I first heard about the natural gas drilling at Pittsburgh International Airport about a year ago. It sounded good — a win for both PIT that has had to deal with losing a major airline hub and a local energy company that can provide jobs. But now that the drilling has gotten underway (see this month’s Uniquely Pittsburgh), what happens next?
An interesting article I read in the Oil & Gas Journal, “Barnett at DFW provides lessons on shale gas projects at US airports,” sheds some light on the subject.
Ruud Weijermars of Alboran Energy Strategy Consultants wrote the article in August 2013, and he draws some comparisons to what happened with the Dallas-Fort Worth Barnett shale field development project and Chesapeake Energy.
In addition, airports in Denver, Charleston, West Virginia and Oklahoma City all have wells on their property.
Looking at the similarities
According to the article, the Dallas-Fort Worth International Airport earned more than $300 million net profit in just five years. The majority of that was paid upfront — signing bonuses of $92.6 million in 2007 and 2008 — followed by 25 percent royalty on gross revenues from gas sales.
Pittsburgh already received its $50 million bonus and has an agreement for royalties on future gas sales at 18 percent of gross gas sale revenues.
However, Chesapeake only drilled half of its originally planned wells when it “incurred substantial losses on the DFWA shale project” due to a range of technical challenges and a decrease in gas prices.
The Dallas airport, which didn’t assume any of the risk, faired better than the energy company. It used the funds to improve terminal buildings and keep landing fees low to encourage airport traffic.
Comparing apples to oranges
That’s not to say any of this is relevant to the Pittsburgh drilling. The technology is better, safety standards more stringent and it’s an entirely different situation.
According to the article, Chesapeake had to install an extensive amount of horizontal water pipelines, some of which passed underneath runways and other structures. I doubt it’s going to take 100 miles of water pipe in Pittsburgh.
I don’t know if CONSOL Energy’s projections will pan out. Or how much patience it’s going to take to see real returns.
And if I knew what natural gas prices were going to do, I’d be a very popular woman.
Weijermars thinks the signing bonus of $10,000 an acre at the start of the Texas project was unrealistically high. He goes on to say that around $5,000 an acre at Pittsburgh still might be too high.
I don’t know if I’d go that far, but it is always good to look around for lessons learned. I know officials from both CONSOL Energy and the Pittsburgh International Airport already did when they sought advice from DFW in 2013.
