

and DEP’s Mark Stephens. (Coby Krajewski photo)

Shale Gas Roundup Page 5

Regional Partnership Boosting Local Gas Consumption

A regional effort to boost the use of natural gas in Central Pennsylvania is moving ahead. Goal of the project is to create a partnership of agencies in Clinton, Centre and Mifflin counties to promote use of lo-cally produced shale gas in residences, industries and motor vehicles. A federal grant covers half of the $160,000 cost of the “gasification” plan. Other funds are coming from a re-gional economic development agency, SEDA-COG, as well as the three counties, the Mifflin County Industrial Develop-ment Corporation, and Standard Steel of Mifflin County. A major focus will be extension of gas service lines to unserved areas, particularly areas where both business and residential

consumers would benefit. ■

Drilling Sand Station Returns To Emporium

Activity is picking up at a large sand-transfer station that recently returned to the railroad yard on Emporium’s east end. Western New York & Pennsylvania Railroad has partnered with Schlumberger, a worldwide energy ser-vices company, to operate the supply center for a special type of silica sand brought by rail largely from the Midwest. Schlumberger offi-cials said increased shale gas drilling in the region will result in considerable demand for the sand. It will arrive by the trainload and be transferred directly into delivery trucks. The sand is mixed with millions of gallons of water along with chemicals and blasted into shale formations. As the rock is fractured, the sand

fills the cracks but still allows for the natural gas to flow. ■

Silica Poses Health Hazard

Large quantities of silica sand are used during hydraulic fracturing. The U.S. Occupational Safety and Health Administration recently issued warnings about the health risks that are posed by breathing the special sand, including silicosis, which compromises the lungs’ ability to take in oxygen. Silica can also cause lung cancer and has been linked to tuberculosis, chronic obstructive pulmonary disease, and kidney and autoimmune disease, according to OSHA. “Transporting, moving, and refilling silica sand into and through sand movers, along transfer belts, and into blender hoppers can release dusts containing silica into the air,” the agency cautioned. OSHA called for handlers of the sand to take special measures to protect the health of workers as well as

residents living in close proximity to sand transfer stations. ■

Miss an edi t ion?

Al l copies of Shale Gas

Roundup are archived at

pot tercountypa.net !

P o t t e r C o u n t y , P a . P a g e 6

Local townships, boroughs and county governments will be receiving a third round of annual payments no later than June 30 from the state’s “impact fee” on shale gas drilling. Amount of each check from the Pa. Public Utility Commission (PUC) is based on gas wells from 2013. An-nual allotments will continue in future years based on the previous year’s activity. Amount of this year’s payments will be announced in the coming weeks. All signs point to the totals being somewhat similar to the 2013 payments (see below), but the PUC has not yet released the amount of local allotments.

Pa. Act 13 charges drillers for each well. The fee can range from $40,000 to $60,000, depend-ing on the price of natural gas. In 2013, companies paid $50,000 for new horizontal wells, up from $45,000 the previous year because the price of gas increased. Smaller, vertical wells paid $10,000. Drillers continue to pay for 15 years, although the fee declines over time. A large por-tion of the Pa. Act 13 impact fees collected by the PUC are retained by the state for specified funds and projects.

Counties and municipalities can only expend the impact fee revenue for certain environ-mental, public safety, infrastructure, emergency response and other authorized uses.

County commissioners also receive annual restricted-use allocations from the impact fee for certain environmental and recreation projects and for bridge repairs. The Potter County Com-missioners are working with a committee representing townships and boroughs across the county in distributing the bridge funding based on urgency and other criteria contained on a

scoresheet. ■

Next Round of Impact Fee Revenue Coming In June

Here’s a breakdown of the payments to Potter County’s

local governments in 2013 (for 2012 shale gas wells):

(The county government received $382,315.)

Abbott $8,675 Oswayo Twp $17,313

Allegany $5,633 Pike $38,387

Austin $84,891 Pleasant Valley $6,220

Bingham $2,301 Portage $13,847

Clara $14,332 Roulette $45,134

Coudersport $16,026 Sharon $38,470

Eulalia $5,383 Shinglehouse $12,539

Galeton $2,877 Stewardson $11,567

Genesee $4,681 Summit $11,668

Harrison $32,462 Sweden $22,175

Hebron $15,479 Sylvania $21,052

Hector $6,571 Ulysses Boro $38,018

Homer $11,616 Ulysses Twp $8,204

Keating $124,428 West Branch $28,962

Oswayo Boro $30,761 Wharton $2,000

S h a l e G a s R o u n d u p

Seeking Local Share Of State Forest Gas Leases

Page 7

County commissioners from across Pennsylvania are urging support of Pa. House Bill 44, which would require that 20 percent of the revenue the state receives from natural gas leas-ing royalties be shared with school districts, counties and local governments. The bill is now before the House Committee on Environmental Resources and Energy.

