Shale, Fall 2013

FALL 2013

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Banking on the Utica

An influx of bonus money and strong loan demand is driving growth for banks in eastern Ohio

WELCOME Plenty more where this came from!

If you thought shale drilling in Ohio was going to benefit just landowners and energy companies, or that it was going to have an impact just in the state’s eastern portion, this is a particularly good issue of Shale for you to read.

For the most part, folks no longer ask us questions like, “When is this shale boom going to happen?” Through constant media reports on new wells, pipelines and small processing plants being brought on line, not to mention the oil and gas industry’s constant public relations drumbeat, it seems most Ohioans are convinced shale is a real force in the economy.

Now we get asked things like, “How is this going to affect businesses in (insert nearly any town or industry you’d like here).”

Truthfully, we don’t know the full answer to that question. I don’t think anyone does.

But increasingly we are seeing how shale drilling could affect a variety of businesses and industries in our state, both in the areas where drilling is taking place and beyond.

Banks in or near the Utica are seeing spikes in business.

Manufacturers of compressed natural gas fuel systems are up, running and expecting rapid growth as they produce conversion systems for vehicles ranging from pickup trucks to big Class 8 semi trucks.

Meanwhile, the chemical and plastics industries are salivating over all those raw materials they know will come from increased domestic production of natural gas.

So we’re starting to get some answers with regard to the scope of shale’s economic impact.

Thankfully, for journalists at least, there still are plenty of questions left to be answered. Among them: Will all this gas be processed here, or on the Gulf Coast, and how will that affect business here? We don’t know the answer to those questions just yet.

But stick around. So far, the economic news has been pretty good, and we’ve got a lot more reporting to do.

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CONTRIBUTING WRITERS Dan McGraw • Chrissy Kadleck Randy Boswell

PHOTOGRAPHY Marc Golub • Access Midstream • Willbros Carroll County Convention and Visitors Bureau

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ACCOUNT EXECUTIVES Lindsie Bowman • John Banks Dawn Donegan • Andy Hollander

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TABLE OF CONTENTS 6 Driven by natural gas

14 Hungry for Crackers

22 The

problem posed by unfairly imported pipe

A Cleveland entrepreneur and one of the state’s largest heavy truck dealers have teamed up to sell trucks that run on compressed natural gas, and fleet operators are lining up to buy them.

8 Atwood Lodge awakes The natural gas industry needs big processing plants in order to get the most out of its resources, particularly in wet gas plays like the Utica. But will they be built here or on the Gulf Coast?

17 Laying loads of pipe After sitting dormant with an uncertain future Carroll County’s Atwood Lodge is poised for a comeback, thanks to revenue from oil and gas leases.

10 Drivers wanted Truck driving schools are churning out students with brand new commercial driver’s licenses and trucking companies in the Utica are snapping them up.

12 On a roll Mentor-based Greg and Rick Osborne have made millions on the Utica and Marcellus plays, but that’s just the beginning of their plans to cash in on America’s newfound supply of natural gas.

If you want the most in terms of jobs from shale gas, keep foreign competitors from getting an unfair advantage over their U.S. counterparts, says executive Randy Boswell.

On the cover

One of the nation’s largest pipeline construction firms has set up operations in Ohio in a big way, and Willbros Construction already employs nearly 500 people here.

24 Banking

on the Utica Increased business loan demand, investments in area farms and a whole lot of cash looking for a home adds up to a great environment for bankers like Mark Witmer in the Utica shale region.

18 Western sunset?

Hopes of finding oil in the western portion of the Utica play have dimmed, but some still hope there’s black gold to be found there.

20 From the Keys to the freeze Florida Native Kenny Lopez has found a home and a new career in the Buckeye State.

27 Still building

20 Shale 101 Ohio’s public school teachers are finding that shale gas and oil make great subjects for science classes, and industry experts are helping them cram for the coming school year.

Chesapeake Energy continues to build its headquarters east of Canton and continues to hire as its Ohio payroll approaches 1,000.

28 Chemical bond A lot of industries have their hopes pinned on the nation’s oil and gas production, but the chemical and plastics industries are especially well positioned to cash in on cheap natural gas.

Community Partners:

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Driven by natural gas A Cleveland manufacturing entrepreneur and one of Ohio’s largest Class 8 truck dealers are teaming up to make trucks that run on CNG.

