Analysts: Pa. Court Gives Ohio More Shale Potential
YOUNGSTOWN, Ohio -- A recent decision by the Pennsylvania Supreme Court that empowers municipalities in that state to regulate oil and gas exploration could lead to more drilling and business opportunities in Ohio, consultants say.
"There are more than 5,000 municipalities in Pennsylvania," says Steve Franckhauser, director of HbK Energy, based in Boardman. "Each municipality is now free to create its own drilling industry rules."
In December, the commonwealth’s highest court ruled unconstitutional the portion of a state law that gives the Pennsylvania Department of Environmental Protection zoning authority over all oil and gas development across the commonwealth.
That leaves open the potential for municipalities to enact bans on drilling, thereby creating an uncertain future for the energy business in the state, Franckhauser says. As such, companies might find it more efficient and productive to move their exploration efforts from Pennsylvania's Marcellus shale to eastern Ohio's Utica shale, he observes.
"Ohio isn't burdened with this type of decision," says Franckhauser, noting the Ohio Department of Natural Resources, not municipalities, oversees zoning and regulates all matters pertaining to oil and gas exploration. "Ohio offers a safe haven for producers,” he said, “and abundant fields."
While a similar, but not identical, case is before the Ohio Supreme Court, Franckhauser believes the Ohio court will keep intact ODNR's authority to regulate the industry. "The conventional wisdom is that because Pennsylvania's constitution has an environmental clause in it, and the Ohio constitution does not, then you can't apply the Pennsylvania reasoning to Ohio," he explained.
Franckhauser made his remarks Wednesday during a seminar hosted by HbK Energy at the Youngstown County Club, where he and Andy Birol, an independent business consultant based in Pittsburgh, presented ideas before business owners and professionals on how their companies can benefit from shale exploration.
The seminar attracted about 40 who represent law firms, manufacturers, financial institutions and providers of services.
Birol, president of Birol Growth Consulting LLC and the author of five books on building and expanding businesses, says companies in this region can prosper by first identifying their strengths and how their business fits into the umbrella of the oil and gas industry.
One analogy he used is the California Gold Rush of 1849.
"People that made the most money during the Gold Rush were first the people who sold picks and shovels," Birol says. Other entrepreneurs followed, most notably Levis Strauss, who made a fortune selling denim jeans to miners, and in the process laid the foundation for the Levis Strauss Co.
"He's a great role model," Birol continues. "It's important to understand what is your best and highest use as a company that's looking to enter the shale gas space."
Companies doing business with the transportation industry, for example, stand to improve their bottom lines, especially if they're related to river transportation or the railroad industry. However, there are those that may fit into a segment of the oil and gas supply chain and not even realize it, Birol adds.
"Any company that has ever sold into one of the four major sectors -- transportation, business services, construction or anything involving logistics, hase great opportunities," he related.
Large-scale projects such as new transloading operations at the Wellsville Intermodal Facility in Wellsville, a potentially game-changing Royal Dutch Shell cracker plant in Monaca, Pa., and a host of processing centers under construction in Ohio bode well for business opportunities, Birol says.
Doing business directly with the large energy companies usually requires an extensive master service agreement, or MSA, and is highly competitive. Still, there are ways in which smaller companies can get into the game.
"It's a wonderful opportunity for any business as long as they understand they don't have to go after the big energy companies," Birol says. Instead, it's more logical for many to identify what they can sell to suppliers to the energy industry, or to those that essentially supply these suppliers.
Birol cites one of his clients, Jamestown Coatings in Jamestown, Pa. Traditionally, the company manufactured paint and coatings for dumpsters and lockers. "Guess what it's painting now? Pieces of the energy business," he reports.
The amount of money being pumped into eastern Ohio because of shale exploration -- billions of dollars to date -- is sufficient to create a larger multiplier effect that affects a variety of businesses, Birol notes. A company must first identify where it fits within the spectrum of shale-related businesses and focus on that target market, he emphasizes.
With more oil and gas development likely in Ohio this year, companies with a host of services and disciplines are in a very good position to prosper along with new construction of well pads, pipelines, trans-loading facilities, processing plants and compressor stations, he says.
Then, companies have to decide how and when to enter the market, and timing can be critical, Birol notes. Since the Utica is still in its infancy, there are likely emerging opportunities for local businesses.
"Big companies are turning to small, indigenous companies and asking for help," he says. "They need local capacity. Where there's pipe, that's where the opportunity starts. They need local vendors."
One company in Pennsylvania, for example, received a large amount of business fixing defective pipe because the producer found it could save money through sourcing a local shop rather than sending the pipe to Houston for repairs, Birol says.
Other companies traditionally not aren’t associated with the energy industry are trying to transition their business to serve the oil and gas business.
Robert Sokolove, president and CEO of Mertitract, a Delaware company with its main office in Pittsburgh, says his environmental reclamation business is doing very well with the oil and gas industry.
His company creates what are called wetland and stream restoration "banks." Essentially, the company identifies a wetland or stream, assumes the environmental credits, and then sells these credits to industrial projects. "We intend to bring our banking projects to serve the oil and gas industry in this region," he says. "We've been very successful in projects all across the country."
Bo Springer, outside sales for Power Tool and Supply, says his company is already doing business with the energy industry through a third-party contractor, but would like to enhance its business with the major oil and gas companies.
"We supply everything that the oilfields use. It's a matter of getting in touch with the right person," he says.
Even getting to this point wasn't easy, Springer notes. "It's very difficult. It was through one of our contractors that got me in."
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