The Story of the Marcellus Shale
For days, they had been rumbling up the rutted dirt track that led to the top of the rocky dome above the rolling fields of Washington County; a ’round-the-clock procession of big rigs carting up thousands of gallons of water.
They’d drop their loads, turn around as best they could in the axle-deep mud that had taken over the three-acre work site, and head back down to fetch another.
By Oct. 4, 2005, the last of the tanks was in place. There were more than two dozen of them, a million gallons of water in all, arrayed in two arching lines around the well head. Generators roared as roughnecks channeled the water from the tanks to the massive mixer where the chemicals would be added—lubricants to make it slick, biocides to keep any bugs from the surface from souring the gas below, and proppants, tiny little balls of synthetic sand.
The once-quiet pasture looked like a cross between a moon launch and a Fourth of July picnic, right down to the roughneck flipping T-bones on a gas grill. The barbecue made sense—once things got started, there was no stopping, not even for meals.
None of the 100 or so roughnecks had ever seen anything like this. Sure, they had all done hydrofracking—frac jobs, they’re called, a process by which hundreds of thousands, sometimes up to a million, gallons of water mixed with biocides and lubricants and other chemicals are forced at astounding pressure thousands of feet into the ground. The idea is to fracture the shale beneath the ground, creating channels through which natural gas can flow. Most of them had been in the business for years, and all but a handful of them had worked on small-scale frac jobs, the kind that had become typical in the Appalachian Basin. In fact, tens of thousands of small frac jobs had been done in the basin in the 40 years since Halliburton Inc. had first developed the technology in upstate New York.
But this was entirely different.
This was the largest frac job ever attempted east of the Mississippi River. The riggers had already hooked up the hose to the 10-foot-high fire plug that served as the well head, and the giant pump came alive, a 50-foot-long, gunship gray behemoth mounted around a 2,100 horsepower Cummins diesel engine. It had an Alison transmission with enough torque to pump slick water more than a mile straight down at sustained rates of thousands of gallons per minute and at a sustained pressure of 9,500 pounds per square inch.
Some 70 miles away, at Range Resource’s offices in Ohio, geologist Bill Zagorski was pacing in his office, fiddling with his mustache, and leaving a trail of half-full coffee cups behind him. There was no one who had more at stake in the high-stakes gamble that was playing out at the old Renz farm in Washington County. He was the guy who had convinced his bosses that the company should spend millions of dollars, re-drilling an already failed well, in a bid to tap into the Marcellus Shale.
It had been a long road to that moment, and Zagorski had no idea whether it would be a dead end.
Range Resources, the energy company Zagorski worked for, needed this to work. Collapsing energy prices in the late 1990s, along with what executives would later describe as a couple of bone-headed business decisions, had sent the company’s stock spiraling downward. It had collapsed from a high of nearly $27 a share to the point where in 1997 you could buy a share of Range Resources for $1.29. As John Pinkerton, Range’s plain-spoken president, put it, “you could have bought the whole company for your loose change.”
Out in Range’s home state of Texas, the Barnett Shale Play was just starting to heat up and it was changing the way people—drillers included—thought about natural gas. In no small part, the collapse of natural gas prices at the end of the 1990s had been a bet by the market that the halcyon days of gas—such as they were—were over. From that point on, the market analysts figured, gas would be on a long, slow curve to commercial irrelevance. But a chance discovery at an all-but-played-out well called the Simms No. 1 had changed all that. When Mark Whitley and Dan Stewart pumped a few hundred thousand gallons of slick water into it with the reluctant approval of their boss and the even more reluctant approval of his board, they proved once and for all that these tight shales—these “unconventional” plays as they were called—not only held vast riches, but could be cajoled into giving them up.
It is impossible to overestimate the magnitude of that discovery to the industry or to the debate about where it fits in America’s energy future. Its impact was sharp, measurable and immediate. Some analysts, who just a few months earlier had been predicting the demise of the domestic natural gas industry, were now saying that the Barnett represented a tectonic realignment of America’s energy fortunes.
There was a brave new world of unconventional gas just begging to be explored and in no time, a wild land rush was rippling like an earthquake all the way across the Barnett. Competition for acreage was getting stiff, and that was turning into a real challenge for the guys at Range. The company had a strong position in the Barnett, but not as formidable as some of the other major players. The call went out from Range’s corporate headquarters. “Find the next Barnett.”