By Dan Shingler

Cleveland industrialist Dan Moore has been making conversion systems for CNG pickups, but now has his sights set on bigger game, like Peterbilts.

T

urns out, there’s more than one way to make money off the nation’s shale gas boom with a truck — or a few hundred trucks, or a few thousand.

That’s the belief driving some Cleveland-area entrepreneurs, including one of the state’s largest dealers of heavy-duty Class 8 trucks, who are working hard and fast to bring more trucks powered by natural gas to the local market.

“This gas is coming out of the ground here. Why are we going over there (to the Middle East) for fuel?” asks Dean Martin, general manager for Cleveland Peterbilt, a dealership for Peterbilt trucks.

Peterbilt already makes trucks with engines that run on compressed natural gas, or CNG, but until recently they were trucks with smaller engines. When the company this summer unveiled its

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new 12-liter engine, which also comes in a version fueled by natural gas, Mr. Martin signed up to buy the first one he could.

He sent that truck to Dan Moore, a Cleveland entrepreneur who owns companies that make products ranging from helmets and armor for the military to parts for automobiles and, more recently, natural gas fueling systems for vehicles.

The two men met in February at a shale gas summit near Cleveland, and soon their companies connected. Mr. Moore, who already made natural gas conversion systems for pickup trucks and other small vehicles, wanted to begin producing similar conversion systems for bigger trucks such as the Peterbilts Mr. Martin sells.

“We’ve sold hundreds of those,” Mr. Moore said of the smaller systems, “but the larger trucks, that market is where it’s at right now.”

That’s because big Class 8 trucks, known to most folks as “semis,” burn more fuel and travel more miles than nearly any other vehicle, which means they also save more money by converting to a cheaper fuel source. Also, more often than not, the big trucks belong to larger fleets, which can support their own in-house fueling stations.

That last point is key, Mr. Moore said, because it means fleet operators can buy their natural gas straight from the pipe, rather than paying a marked-up price at a commercial fuel depot. While a truck filling up at a commercial CNG station might pay about $1 for enough natural gas to equal a gallon of diesel fuel, someone filling up at their own station could get that same amount of fuel for about 50 cents. Both scenarios, however, represent a huge savings over $4-per-gallon diesel fuel.

While Mr. Moore was sizing up the market for big CNG trucks, Mr. Martin was figuring out how to sell CNG Peterbilts to that same market. Cleveland Peterbilt needed to find a supplier of tanks and fuel systems for trucks that have natural gas engines, so that he could sell them to buyers already clamoring to put them on the road. Peterbilt’s trucks do not come with fuel tanks or the systems needed to take compressed natural gas from a tank and deliver it at a usable pressure to the truck’s engine. That conversion requires a third-party upfitter such as Mr. Moore, in part so that the truck can be configured to a customer’s needs.

“They need to get into the Class 8 market and we need a partner,” Mr. Martin said.

There are other upfitters, but not many — and the largest and best known has a months-long backlog, Mr. Martin said. That’s too long, because he already has customers waiting for CNG trucks.

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Breathing issues Upfitting a semi to run on CNG is not as easy as it sounds. Not only must the fuel and its pressure be managed and delivered from the tanks to the engine, but the tanks themselves are a challenge to mount.

“The problem with a CNG tanks is, it breathes,” Mr. Martin said.

In other words, the tank expands and compresses as gas is put in or taken out — and not by millimeters, but inches. That means you can’t just strap the tank onto the side of the truck the way you could with a conventional diesel fuel tank, Mr. Moore said.

The tanks require sophisticated mounting systems, which suspend them by the ends so that they can shrink and swell without issue.

Most upfitters have been developing mounting systems that put the tanks behind the cab of the truck, rather than along the side, where conventional diesel tanks usually are located. It’s a large, flat spot upon which it is easy to put a tank-mounting system, but it means using smaller tanks and also requires mounting the fifthwheel trailer hitch further back on the truck.

Mr. Moore’s company, NatGasCar, developed a system that can mount larger tanks on the sides of the trucks in the same places where diesel tanks typically are mounted. That system has been designed and the first truck, destined for Arms Trucking in East Claridon, was running on natural gas in August at NatGasCar’s shop on Cleveland’s East Side. Mr. Martin said he’s set to start delivering trucks with the new system to customers this fall.