Shale gas leases on state forest land in 2010 brought the state $128 million in bonus payments for rights to nearly 32,000 acres. The state is also receiving 18 percent of production revenue. In Potter County, Seneca Resources was high bidder -- at $23.3 million -- on 7,440 acres be-tween Denton Hill and Fox Hill, north and west of Ski Denton and the Pennsylvania Lumber Museum. Lease on a separate forest land tract of 3,640 acres in Eulalia and Roulette town-ships, north of Mina and west of Dingman Run Road, went to Penn Virginia Corp. of Radnor for $13.9 million.

More leasing is coming. Gov. Tom Corbett recently issued an executive order to allow hori-zontal drilling from existing well pads into pockets of gas located under state forest land. An estimated $75 million in bonus payments will go into the state’s general fund, while royal-ties will be paid at a rate of 18 percent. Those sites have not yet been released.

State Game Lands, managed by the Game Commission, are also being eyed for additional shale gas production to provide operating revenue for that agency. At a recent meeting, the Game Commission leased 455 acres of State Game Lands 164 in Butler County for gas and oil production by XTO Energy Inc., of Fort Worth, Texas. XTO already owns mineral rights in the area and will access the new acreage through horizontal drilling. The Game Commission nego-tiated a $912,000 bonus payment, plus a 20-percent royalty for all oil, gas and other liquids and condensates produced and sold from the tract. Additionally, the agency leased an additional 822 acres beneath State Game Lands 35 to Southwestern Energy Production Co. for a bonus payment of $2.48 million and a 20-percent royalty.

The Game Commission owns about 19,000 acres in Potter County, mostly in Pike, Hebron and Pleasant Valley townships, but mineral rights on much of that property are privately owned and gas production could take place without the agency’s consent. There are also instances of “split estates” with much of the state forest and park land in the region. Mineral rights own-ers could drill for gas at any time. ■

One of several shale gas wells on state forest land in Tioga County.

P o t t e r C o u n t y , P a . P a g e 8

Public water system operators and other concerned citizens across much of Pennsylvania are anxiously awaiting new state regulations affecting gas and oil drilling. A lobbying effort that was launched by the Potter County Board of Commissioners and the local Triple Divide Watershed Coalition called on the Pa. Dept. of Environmental Protection (DEP) to require that public water suppliers be notified when a permit is issued for drilling in close proximity to their sources.

A lobby for that seemingly simple request has grown to include many supporters, including other county commissioners, water system operators and public officials across much of Pennsylvania. Now that the public comment period has ended, the wait is on. Supporters say their request is reasonable: better communication between DEP, drillers and municipal water authorities, and to have regulators note any applicable recharge areas during the permitting process. Although Act 13, the state's omnibus Marcellus Shale law, increased the required no-tification for drillers near a source water protection zone from 1,000 to 3,000 feet, the group points out that "the complicated geology of Pennsylvania requires that a standard be based on each water supply source's individual characteristics, rather than a blanket generalized dis-tance."

Other proposed changes to Act 13 include a more aggressive approach to orphaned and aban-

doned wells, and improved containment practices for protection of water resources. ■

Potter County Gas Wells Drilled And Capped

Advocates Await Word On Sourcewater Protection

This publication is produced by the Natural Gas Resource Center in

Coudersport, Pennsylvania. Previous editions are available in the web-

site, pottercountypa.net. Anyone with story ideas or comments should

contact Paul Heimel (pheimel@pottercountypa.net).

___________________________________________________________________

Potter County had 94 unconventional gas wells entering 2014, according to a DEP report. However, many of the wells that were drilled into shale to produce gas have been capped. They’ll be opened back up when gas prices go up and when pipelines and other infrastructure are in place. Pennsylvania General Energy Co. and Ultra Resources are the two biggest op-erators in the county, owning 31 and 30 wells, respectively. Other operators active in the county include Triana Energy LLC

(12 wells), SWEPI LP (6), Penn Virginia Oil & Gas Corp. (5), Chesapeake Appalachia LLC (4), Se-

neca Resources Corp. (3) and J.J. Bucher Producing Corp. (3). ■