Sunday, April 24, 2016

In Pa's fracklands, local economies feel pinch of a gas bust

In today's Philadelphia Inquirer, business writer Andrew Maykuth reports on how the plunge in natural gas prices has affected drillers
and businesses in Jones Township, Pa.

Gus Trejo, a career oil-and-gas driller from South Texas, moved his family to Pennsylvania in 2010, betting that the emerging Marcellus Shale gas industry would provide long-term security.

"Retirement is what I was thinking," he said.

Trejo supervised three drill rigs in this remote corner of Elk County for Seneca Resources Corp. until the industry crashed last year. He now manages one site, Seneca's sole remaining rig in the entire state. He's glad just to still be employed.

"Now, I'm sitting on the edge of my seat," said Trejo, 50, whose two brothers also resettled near his Tioga County livestock farm, though one has since returned to Texas. "I hope things get better and we stick around a lot longer. I like this part of the country."

Natural gas boom and bust in Pa chart

Five years ago, the Marcellus Shale bonanza attracted 115 drilling rigs to the state, each requiring a battalion of suppliers, trucks, earth movers, equipment manufacturers, and support services.

This month, the rig count fell to 16, a number not experienced since 2007, before hydraulic fracturing entered the public debate and when Marcellus was just a gangster in Pulp Fiction.

Last year's energy-price plunge undercut the business across the nation. Gas producers that borrowed heavily to acquire acreage and to drill struggled to cover their debt. They cut operations and sold assets to stay solvent. Some went bankrupt. Those financially strong enough to survive are hunkered down.

"We're going through a historic downturn," said David J. Spigelmyer, president of the Marcellus Shale Coalition, an industry trade group.

"We lost maybe $10 billion in capital spending in 2015, and are heading the same way in 2016 with the rig count.

"Despite the slowdown in drilling, Pennsylvania is not likely to relinquish its new status as a natural gas giant. In 2008, it produced 198 million cubic feet of gas, about a quarter of the state's needs. Last year, Pennsylvania produced 4.6 trillion cubic feet, a fifth of the nation's gas demand.

The volume of gas production remains stable because of the large inventory of wells awaiting pipeline connections. As soon as the price rises, a producer brings a waiting gas well online. Producers expect the drilling slowdown to last at least 18 months.

Still, the downturn has depressed local economies. The traffic that energized and disrupted rural life has subsided. Sales of clothing, food, and vehicles are down. Skilled welders have taken jobs at Walmart. Unemployed workers stay home and don't spend.

"Just the sheer volume of people in restaurants, hotels, even at some charity events, they're definitely not there anymore," said Stan Foster, chief operating officer of Superior Energy Resources L.L.C., a Brockway, Pa., gas field-services company.

Three years ago, competition for skilled help was so fierce that Superior struggled to fill job vacancies. "During the peak we had up over 130 employees," Foster said. "Now, we're at 20. Of course, sales are also right in line parallel with that curve."

At midday recently, it was practically empty at the Mountain Inn in Clermont, McKean County, a bar and restaurant where once it was not uncommon for rig crews to order takeout of 30 hamburgers at a time. A game warden had come by that morning to install a trap for the most demanding patron, a black bear that raided the inn's dumpster. It left a lot of debris and, like a growing number of customers, no tip.

"Usually, we'd have a full bar now," said Brenda Walker, the inn's owner. She has cut hours and reduced her staff from nine full-time employees to four part-timers.

"The past year has been horrible," Walker said. "The best thing that can be said is we had a few good years."

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