He’s had little trouble selling them. By cutting fuel costs in half, or even by 75%, the payback on the trucks is quick. On top

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Atwood Lodge awakes Back in business!

Atwood Lake Lodge was sitting idle and threatened with decay, but shale revenues have given it a new lease on life and a facelift too.

A

my Rutledge has lunch so often at the Atwood Lake Lodge, they ask her if she needs a room when she orders.

That might be because, as the director of Carroll County’s Convention and Visitors Bureau, Ms. Rutledge appreciates the presence of the lodge, perhaps like never before. A shale lease saved it from neglect and decay, if not destruction, she said, much to her delight.

“There’s a beautiful view out that window all year long,” she says, while standing in front of a wall of dining-room windows with a panoramic view of Atwood Lake.

The lodge was set to be shuttered, but a mineral rights lease on its 500 acres produced a $3 million bonus payment and, hopefully, future royalties, that will allow the facility to continue renovations that began in 2012.

Before that, it sat idle for two years, often manned only by

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one or two caretakers who, in the winter at least, lived in a Shining-like setting of long empty hallways and icy isolation.

Carroll County purchased the lodge from the Muskingum Water Conservation District in 2012, and now Ms. Rutledge said it’s using the facility’s own oil and gas revenues to bring its golf course, grounds and other amenities back into a tourist-worthy state.

In the meantime, all sorts of folks employed in some aspect of shale development frequent the place for meals, events or a place to stay, Ms. Rutledge says, and their telltale white pickups dot the parking lot.

Locals and transplants are already taking notice, Ms. Rutledge attests, “They’ve already booked 35 weddings this year,” she said. n

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Drivers Wanted Shale gas drilling is increasing the demand for truck drivers in Ohio and companies are fighting to make the best hires.

By Dan Shingler

Recruiters such as Kim Dial are talking to a lot of truckers these days, in the hopes they can hire some of the best drivers.

T

he trucking business in Ohio continues to grow, with much of that growth driven by the oil and gas industry, which not only is hiring its own drivers but also is influencing the supply-anddemand equation for drivers generally.

The growth was in evidence Aug. 1, when Great Lakes Truck Driving School of Columbia Station held an afternoon job fair at its headquarters on Royalton Road that filled several acres with cars from an estimated 1,000 attendees.

More than 50 hiring entities were there, too, ranging from regional bus systems and the National Guard to general trucking companies and some serving the oil and gas industry specifically.

Potential drivers lined up to talk to Matt Geisler, a recruiter from CalFrac Well Services of Smithfield, Pa., whose booth was among the most popular.

Mr. Geisler explained how and what was required for driving a truck in the oilfield services industry and was eager to take applications on site. One potential driver told him he was interested, but he wouldn’t be finished with his training and licensed to drive commercial trucks until October.

“I can assure you,” Mr. Geisler told him, “I will still be hiring drivers in October.”

Other companies were looking for drivers generally, or looking for drivers to help them expand into the shale gas and oil industry.

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Kim Dial, human resource manager for Cleveland-based Great Lakes Petroleum, said most of her company’s business entails delivering diesel fuel and other petroleum products to railroads and other clients who need fuel delivered via tanker trailers. The company is expanding in that area with more shifts, and is growing by offering hauling service to drillers and well service companies.

“We’d like to get three or four new drivers here,” Ms. Dial said from her booth at the job fair.

John Faust, head of business and operations development for Great Lakes Truck Driving, said demand for truckers is up. So is demand for the Class A licenses and hazard-materials and tankertrailer endorsements needed for many gas and oil driving jobs, Mr. Faust said.

Many drivers who already have their Class A licenses are looking for ways to find jobs hauling for the shale industry, because it does not require them spending nights or even weeks away from home, the way some long-haul jobs do, Mr. Faust said.

At the same time, bus drivers and others with Class B licenses are eager to upgrade to Class A, because the jobs hauling for drillers and service companies often pay more than their existing jobs.

Turn out at the job fair met his high expectations, Mr. Faust said.

“At 3 p.m., when we started, people were already here waiting,” he said. n

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On a roll The Osborne family of Mentor already has made a fortune off of natural gas, but they’re not done yet.

By Dan Shingler

T

he father-and-son duo who might have made as much money to this point as anyone in Ohio from the shale gas boom is betting there’s still more to be made from natural gas — and they don’t even care much if the price of the fuel goes up.