In the fall of 2000, then in his early fifties, Zagorski, a native of western Pennsylvania, had spent most of his career working in the Appalachian Basin. He knew as well as anyone the story of its successes. And he knew about its failures, many of them the failures of creeping middle age, at least in the geological sense. They were too numerous to mention. So numerous in fact, that by 2000, the underground potential of the Appalachian Basin had been written off by the industry and the nation in the same way that all the wheezing coal towns and dying steel towns above ground had.
As Zagorski would later put it, “the Appalachian Basin (was)… perceived as a ‘has been,’” the kind of place that had its heyday, had some great fields and great production, but now was basically played out.
All the same, Zagorski decided to take a stab at it.
Because Zagorski hails from an older generation, a generation that came of age in the days before every piece of data in the world was digitalized, he had an affinity for doing things the old-fashioned way. That included studying the old paper records filed decades ago.
Sitting in his office, poring over those old records, Zagorski stumbled across something interesting. Back in the 1940s, there had been a fair amount of drilling done in the area, particularly around a plot of land that Range had leased, a place belonging to a farmer named Renz. There had been several reports of strong, brief showings of gas; in fact, on several occasions, there had blowouts. One of them, a mishap at the Kelly-Sutherland well, had been powerful enough to blow several hundred pounds worth of rigging 30 feet up the well bore.
“You don’t ignore blowouts,” he said to himself.
He drove out to take a look at the site. To the untrained eye, the place looked like any other farm tucked away in the gently rolling hills of Washington County. But geologists see things a little differently. What Zagorski saw when he looked at the place was not some peaceful Currier and Ives scene. He saw a couple of hundred million years’ worth of violence and upheaval, an ongoing war between forces of nature that had created a potentially gas-rich strata of rock and then had driven it back in forced retreat to the point where it now garrisoned itself, like the guys at the Alamo, inside a last-ditch fortress, a dome of rock that rose above the rest of the land around it. To a geologist, such domed structures are often a sign that gas and oil may be lurking beneath.
Zagorski is no Luddite, and so he ordered up the seismic tests and a host of other studies. Those tests confirmed for him that the rock formation he had targeted was part of larger and potentially rich strata that had, up to that point, gotten comparatively little attention called the Lockport Dolomite. It was more than promising. It was rich, and not only that, it was far closer to the surface than the Trenton Black River formation, the strata that had yielded the most recent successes in the Appalachian Basin, and that meant that it could be far more economical to recover.
By 2003, Range was ready to test Zagorski’s find, and they pulled together that spectacular circus parade that is a drilling operation. After just a few days of drilling, they had their first show of gas, and then more, and more. It was rushing up out of the ground. The over-pressured rock was making so much gas that the riggers were having a hard time keeping up with it.
But almost as quickly as it had appeared, the gas from the Renz well vanished. The company had spent millions and wasted nearly three years and had nothing to show for it.
That wasn’t going to make Range’s shareholders happy. It wasn’t going to make chief operating officer Jeff Ventura, who had OK’d the project, happy, and it didn’t make Bill Zagorski feel all that good about himself either.
No one had said anything to Zagorski—no one had taken him to the woodshed—but he suddenly felt an overpowering urge to get out of town for a while.
It just so happened that a friend of his from Houston, another veteran of the gas industry, had called Zagorski out of the blue looking for some advice about a shale play he was considering exploring in Texas called the Black Water Basin. He invited Zagorski to come out and take a look at the stuff that had been collected as part of the initial exploration.
Zagorski took him up on it. As they sat together going over the data from the Black Water Basin and studying similar reports that by then were starting to trickle out of the Barnett, Zagorski had the nagging feeling that all of it looked terribly familiar.
The composition of the shale, the history of blowouts, the seemingly random pockets of gas that collected in some places and not in others, all of it was identical to the stuff he had seen back in Pennsylvania, identical to the Marcellus Shale. Suddenly, all of it made sense. The old logs hadn’t misled him, he had misunderstood them. The Renz well hadn’t failed him—that was just its way of telling him that he was drilling into the wrong rocks.
In what can either be described as a supreme act of self-confidence or the thoroughly desperate act of a man who in middle age was watching his last chance for redemption float off like the last hissing wisps of gas from the Lockport Dolomite, Bill Zagorski arranged a meeting with Ventura and explained precisely what he wanted to do.
Looking back, even Zagorski is a little surprised at himself.
“Here’s a guy—me—who’s just been responsible for the company putting a couple million dollars into a well and nothing’s coming out and I’m bold enough or dumb enough to say, ‘Hey I’ve got another idea!’”
Even more surprising was Ventura’s reaction.
After silently chewing over Zagorski’s audacious proposal for a few nerve-wracking moments, Ventura leaned forward in his chair and said simply; “Let’s put the big slick water frac on it.”
