By DAVID BERTOLA
dbertola@bizjournals.com | 716-541-1621

Energy industry leaders say that with hydraulic fracturing of the natural gas-rich Marcellus Shale formation on hold in New York state, a huge opportunity is being missed. That pain is made worse when they look over the border to Pennsylvania, where companies set up shop, drill the shale and reap the reward.

"It's so frustrating, losing people to Pennsylvania," said Brad Gill, executive director of Independent Oil and Gas Association of New York.

He cited Talisman Energy Inc., which established Pittsburgh as its U.S. shale headquarters and relocated 35 workers from its Horseheads, N.Y., office to Pittsburgh.

These jobs and more, according to Gill, could have remained in New York. He said other companies thriving in Pennsylvania were CalFrac Well Services Corp. and Chesapeake Energy Corp.

In November, CalFrac was looking to hire about 200 employees for its facility in Fayetteville Business Park, 40 miles south of Pittsburgh.

According to a Dec. 29 Philadelphia Inquirer article, Chesapeake Energy opened a $7 million facility in Athens, Pa. The 276-bed Nomac Eastern Training Center and Housing Facility houses those who go to the region and work.

On Jan. 10, Chesapeake and CalFrac combined for 100 open jobs listings for their Pennsylvania operations at www.indeed.com, a website for job-seekers.

An anti-business environment in New York

As vice chairman of Williamsville-based Somerset Production Co. LLC and chairman of Fort-Worth, Texas-based Union Drilling Inc., Thomas O'Neill Jr. has drilled more than 2,000 wells worldwide. Hydraulic fracking, often referred to as "hydrofracking," he said, has been done for more than 100 years.

He said the executive order signed Dec. 30 by then Gov. David Paterson - which mandates the New York Department of Environmental Conservation continue its research before any Marcellus Shale-related drilling permits are awarded - was shortsighted.

"It's an illogical, anti-business environment fostered by the New York State Legislature," O'Neill said. "Hundreds of thousands of wells are drilled all over the world, and the only place in the world where you don't hydrofrack is New York state. How is it that New York has all the wisdom of the ages and 3.5 billion people have it wrong?"

High-volume horizontal drilling is effectively on hold in New York until the DEC finishes its environmental review. The review process began under Paterson and continues under Gov. Andrew Cuomo.

"DEC's review process continues under new leadership and will be focused on ensuring that any future drilling in the Marcellus Shale can be done in an environmentally sensitive and safe manner," said Basil Anastassiou of the DEC.

The agency is studying the environmental impact of horizontal drilling proposals for the Utica and Marcellus Shale formations. The regulatory process involves reviewing all aspects of drilling operations, identifying potential risks and mitigating them through the use of strict permit conditions and other regulatory tools.

By June, the department is expected to publish a draft of an environmental-impact statement, which will be followed by a 30-day public-comment period.

No permits, it continued, may be issued prior to completion of a final environmental-impact statement.

In May, one of O'Neill's companies, Zone Oil & Gas LLC, sold 31,600 acres of land in Pennsylvania to a joint-venture partner for about $15 million. O'Neill said that represented a portion of the total value of the land, about $4,000 an acre.

This is in stark contrast to Somerset's recent purchase of 7,000 acres stretching over the Marcellus in central New York for $42 an acre. Somerset land manager George Kubisty said buying the land at such a low price is low risk, considering the company plans to hold on to it, then drill it when there is more known about how long it takes to get a permit.

Since the company is not drilling any wells, its focus is on evaluating structures that eventually might be drilled.

Kubisty said when planning to drill a well, many things usually are known: the likelihood they'll earn their money back from their investment, the amount of materials needed to build a pipeline and how many workers to hire. But the ongoing DEC research can hamstring a company.

"You can't put a five-year plan together," Kubisty said. "You don't know what it will take to get a permit or how much acreage you'll need to buy to continue drilling."

Towns benefit from oil and gas production

Dennis Holbrook, executive vice president of Norse Energy Corp. in Blasdell, said communities throughout the state, like the companies, are missing out.

"Some people aren't aware there's a tax on production in New York state," said Holbrook, adding that last summer Norse paid $750,000 to the town of Smyrna and Chenango County. It is a combination of Norse Energy's production taxes paid on producing wells and real property taxes.

Within that $750,000, Holbrook said, $400,000 went to Chenango County's school districts for the current school year.

Even if the switch was flipped and the shale could be fracked, he said, the companies that moved to Pennsylvania aren't coming back.

"Many of these offices are in the northern tier of Pennsylvania, which they are doing strategically, because when New York begins drilling, they will stay where they are and drive a few miles over the border to service New York operations with Pennsylvania workers," Gill said.

O'Neill and Kubisty agreed.

"It's a permanent loss to New York state," said Gill. "It's mind-boggling to me that we have a $9 billion deficit in New York, job losses exceeding 9.5 percent and we're passing up this opportunity."