Marcellus Development Restricted by Water Resources?

Includes: COG, RRC
by: J.J. Rendina

Bob Away My Blues

I'm goin' down to the river...I got my cane pole in my hand
Got me some red a Maxwell House coffee can
I'm gonna sit under a shade tree...on the riverbank where it's cool
I'm gonna close my eyes and dream and let the cork bob away my blues

Toy Caldwell, Doug Gray and The Marshall Tucker Band created such a beautiful, peaceful scene with that tune but from there does it go...

Hey! What the hell happened to my river?

On June 6, in the wake of the May 30th DEP orders to Range Resources (NYSE:RRC) and Chief Oil & Gas to suspend a portion of their operations at separate sites in Lycoming County for violating Pennsylvania's Clean Streams Law, the Susquehanna River Basin Commission notified 23 natural gas operators currently using or planning to use the river's water to develop Marcellus wells that they now must have approval from the commission and follow water consumption guidelines. And, last Friday, the Pennsylvania Department of Environmental Protection held a Marcellus Shale Summit for Gas Operators in Harrisburg. This first of its kind meeting in Pennsylvania was certainly a novel and excellent idea but having to have that meeting at this stage of the game is really quite extraordinary.

Here we are with the majors having spent over $5 billion so far this year to gain a foothold in the play and they needed to go to a meeting with the DEP to get informed about water use! Is it really possible that the largest natural gas E&P companies in the US, after making billion dollar commitments didn't know that they had to get permits to pump frac water from the streams? Does this change the dynamics of the Marcellus' development? I think the answers are yes and yes.

From now on when you hear the word infrastructure you need to be thinking WATER. As evidenced by 5 year paid-up lease bonuses approaching $3,000 per acre and 20% royalties, the greatest drilling interest so far has been in the southern tier of New York and the northeastern part of Pennsylvania. This region, graced by the thickest deposits, shallowest depths and proximity to the northeast's large pipelines and gas markets, is by some accounts, also graced with something more precious; the northeast's finest, most pristine, wild trout streams. Now, we'll let you build a pipeline or two but if you foul up one of those trout streams, you're in a heap of trouble.

No doubt there were some interesting decisions made by many of the companies in the days following the May 30th orders to Range and Chief. Landowners have reported that Range immediately stopped acquiring leases in Luzerne, Lackawanna and Wyoming counties and Cabot Oil & Gas (NYSE:COG) also stopped leasing in Lackawanna. It's not yet clear whether those moves had anything to do with the water situation. Maybe they've just gone fishin'.

Full Story here.
Disclosure: None