And so, not long after they had trundled away from the dolomite dome at the Renz farm with their tails between their legs, they returned, ready to try again.
And sure enough, it worked.
The renz No. 1, the first true Marcellus well, reportedly brought forth some 300,000 cubic feet of natural gas that first day. Though those numbers would soon be eclipsed by two orders of magnitude by initial production rates at later wells drilled into the Marcellus, it was as good as or better than the initial production from most wells in the early stages of the Barnett.
Zagorski, given an impossible assignment by his bosses, had done it. He had found them the next Barnett. And then some. And he had found it right here, only a few miles from Downtown Pittsburgh.
What is now known as the Marcellus Play is a 31,000-square-mile shale deposit that stretches from southern New York State to northern Kentucky and west from the Catskills to Ohio. Geographically, it is five times larger than the Barnett field in Texas. Even now, the experts don’t know how rich the Marcellus might be. Recent estimates by Professor Terry Engelder at Penn State indicate that nearly 500 trillion cubic feet of natural gas could be recovered from the Marcellus.
In fact, there is anecdotal evidence that the Marcellus may be so large and so rich that it could change the economics of the gas industry. Just as the inland sea that formed the Marcellus, by dint of its own size, was big enough to create its own weather, the Marcellus may create its own economic conditions. It may be able to defy downturns in the national and world economy; it may be so big and so rich that it can shrug off the effects of falling energy prices in a way that no play before it ever has. As major gas exploration companies shut down drilling rigs elsewhere in the U.S., they are increasing operations in the Marcellus, and in the five years since the power of the Marcellus was unleashed at the Renz well, the discovery has drawn some of the biggest names in the energy industry back to Pennsylvania.
There are a number of reasons why the Marcellus has become among the most attractive opportunities in the world for drillers. Economics is chief among them. Because gas shipped to the east coast of the U.S. fetches a 10 percent premium over gas shipped to other hubs, there is a financial incentive to drill in the Marcellus. But there is also a sense of urgency.
The leasing that had given them access to all that beautiful, domestically produced natural gas had started in the early part of the decade. Under the terms of those leases, the drillers had up to five years, sometimes less, sometimes a bit more, to actually drill on the land; otherwise, the contact expired, and either the driller, or one of his competitors, would have to negotiate a new lease. If, on the other hand, the driller had sunk a well on the land, the original contract remained in effect—held by production, it was called—indefinitely. Many the early leases would expire in the following year or two. The gas companies, however, wanted to hold onto their acreage and be able to claim the reserves that were beneath it in their annual reports and other corporate documents without having to write off the original lease price and start all over. There was only one choice, a choice adequately summed up on a bumper sticker that became fairly popular in Pennsylvania during the summer of 2008: “Drill here, drill now.”
There were political concerns as well. Some were state matters. Unlike most gas-producing states, Pennsylvania has no severance tax—a charge levied on drillers on the well head for gas taken from the ground. And though there had been mounting calls for one, particularly when it became clear that the worldwide recession was going to gut Pennsylvania’s state budget, the Republicans in the legislature had managed to effectively bat that movement down, forcing Gov. Ed Rendell to use some $400 million that the state had received in lease payments for state lands to close its budget gap. That had outraged a lot of people across the state, environmentalists in particular, who argued vociferously that state law required that money to be spent exclusively on state land and environmental matters. So far, the legislature had been able to hold firm, as the drillers repeated their magic incantation against higher taxes—“if you tax us too severely, we’ll just pick up our rigs and go somewhere else.” But that was wearing thin even among some of the leaders of the GOP, who recognized the same thing that the drillers had, that the Marcellus was their best hope for the future, at least for the time being, and there was no place better to drill than Pennsylvania. That made it even more urgent that they get in and get the gas out before the Republican bulwark against higher taxes failed.
The way the drillers saw it, the best defense against the vagaries of fortune and the shifting sands of Washington, D.C. and Harrisburg was the tried and true response to every challenge. “Drill here, drill now.”
And that was precisely what they did.
In the past year alone, the number of drilling rigs headed toward Pennsylvania increased spectacularly. By April 2008, the number of operating rigs in the country had dropped by 44 percent from the year before. In Canada, the number had plunged by 60 percent. But Pennsylvania was different. By last spring, there were 325 wells already drilled in the Marcellus and another 864 permits had been issued.
There is no question that the development of the Marcellus in Pennsylvania will have a profound economic impact on the state. But how widespread that impact is, and whether there might be hidden costs remains a matter of debate.
