Midstream Processors Stake Huge Claims in Eastern Ohio
CADIZ, Ohio – First, it was MarkWest Energy Partners LP's meet-and-greet session noon Tuesday at its new regional office here, as this community in Harrison County welcomed with open arms a company that plans to deliver nearly $1 billion worth of investment in sophisticated natural gas-processing operations and hundreds of new jobs.
Then, five hours later, it was Chesapeake Energy Corp.'s turn, as that industry giant announced it would invest, with its project partners, $900 million to build what it described as the largest integrated natural-gas processing operation in eastern Ohio (READ STORY POSTED TUESDAY).
By day's end, it was clear: Midstream operators have arrived in the red-hot Utica shale, signaling a new phase in the development of this region's oil and natural gas industry.
"We plan on building a number of gas plants as the play develops," says Frank Semple, president and CEO of Denver-based MarkWest. "Stay tuned. It's early in the play, but things are happening pretty rapidly."
MarkWest executives joined Gov. John Kasich at the company's new regional office in Cadiz, and together provided more details about a $500 million processing network in Harrison County that will separate natural gas liquids from dry gas as that resource is extracted from drill sites across this region of Ohio.
Chesapeake Energy announced late Tuesday it has entered into a partnership with M3 Midstream LLC and EV Energy Partners LP to invest $900 million over the next five years to develop a midstream services complex in Columbiana County. The cryogenic processing plant is to be located in Hanover Township, and will hold the capacity to process 600 million cubic feet per day. That gas will then be transported to a new fractionation complex to be built in Harrison County.
Companies such as MarkWest are strictly midstream operations, that is, they provide the processing, fractionation and transportation services that transforms raw gas into a commodity that can be marketed and sold.
Chesapeake operates a wholly owned subsidiary, Chesapeake Midstream Development LP, that is joiging with M3 Midstream and EV Energy Partners to develop and operate the Columbiana County processing complex.
MarkWest's new plant will be located on a 207-acre site in the village of Cadiz's industrial park and will receive natural gas via pipelines from wells drilled throughout the Utica shale. From here, the complex will separate the dry gas, such as methane, from wet gasses.
Rich Milleson, Cadiz economic development coordinator, says the company paid about $1 million for the land, and purchased the landmark former Harrison Bank building as its regional offices.
He says that the village will use the money to upgrade infrastructure and its wastewater treatment plant, improvements that are necessary if Cadiz is going to accommodate this new industry. "We're really excited," Milleson says. "We're going to invest that money right back into the infrastructure so we can expand business."
MarkWest's subsidiary, MarkWest Utica EMG LLC, has entered into a joint venture with The Energy & Minerals Group of Houston, to develop its midstream infrastructure in the Utica Shale. The partnership plans to invest another $500 million in pipeline infrastructure, and wants to construct another processor in nearby Monroe County.
Moreover, MarkWest plans to build a massive fractionation plant somewhere in Eastern Ohio, the location of which should be announced soon, its CEO says. This plant would receive and separate wet gas into specific liquid products such as ethane, butane and propane, Semple explains.
"Companies like Chesapeake, Range Resources, Anadarko, Gulfport, Conoco, BP – these are our customers," Semple says. "These are the ones that do the drilling. We take it from there."
MarkWest announced March 6 that it has signed a letter of intent with Gulfport Energy Corp. of Houston to process its gas at the Harrison and Monroe County plants. "It's the first major transaction announced in the Utica that's going to require facilities here in the state of Ohio, and supported by Ohio employees," Semple says. Gulfport has drilled one well in Harrison County and is building two more wellpads there.
Semple says midstream processors such as MarkWest are likely to locate where their drilling customers are busiest. In Ohio, Harrison, Carroll and Columbiana counties are among the most active drilling sites.
The Harrison County MarkWest processing plant will hold the capacity to process 200 million cubic feet of gas a day. The Utica shale, Semple says, could hold as much as 15 trillion cubic feet of gas, five billion barrels of oil, and another five billion barrels of liquid gas across eastern Ohio. "It's really exciting stuff. I can tell you, it's starting to happen here."
Semple compares the emerging Utica play as similar to the development progression of the Marcellus shale in Pennsylvania and West Virginia. The company has a large processing plant in Houston, Pa. "We've invested almost $2 billion over the last four years in the Marcellus."
Energy companies are focusing their efforts on tapping into shale formations where there is the likelihood of healthy reserves of wet gas -- a far more profitable commodity than dry gas.
Initially, Semple estimates that MarkWest will employ roughly 100 to get the operation going -- and 700 workers during construction. But, over the next 12 to 18 months, the CEO says they'll be hundreds of other jobs available – the bulk of them related to construction. "Our plans are to build the facilities here in Ohio and hire Ohioans for our facilities."
Kasich, who is expected to unveil a new regulatory and energy initiative today, applauded Semple and MarkWest as the first midstream processors to announce plans to build in Eastern Ohio.
"When you do this, it has to be done properly," he says. The new energy bill the governor plans to announce today contains incentives for the use of clean coal, renewable resources, workforce training, transmission and smart-grids. "This is high-tech stuff," Kasich says.
The energy bill is also expected to create a shale industry tax structure that would enable a reduction in the state's income tax.
The governor says its imperative to lay the groundwork for the future success of the oil and gas industry, and cautioned there's likely to be issues related to the industry as it develops.
He cited the 12 earthquakes that shook the Mahoning Valley last year, which have since been tied to the operations of one of D&L Energy Corp.'s brine injection wells in Youngstown. "We moved quickly to shut the well down, to prevent drilling in the Precambrian area," Kasich says.
"There's not a trade off between job creation and environmental protection. You can have them both, but it is really important that we put regulations in place that are common sense, that are clear, that are not over the top."
Pipeline and gathering-line safety is a priority when it comes to midstream operators such as MarkWest, Kasich says. It's imperative that the wellheads are constructed properly at various drilling sites across the state. "We don't want to have damage to our groundwater," he adds.
Kasich urged local officials to be patient, since this industry will also bring with it infrastructure challenges, especially for smaller communities such as Cadiz.
"I just want this industry to work," Kasich says. "I want this industry to be successful because it can rescue generations of Ohioans who didn’t have any work."
Copyright 2012 The Business Journal, Youngstown, Ohio.
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