Mentor’s Greg Osborne practically was born into the oil and gas business, thanks to his father Rick Osborne’s longtime penchant for pipelines and his habit of picking up and holding on to both land and mineral rights in Ohio and Pennsylvania.

The younger Osborne credits his father with the foresight to secure mineral rights to about 10,000 acres in Ohio, when the family bought the rights to an underground natural gas storage facility years ago.

“Dad and I, we bought a storage field right here in Columbiana County, a 10,000-acre storage field,” Greg Osborne recalls. “Dominion East Ohio used to own it and at the last second they said, “We’ll sell you the deep rights, too. We’ll sell you those for $500,000.”

“I said why in the hell would we spend $500,000 on a cow pasture in the middle of nowhere in Columbiana County. But my dad was being the way he is and saying, ‘Oh, we’ve got to get that — you never know.”

It was, of course, a prime example of father knows Greg Osborne plans to use pipe like this to expand his natural gas distribution business best.

When Greg Osborne began trying to resell the storsimilar rights in the area later sold for more than $7,000 an acre. age field in 2010, one of the first interested parties was Chesapeake Energy Corp., which at that time quietly had been ac- But the prices could have just as easily fallen if the first wells had cumulating oil and gas leases in the area without calling attention to been disappointing, Mr. Osborne said. Besides, he said, he really itself. Chesapeake, Mr. Osborne said, immediately began inquiring wanted to do a deal with Chesapeake’s CEO at the time, Aubrey about the deep drilling rights his father had insisted on buying at a McClendon.

“I like to say that meeting Aubrey McClendon cost me about $50 cost of $50 per acre.

“He (Chesapeake’s agent) calls me and he says, ‘I’ll give you million,” Mr. Osborne jokes. $1,100 an acre.’ I almost s--- my pants. There’s no lease that had ever been bought for more than $50 or $100 an acre in Ohio in my Pipe dream life. So, I’m trying to be cool and calm and saying, “Oh, I don’t The Chesapeake deal was not the first time some good fortune, know, we really kind of want those.” along with his father’s Midas touch, has turned a sow’s ear into a The price quickly went to $1,400 an acre, which only convinced silk purse full of gold. the Osbornes the rights were worth more. Ultimately, they sold to The Osbornes also owned the rights to 8,000 acres in western Chesapeake for $2,200 an acre, Mr. Osborne said.

Pennsylvania, which were on their books at a value of $0 – until the That figure amounts to a total sales price of $22 million – about Marcellus shale boom took hold and they sold those rights for $20 $21.5 million more than the Osbornes had invested. million in 2012.

“I’d rather be lucky than good,” Greg Osborne says with a smile.

Then there’s the 60-mile pipeline the Osbornes bought from Had they held on, the rights could have brought much more — Marathon Petroleum Corp. in 2011 for about $5 million. continued on page 31

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Crackers

They’re necessary to get the most out of the Utica.

But will they be built here or in other states?

By Dan Magraw

Will Ohio or Pennsylvania get more processing plants, like this one in Harrison County?

W

hen Royal Dutch Shell announced in March 2012 that it planned to convert an old zinc smelting plant in western Pennsylvania into a multibillion-dollar operation that would process, or “crack,” ethane used extensively in plastics manufacturing, the news was cheered by economic development officials in the Utica and Marcellus shale regions.

The downstream benefits from natural gas drilling, it seemed, were going from wishful speculation to the cusp of reality. But more than a year later, there are lingering questions surrounding the cracker plant project that still must be answered before it proceeds.

Shell has until the end of the year to decide whether to build the Beaver County petrochemical processing plant and reap the $1.5 billion in tax benefits offered by the state of Pennsylvania. Shell’s decision is being delayed by uncertainty over where midstream infrastructure will be built and when — as well as whether — the market for natural gas will support such infrastructure investments.

Shell spokeswoman Kimberly Windon says “much more work needs to be done before a decision to build the proposed project.” That process will in-

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clude “working with regulatory agencies and the public on permitting, securing ethane feedstock supply, confirming the support of customers for our products, and confirming that the project is economically robust and competitive,” Ms. Windon said.

When natural gas comes out of the ground at the wellhead, the product is moved to a fractionation plant that separates the natural gas used for home heating from natural gas liquids, which can include butane, propane, ethane and pentanes. Cracker plants use high temperatures and pressure to change the “tanes” into usable feedstocks for industry.