Terry Ooms, the executive director of the Institute for Economic Development, a consortium of colleges and universities in northeastern Pennsylvania, has predicted that there would be such a dramatic change in the economics and in the size of the population in the areas where the drilling takes place that local and state officials needed to prepare immediately for the new economy or risk being overwhelmed. “You’ve got local governments that have been declining since 1950, losing population, losing revenue, struggling to put out fires on a daily basis,” she said “You suddenly tell them that this region is transforming, that there’s going to be population growth and that they now have to sit and start really putting together long-range plans—not just do the day-to-day seat-of-your-pants stuff—and nobody knows how to act.”
The way she saw it, billions of dollars was headed for the Marcellus and it couldn’t help but lift the region out of poverty. The drillers would need services, they’d need their trucks and equipment repaired, and little by little, local companies would spring up to provide those repairs. Yes, in the earliest days of the play, the drillers would import their labor, bringing in experienced hands from fields in Texas and Wyoming and West Virginia and elsewhere, but that would soon change, she said. Local men and women would be trained to do those jobs. In fact, the University of Pittsburgh had recently set up a training program in the old town of Bradford in the north-central part of the state to train Pennsylvanians in the arts and sciences of drilling, skills that had largely been lost here in the birthplace of the gas and oil industry after a generation of hard times. Other schools were following suit, and it was only a matter of time before “a high school grad can go through a 90-day certification course and get a $52,000 job on a rig,” she said. And in the meantime, those imported workers would need a bed and three squares a day, and that too created opportunities in a host of industries. Her predictions echoed the findings of a study conducted by Texas economist Ray Perryman, who found that state’s Barnett Play had produced significant economic benefits for the entire region.
But there were others who had been urging caution almost from the beginning. Timothy Kelsey, an economist from Penn State, for example, had warned that the Perryman study could not be superimposed on Pennsylvania because there were such dramatic differences between the two places. While the gas and oil industries had been well established in Texas for generations, Pennsylvania’s gas and oil fields had long been in decline. The result was that, at least for the time being, those with gas industry skills would have to be imported. In other words, Texas, home of several of the major drilling companies and many of its workers, was likely to see more benefit in the short term from a Marcellus hiring boom than Pennsylvania would. To their credit, companies such as Range and other players have begun working to develop local talent and expand training opportunities for jobs in the gas industry.
There was another key difference between Pennsylvania and Texas. In Texas, as in most other states where large-scale drilling happens, the industry made a major contribution to the state’s coffers through a severance tax. In Texas, that money could be used to maintain the roads that the drillers tore up and to school the children of all those workers who had been added to the local economy as a result of the Barnett boom. But Pennsylvania, which had been caught off-guard by the meteoric rise in the business of exploring and exploiting its natural gas resources, has no such tax.
To some critics, such as Barbara Arrindel of the Damascus Citizens for Sustainability, which has vociferously opposed drilling in the Marcellus, the state’s deals with gas companies to lease its land is a deal with the devil. The state, she argued, was already far too cozy with the drillers, and this was an effort by the drillers to further subvert oversight by the state by making it even more dependent on the driller’s fortunes. But even moderates like Kelsey warned that, in the absence of a state severance tax or some similar mechanism to offset the cost of drilling to the public, the burden would fall on the communities themselves, some of them among the poorest in the state.
“Local jurisdictions with natural gas wells very likely will face higher demands for services and thus higher costs, and yet receive little new revenue to pay for those services,” he wrote. “The result likely will be higher local taxes (paid for by everyone, not just those directly benefiting from lease or royalty revenues), or cuts in other services. Because Pennsylvania law limits municipalities’ and counties’ abilities to use land-use planning tools to influence the location of natural gas drilling activities, local governments will have little ability to prevent or affect drilling in locations which will significantly affect local service costs and taxes.”
There is no question that the race to develop the Marcellus Play in Pennsylvania and beyond is a matter of critical national importance. The gas trapped deep in the ground sits in fields now marked by access roads and buried pipelines and pits to hold a heavily diluted witch’s brew of chemicals used to blast the gas out of the ground. This gas can buy America time to develop other less-noxious energy sources. It’s not an open-ended offer, though. Natural gas is not limitless, and though it may take another 40 years or more to develop it fully, eventually it will all be developed. And eventually it, like the oil that came before it, will run dry.
But in the meantime, it can and must be developed in an environmentally sensitive way, says Rich Weber, president and chief operating officer of Atlas Energy Resources, one of the most active drillers in southwestern Pennsylvania. Weber’s goal is development “in balance with the environment so it leaves a legacy we can all be proud of in 50 years.”
