The purchase of a significant portion of land in the Appalachian region has given Southwestern Energy direct access to the Utica and Marcellus shale plays. In West Virginia, that’s good news not just for the industry but also the work force and its communities.
By Samantha Cart
West Virginia has attracted national attention over the last few years for its ideal position among the largest natural gas resources in the country. Oil and gas operators have explored the organic-rich Marcellus shale locations along the Appalachian Basin, and this interest has drawn companies from across the country and the world to the Mountain State in the hopes of drilling wells to evaluate the state’s gas potential. According to the West Virginia Department of Commerce, the state’s natural gas reserves account for approximately 6 percent of the U.S. total, making it an important natural gas supplier nationwide, especially during the winter months. West Virginia’s 6,000-foot-deep Marcellus Shale rock formation is believed to contain more than 50 trillion cubic feet of recoverable natural gas.
Southwestern Energy (SWN) is headquartered in Houston, Texas with operations in Arkansas and West Virginia and is the fourth-largest producer of natural gas in the Lower 48. Targeting Utica, Upper Devonian and Marcellus natural gas and oil properties in Pennsylvania and West Virginia, SWN announced its agreement to purchase a significant portion of land in the Mountain State from Chesapeake Energy in October 2014. These purchases added a significant stake in the Appalachian region, as well as significant potential reserves for the company. SWN paid Chesapeake Energy nearly $5 billion for 413,000 net acres in West Virginia and southwestern Pennsylvania. This purchase was followed by transactions with subsidiaries of Statoil and WPX Energy in February. In the Statoil transaction, SWN acquired approximately 30,000 additional net acres in West Virginia and southwestern Pennsylvania. The acreage acquired through the Chesapeake and Statoil transactions covers 18 counties in northern West Virginia and Washington County, PA.
Derek Cutright
“Southwestern Energy has been looking at the West Virginia and Ohio areas for three to four years,” says Derek Cutright, the general manager of operations of the West Virginia division at SWN. “This part of the country has some of the best quality rock, world-class size and scale of assets and stacked pays. With this particular opportunity, it all just matched up really well. There is so much proven resource and potential production growth with this asset, and we are excited to display our company’s core competency of large-scale development here in West Virginia.”
The company’s desire to move quickly into its new role in the Mountain State was made easier following Governor Earl Ray Tomblin’s signing of new legislation allowing natural gas drilling permits to be transferred between companies this past February. Without this law, the sites would have had to repeat the full permitting process with the West Virginia Department of Environmental Protection (WVDEP). Thanks to leaders in the state Senate and House of Delegates who fast-tracked the law, well site permits can now be transferred with approval from the secretary of the WVDEP. “We were aware of this permitting issue when we acquired the assets, but this new legislation allowed our West Virginia operations to get off to a strong start, and we’ve been able to jump-start our investment in the state,” Cutright says.
Paul Geiger
Paul Geiger, the senior vice president of the West Virginia division, is responsible to the company and stakeholders for delivering value in the form of consistently growing the company’s value. “Our company formula says that with the right people doing the right things and wisely investing the cash flow from the underlying assets, we will create value plus,” says Geiger. “The enormous resources present in this area coupled with our people’s proven industry-leading excellence in asset development are a great fit and will generate significant value for stakeholders. Stakeholders are not only the shareholders of our stock, but also our employees, partners and the communities in and around our areas of operation. Being a respected member of these communities is very important to me. Committing to excellence in safety performance, minimizing our surface footprint and impact, supporting local businesses, local sourcing of our work force and local volunteerism are all keys to that effort.”
While SWN executives like Geiger foresee the purchases in West Virginia as a worthy investment, they also know the transition will present certain challenges. “One of the challenges we face is common to plays throughout the country—a significant decline in oil and gas prices. Around February of last year, the NYMEX price for natural gas was approaching $5 per Mcf, or 1,000 cubic feet of natural gas, and oil was trading for around $100 a barrel,” Geiger says. “Now natural gas is below $3 per Mcf, and crude oil has fallen below $60 a barrel. This has led to talk of significantly reduced budgets and how low service costs might go to provide some relief.” Despite the reduction in prices, SWN plans to continue doing what its always done with regard to every pricing environment: drill economically efficient wells to meet its stringent economic return rates.
