Dollars Flow from Carroll Pipeline
CARROLLTON, Ohio -- The nexus of what is likely the most important economic prospect to hit Ohio in a century lies just across the Columbiana County line.
Chesapeake Energy Corp. and its affiliates, lured by highly profitable liquid natural gas in the Utica shale, have begun construction of a pipeline network intended to connect drilling sites in Carroll and Columbiana counties, part of a system the company believes will, over time, deliver billions of dollars in profits.
As more energy companies divert their resources from drilling for dry gas in Pennsylvania to liquids exploration in eastern Ohio, Chesapeake is aggressively stepping up its activity in Carroll County so it can jump ahead of its competitors early in the race for what's become one of the most prized commodities in the industry.
"They're tearing down their rigs in Pennsylvania and bringing them here," reports Doyle Hawk, a Carroll County commissioner whose family owns 700 acres. A portion of the pipeline runs directly across his land along state Route 9, about eight miles outside Carrollton. "We're told that they're spending about $760 million on pipe in Carroll County alone," he relates.
Hawk says that this transfer pipe -- known as the Kensington line -- will link a nearby well with a compressor station under construction in East Township seven miles away. Meanwhile, other pipelines in the works are intended to connect to the Kensington leg, including one that stretches four miles from a well in Lynchburg, and another seven miles away along U.S. Route 30 in Columbiana County.
"This line could also tie into the Sanor well in [Knox Township in] Columbiana County," about five miles north from the Route 30 site, Hawk relates. The connections would establish the first network of producing wells in the region. "For just these lines," he says, "we're looking at between 20 and 25 miles."
Wells in Carroll County would be linked by 10-inch diameter pipe that feeds into the compressor station. The pipelines connecting the Chesapeake wells are owned and managed by a Chesapeake affiliate, Chesapeake Midstream.
The gas is compressed and carried by a 36-inch line that ties in with the Tennessee Gas Pipeline -- a massive 14,000-mile system that angles northeast from the Mexican border through Texas, Tennessee, Ohio, New York, Massachusetts, New Hampshire and into Canada.
On Jan. 17, work crews along state Route 9 were busy running tests on pipes recently buried on the north side and preparing to bore across the road. There, motorists could see large sections of pipe resting along a steep hillside across vast, empty farmland.
In December, Chesapeake, Spectra Energy and American Electric Power announced a joint venture to create the Ohio Pipeline Energy Network, or OPEN. The project is a 70-mile pipeline in Ohio budgeted at $500 million that will run south and connect with Spectra's Texas Eastern Pipeline System that runs from Texas to New York. The Ohio system, they announced, is expected to begin somewhere in Carroll County.
The county is today the "sweet spot" for oil and gas exploration in the state. Since January 2011, 39 horizontal drilling permits have been issued here to Chesapeake and its venture partner, EnerVest Operating LLC, according to the Ohio Department of Natural Resources. Of these 39 sites, three wells are producing and seven others are drilled.
Moreover, 35% of the 110 horizontal permits approved since January 2010 in the state were for sites in Carroll County, according to ODNR records. Six were permitted during the first three weeks of 2012.
And that's just a drop in the bucket compared to what's in the pipeline, says Hawk, the county commissioner. "Initially, these sites were expected to have up to six wellheads. Now, they're talking about drilling eight to 10 wells" per site.
Thus, production at a single location could increase significantly, and that means even more lucrative royalties for farmers who have leased their land to Chesapeake and other oil and gas companies.
"I know one farmer who received his first royalty check," Hawk says. The farmer owns some 150 acres smack in the middle of one of the producing sites: his first month's check -- in addition to the upfront bonus paid once the lease was signed -- was for $100,000. "He's been struggling all his life," Hawk says, "and something like this happens. He has no idea what to do with all that money."
And, Hawk emphasizes, more monthly checks for similar sums are on their way.
The Carroll County commissioner reports that his land was already leased at $10 an acre with 12% royalties to a smaller gas company, and Chesapeake purchased that lease. However, the agreement expires in 2013 and its language stipulates the contract must be renegotiated. New leasehold agreements in the region are commanding between $5,800 and $6,000 an acre for bonuses, and 20% royalties on producing wells.
"This is just starting to hit. There are so many more rigs coming," Hawk says. "In another two years, if this continues, Carroll, Columbiana and Harrison counties will become the three wealthiest counties in Ohio."
Chesapeake announced last month that it would cut back drilling operations for dry gas and reallocate its resources to liquids-rich plays such as the Utica shale in eastern Ohio. Liquid gas -- especially ethane and oil -- enjoy high profit margins and can be converted into products such as ethylene, which is used to manufacture plastics and other composites. Diverting more resources to the Utica shale means that the energy industry's focus on Carroll County is likely to intensify.
Keith Fuller, director of corporate development for Chesapeake, says that his company is active in "numerous" counties in Ohio, but there is a large concentration of activity in Carroll County.
"Much of our operations are centered in Carroll County due to our leasehold agreements," Fuller says. "We currently have eight rigs operating in Ohio, and half of those are in Carroll County. As we increase activity throughout Ohio in the coming year, other counties will see an uptick in operations and Carroll will continue to see activity."
Absorbing such a transformation is an entirely different challenge, especially for residents of the county and its largest town, Carrollton.