Natural gas, as promising at it may be as a fuel to replace coal in power plants and to stoke our industries, can also help slow the accumulation of greenhouse gases in the atmosphere that are blamed for rising temperatures around the globe. But even its most fervent supporters concede that it can’t stop it, not alone.
Perhaps nothing can. But for there to be even a chance, there has to be a comprehensive energy policy on a national level. And so far, that has not happened.
That means, for now, it’s up to people who are working in the Marcellus—the drillers, the state agencies charged with overseeing that drilling, and most importantly the people who live in the hard-luck former farm communities where the drilling is taking place—to answer the most important question of all: Can we do this in a way that benefits the nation, the state, and the communities themselves, or is this just one more example of the long history of reckless exploitation of a natural resource that will leave in its wake a legacy of ruin?
There are those who are convinced that the commonwealth of Pennsylvania can and will properly guide the development of its newfound natural gas resource, that it will spend the money and allocate the resources necessary to monitor adequately the drilling and enforce its regulations. DEP Secretary John Hanger is certainly one of them.
“I can say today here in Pennsylvania we run an agency that is absolutely committed to appropriately enforcing our environmental laws… and we are also focused on producing the gas,” Hanger said. He says he has been given simple but direct marching orders from Gov. Ed Rendell. “He said, ‘produce the gas and protect the water’ and we have to do both.”
To that end, Hanger says, the state has hired 37 new inspectors to watch over not just the drilling, but the storage and handling of the potentially dangerous frac fluids that it produces. That’s a challenge that the drillers have acknowledged. Several of the major firms, including Range, Atlas and Chesapeake, have been experimenting with recycling frac water in an effort to reduce both the amount of fresh water drawn from the state’s waterways, and to deal with the vexing problem of disposing of frac water, which contains not only the chemicals the drillers added to it, but salts and other materials picked up during its time underground. Range now maintains that all its Marcellus wells use recycled water, and Atlas has also been making “great progress” on its work to reduce the salts in recycled water and to beef up its pumps and other equipment so that when the water is reused, it doesn’t cause lasting damage to the equipment.
As promising as those developments are, and as welcome as the 37 new DEP inspectors might be, they’re hardly enough to monitor adequately the thousands of wells that will likely be drilled as the development of the Marcellus continues to expand, critics say.
There are other issues as well. The development of the gas field already has brought money to the region, and a lot of it—in southwestern Pennsylvania, Range recently announced that one of its new horizontal wells had an initial production rate of more than 25 million cubic feet a day, turning at least five once-poor farmers into millionaires. But the economic benefits to the state at large have not yet been as spectacular as many had hoped. While places such as Washington County have been bearing the brunt of the development, dealing with the traffic and the potential risks of drilling, most of the people who live there have not yet experienced a significant boost from the wealth that it has generated.
That may change as more and more gas flows out of the state and more and more money flows into it, Hanger said. But for now, there remains a great disparity between the promise and the reality.
And there is the vexing question of trust. All but the most ardent opponents of natural gas drilling believe there is, at least in theory, a way to develop the Marcellus to protect the environment and also the economic well-being of the places where it lies.
But this is Pennsylvania. The state’s history is rife with examples of cases where the energy industries of the past have used the land, taken the resources that lay beneath it, and left in their wake a scarred environment. In many cases, those industries, if they weren’t cheered on by the state, were at least largely left alone. The legacy of that neglect is part of the collective memory in Pennsylvania. Hanger acknowledges that and goes one step further. In the wake of last year’s banking disasters, scandals and fraud that the government failed to recognize, Hanger says, people are wondering why they should trust business or the government agencies that are supposed to monitor them.
“I think that’s a fair question given the horrendous fraud and… malfeasance that we’ve seen recently on Wall Street and elsewhere,” he said. “These are times that have made people question generally… and I don’t think that reaction is without… a basis in the real world.” Hanger contends that Pennsylvania has both the will and the resources to make sure that the Marcellus is developed so that it unlocks its potential riches in a way that will benefit not just the state, but the nation.
And the resources that the state has, he says, go far beyond a few dozen new DEP inspectors. “There’s a lot of eyes and ears out there,” he told me. “There are too many people out there who have a… motivation for blowing the whistle.”
In other words, in a nation that has no comprehensive national energy policy and a state that must draw the cash it needs to regulate the gas industry from that very industry, the ultimate responsibility for making sure that the Marcellus Play fulfills its promise falls squarely on the shoulders of the people of Washington County and anywhere else the rigs appear.