According to Cutright, SWN expects to drill between 50-55 wells in 2015 and possibly 70-80 wells in 2016. Eventually, the development program could expand to more than 200 wells per year as the company continues to grow. To minimize risk and maximize the value of the purchase, SWN hired West Virginia employees with critical knowledge of the Chesapeake properties. “The rock in West Virginia has the potential to deliver significant volumes of gas, and we’ve identified more than 5,300 long-lived well locations we can drill over the next 20 years,” Cutright says. “We are pleased to be able to work with the people and leadership of West Virginia to generate jobs that will support resource development in the state. We have already hired 81 people in West Virginia since our acquisition closed in December 2014. The approval of the new legislation allowed us to accelerate our development program, which provided incremental investments totaling approximately $120 million in the state and the involvement of up to 400 full-time workers by the end of 2015.”
With the challenges of cultivating a knowledgeable, capable work force in the energy industry, SWN plans to build a solid team by investing in education. “Education is critical to building a pipeline of skilled employees to support our industry,” Cutright says. “When we began work in the Fayetteville Shale in Arkansas, we recognized early on the need for work force training to support our operations. We partnered with a local community college to establish the school’s petroleum technology program. The degree program was designed to provide specialized education in oil and gas exploration, production and development and is the only such program offered in the state. We also partnered with other companies working in the Fayetteville Shale play to create the Fayetteville Shale Scholarship Fund, which provides scholarships for students participating in the petroleum technology program based upon financial need and grade point average.”
According to Geiger, being a respected member of local communities is important to SWN, and sourcing their work force locally will be a large component of their involvement. “As Governor Tomblin highlighted in his State of the State address in January, West Virginia has been proactive in working with industry to establish petroleum technology programs around the state. These programs are preparing West Virginians for new jobs in the energy industry, and SWN is excited about the opportunity these programs present for West Virginians, and we plan to support them.”
With its positive reputation, successful past endeavors and commitment to clean water sourcing and conservation and hiring West Virginia natives, SWN’s move to West Virginia seems a positive one. The company will undoubtedly affect the work force, economy and education and will likely inspire competition between existing oil and gas companies in the Mountain State, including Chesapeake, which could impact the price and value of oil and natural gas in the future.
2 Comments
Let’s quit pretending that energy corporations coming into WV and extracting our resources will be good for anyone other than the corporate execs and shareholders. When the profit is gone in a few years they’ll hit the road just like the coal industry, leaving us with the polluted water, broken communities, and disease. Same old story, just a new batch of faces.
We need people with vision for a healthy, sustainable, long-term economy that truly respects our people, our communities, and our land. Not people like this author regurgitating the company line.
There is growing resistance to the industrial oil and gas corporate infrastructure in WV. Communities are fighting back against the dangerous pipelines, the fracking, the underground injection wells. We are tired of being taken advantage of by big energy corporations. We are building a new economy based on renewable energy, locally grown food, sustainable timber yields, and so much more. We are building an economy that truly values people, land, clean water, and community as much as money.
Derek Cutright and Paul Geiger can repeat the line about “being a respected member of local communities” till they turn blue but it’s all empty words when they support and industry that pollutes our water and makes people in our communities sick. It’s time for a new vision WV.
Ignoring losses to long time industries like timber, farming and recreation which go on forever makes shale drilling profitable to the industry. These externalized costs and ignoring sickness caused are the mark of the latest round of extractive industry in the state. We have seen it before in the deep coal industry, logging and striping. it is the product of indifferent government and passive population.
It seems West Virginia is cursed by it’s wealth, which is carried away to serve the nation and world, leaving its water contaminated, its hills scarred (or even absent) and its people desperate for any deadly routine job available. The rich move out. The rest get poorer. Each verse gets worse and worse.