Oil companies pour money into Ohio shale

KENSINGTON, Ohio – The hilltops in southwest Columbiana County, Ohio, are under attack.

Construction equipment is turning a former farm off state Route 644 in Hanover Township, about two miles east of Kensington, into a natural gas-processing facility that is scheduled to open in May. It is mostly a ground-clearing operation so far, said spokesman David Mashek.

But not for long.

A shale boom is under way in Ohio. Land has been leased. Nearly 190 wells have been drilled. Natural gas, oil and other liquids are being pumped from the liquid-rich Utica formation deep underground.

Now, Ohio is looking at billions of dollars invested in processing plants, pipelines and compression facilities – called “midstream projects” – to get those commodities to market.

Seven processing-separation plants for natural gas plus liquids and four pipeline networks are under construction in eastern Ohio. Their price tag, in excess of $7.2 billion, does not include interim facilities also starting to pop up in Ohio.

“You can bring (gas and oil) out of the ground, but it doesn’t do you any good until you can move it and get it processed and get it where it’s needed,” Terry Fleming, executive director of the Ohio Petroleum Council, said. “Midstream is the key. It is critical. It’s an infrastructure issue. You can only pull as much out of the ground as you can transport and process.

“What’s happening in Ohio is big – and it’s going to get bigger.”

In addition to the new plants, eastern Ohio is expected to see an additional $5 billion in new pipeline projects in the next few years because the state’s existing network is too old and too small to handle the volume of gas and liquids that energy companies are tapping.

Getting such infrastructure built has made energy companies a little antsy because their wells increasingly are ready for production.

Some of the biggest drillers in Ohio, including Chesapeake Energy Corp., Gulfport Energy Corp. and EV Energy Partners, have commented in recent earnings reports that delays in completing the new midstream facilities are keeping Ohio shale development from moving forward.

Production will ramp up sharply in Ohio next year, however, as midstream pipelines and processing plants are completed, Chesapeake CEO Aubrey McClendon said.

Gulfport CEO James D. Palm said getting pipeline right-of-way from landowners in Ohio has been slow and difficult and has delayed work by its partners.

That’s the main reason only 45 wells in Ohio are in full production. Another 143 wells are drilled but not hooked up to pipelines and processing facilities.

Acquiring leases and drilling wells is known as the “upstream” end of the gas and oil business. Midstream operations begin with pipelines, processing plants and fractionation facilities that separate liquids from dry gas.

Payrolls for Ohio midstream companies are expected to top $1 billion annually by 2014, according to industry estimates.

Ohio’s natural gas – mostly methane – requires more processing because it contains such natural gas liquids as butane, ethane and propane that are all lucrative commodities after they have been removed from the natural gas. They are liquids below ground but are gaseous at the surface and are mixed with the natural gas.

Other impurities also must be removed from the natural gas before it can be pumped into large transmission pipelines.

Three major gas-processing and fractionation projects are proposed in eastern Ohio: Columbiana-Harrison counties, involving three companies; Harrison-Noble counties, with MarkWest Energy Partners LP; and Mahoning County, involving two partner companies.

The Kensington plant will be part of a $900 million complex that consists of natural gas gathering and compression facilities there, plus processing, natural gas liquids fractionation, loading and terminal facilities at Scio in Harrison County, said George Francisco, a vice president at M3 Midstream, one of the project’s partners.

M3 Midstream will build and operate the two plants.

The plants – about 40 miles apart – will be connected by a 12-inch pipeline to carry natural gas liquids to Scio, in addition to a 24-inch high-pressure gas-collection line.

Cardinal Gas Service will build the network of 200 miles of pipeline at a cost of $1 billion.

The $400 million Kensington plant will employ 200 to 300 construction workers. When operational, it will retain 20 to 30 full-time workers.

Its 117-acre site was acquired for $1.8 million.

The Scio plant, on about 100 acres, also is scheduled to open in May. The $500 million plant will employ 300 to 400 workers during construction and 25 to 30 workers once operational.

Genesee & Wyoming Inc. recently announced that its wholly owned subsidiary, the Columbus & Ohio River Rail Road Co., has signed a long-term agreement to haul the natural gas liquids from Scio. The railroad will construct a mile-long rail siding and rehabilitate a three-mile storage track.

Plans call for shipping 10,000 carloads of natural gas liquids from Scio annually.

Dominion Resources Inc., a subsidiary of Dominion, has signed an agreement with M3 Midstream to hook up Utica wells and to transport the gas to the Kensington plant. That pact calls for up to 180 million cubic feet per day coming from Dominion Resources.

Chesapeake Midstream, another partner in the project, this year has built 45 miles of Utica-related pipeline in Ohio, spokesman Pete Kenworthy said.