"I've noticed there's a lot more traffic," observes Ken Bennett, who lives near the small hamlet of Augusta. "I think it's going to change this community from a sleepy, laid-back village to a bustling place, at least for the short term."
Carrollton, population 3,000, is a classic picture of small-town rural America. A gazebo sits in a landscaped green in the town center, which is bordered by the county courthouse, shops, offices and restaurants. Just three blocks west of the center is Carrollton's larger business district along state Route 43, replete with strip plazas, fast-food restaurants and auto dealers. A Ben Franklin five-and-dime store, one of only 120 left across the country, sits just off the center of Carrollton.
The city is accustomed to truck traffic -- generally pickups or semi tractor-trailers passing through on state routes 9 and 43. But lately, larger trucks such as oil and gas transfer vehicles, rigs with the names of energy companies painted on the side doors, or trucks from pipe and supply companies, are streaming through with more frequency.
"All of this started a little over a year ago," says Donna Saur, owner of Donna's Deli, a restaurant in the center of town. "It's been gradual, and it's gotten progressively busier."
Saur says that today you're likely to find parked outside of her delicatessen vehicles with license plates from Texas, Arkansas and Louisiana -- owned by workers from oil-producing states who have converged here in search of a mother lode of liquid gas. "A lot of folks with Southern accents are becoming our regulars," she laughs. "Everyone has been very, very nice. Very humble."
And business is better, too. "I'd say we're up about 30% last year compared to the previous year," Saur says.
Connie Trushal, a lifelong resident of Carrollton, reports that Chesapeake and a smaller competitor, Rex Energy of State College, Pa., still seek leases in the region.
Rex Energy recently moved a small office into Carrollton, and Trushal, the advertising manager for the Free Press Standard, reports that hits on the weekly publication's website have soared 40% because of interest in the region's real estate market.
"People in the industry are searching for places to rent, lodge, eat and live," she says. Some are looking at schools and plan to relocate their families here.
"This isn't even the start," she predicts. "I think hundreds of more people are coming in."
While some residents are concerned about the impact this industry could have on the environment, Trushal says, most are embracing the economic opportunities. Companies drilling in the Utica shale use a method known as hydraulic fracturing-- a process that injects sand, water and some hazardous chemicals into the ground at high pressure to fracture the shale and release the gas it holds.
Activists worry that this process will lead to the contamination of aquifers and other water supplies, and has the potential to do more harm than good.
"I live just a half-mile from a well," Trushal says. Thus far, she reports, her water hasn't been affected, but she remains wary. "That's right now," she explains. "In six months, who knows?"
Denny Rouderbush, Carrollton village administrator, reports that companies have also scooped up available parcels of land in town, not for drilling purposes, but for support services. "Storage yards and vacant lots, property that hasn't been used for a number of years, is now occupied," he says.
Most of these yards have been converted to service hubs for trucks owned by companies supplying and supporting the drilling industry, he says.
Clearly, all of this activity stands to affect the bottom line for Carrollton and its environs because of the huge potential for new jobs, Rouderbush says.
He points to Houston-based Select Energy Services, a company that provides support services for the oil and gas industry. Select Energy recently announced it would open a satellite site in Carrollton. On Jan. 21, the company hosted a jobs fair at the county fairgrounds to fill 200 positions; 850 showed up to fill out applications.
"It's such a transition," Rouderbush observes. "We've never seen anything like this, and we'll never see anything like this again. A lot of people haven't had time to absorb everything that's going on."
Select Energy is just one example of how the oil and gas business can spur real job growth in this region, allows Glenn Enslen, county director of economic development. "The industry will be building pipelines, gas compressors, and they're going to need more of that," he says.
And, other industries that feed off a healthy supply of clean energy and gas could consider Carroll County a logical place to set up operations. "We hope to be in the running for those industries that are heavy users of natural gas, such as fertilizer plants or gas-fired electric power plants," Enslen says. "I'd love to take advantage of downstream industries."
With this boom come some disadvantages, Enslen adds. He's especially concerned that this new demand for employees could drain what is already a very shallow pool of skilled workers and lure these tradesmen from their current employers by promising higher wages and better benefits.
"I've heard some of the manufacturers are losing employees to the oil and gas industry," Enslen says. "If you're a welder, the industry might pay twice as much as you're being paid now."
A certified high-pressure pipeline welder, for example, could earn wages of up to $110 an hour. "I'm concerned about local industry being able to maintain its workforce," he says.
Carroll County Commissioner Tom Wheaton says that the greatest opportunity for job creation isn't through the actual drilling process and on the oil derricks sprouting up across the county. "You're not going to find the jobs on the drilling rigs," he says. Instead, many of the local jobs would be created by those companies relocating to the area that are involved in the supply, management, processing and production aspects of the industry.
"We're working on a deal right now that could bring 700 jobs to the region," Wheaton says. "That's huge for a rural Appalachian county."
While the Great Recession exacted its toll on Carroll County, much of the inventory of vacant housing created by the foreclosure crisis is starting to thin, Wheaton reports. Rental properties are in high demand, and rates are higher than ever, he says.
Housing for this influx of oil and gas workers is such a concern that commissioners on Jan. 23 approved an agreement for the county to acquire the 104-room Atwood Lodge from the Muskingum Water Conservatory. "We're banking on the oil and gas industry to fill it up," Wheaton says. "We've become the epicenter for the Utica shale."
Copyright 2012 The Business Journal, Youngstown, Ohio.
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