If completed, the Shell plant would be an ethane processing plant, which would change the ethane into ethylene, a key chemical in the manufacture of plastics.

When Ohio, Pennsylvania and West Virginia lobbied Shell to put the plant in their states, all emphasized the strength of the plastics manufacturing industry in the Midwest and its potential for expansion. The argument the states have floated, in simple terms, is that it is economically more profitable to produce a product close to your customers — and there are plenty of customers in or near the tri-state area.

Using figures from the American Chemistry Council, Ohio told Shell it produces $6.5 billion of chemical products each year, part of a $32 billion chemical industry. And 20% of the products produced in that industry were exported out of the country.

But as in all things involved in natural gas drilling at this point in time, where the market will be going in the short term is difficult to predict, and so is planning for big projects such as Shell’s.

“What is going on right now is a race in some respects,” said James Sullivan, an exploration and production analyst for Alembic Global Advisors. “There is definitely a lack of cracking capacity in the U.S. right now. But what the energy companies are weighing is whether it is better economically to build new facilities, and whether the pipelines will fit in with their business plan.”

The guessing game Not to mention trying to predict the future price of ethylene.

“And the market price of feedstock like ethane definitely plays into this,” Mr. Sullivan said.

“The market has not caught up with the product coming out of the ground, so it is very much a guessing game right now.”

The first part of the guessing game deals with the pipelines. They ship natural gas liquids to

processing plants on Texas’ Gulf Coast, to Sarnia in Ontario, and to Marcus Hook, Pa., on the Delaware River south of Philadelphia.

Beginning this summer, Sunoco is reversing its Marin West pipeline to take ethane from the Utica and Marcellus to the existing Sarnia petrochemical plants. Another pipeline — called the Mariner East and financed by MarkWest Energy Partners – would move ethane to the Marcus Hook port with plans to ship the unfinished product to Europe, where prices for natural gas liquids have been higher than in the United States.

There also are two pipeline projects that will link Utica and Marcellus production of ethane with plants on the Texas Gulf Coast near Beaumont/Port Arthur. By early next year, Houstonbased Enterprise Products Partners expects to open the ATEX pipeline, which would hook up southwest Pennsylvania with the Texas Gulf Coast.

The Bluegrass pipeline, financed by Tulsa-based Williams Co. and Boardwalk Partners of Houston, will follow a similar path to the Texas Gulf Coast and be operational around the same time as ATEX. The difference between the Bluegrass Pipeline and ATEX is that the Bluegrass will transport “raw� natural gas liquids, a mixture of ethane, propane and butane that can be fractionated once it reaches the plants in Texas. ATEX will ship purified natural gas liquids that already have been separated.

The Bluegrass Pipeline project is expected to send 200,000 barrels per day of mixed ethane, propane and butane to the Gulf Coast by 2015, with the capacity to be increased eventually to 400,000 barrels per day.

Ante up, or stand pat?

The question that remains unanswered is whether a location closer to Midwest plastics manufacturers makes processing ethane more profitable, or whether it is a safer bet to ship it to established plants further away and factor in transportation costs against the capital costs of building a plant. “You could make the business case that Rubbermaid is in Wooster, Ohio, and a producer of ethylene would have lower transportation costs and higher profits by being close to the well heads and close to the plastics manufacturer,� says Kevin Swift, chief economist for the American Chemistry Council. “But there is so much that is in play, from exports to market price to actual production at the wells,� Mr. Swift said. “As much as one could make the case to do the cracker plants in the Midwest, a good case can be made to move Marcellus and Utica Shale ethane down to the Gulf Coast.�

And given the construction of the Bluegrass and ATEX pipelines already is in progress, expanding and building new facilities in the Texas petrochemical hub near Beaumont/Port Arthur already looks to be the favorite in the natural gas liquids processing derby.

Exxon Mobil already has been granted a preliminary permit to build a cracker plant at its refinery complex near Baytown, Texas, east of Houston, and plans to have it operational by 2016. In addition, Chevron Phillips Co., Dow Chemical Co. and Formosa Plastics Corp. all have announced plans to expand their existing Texas facilities with cracker plants.

The big problem with the Texas expansion of petrochemical processing plants, though, may be gaining federal air emission continued on page 33

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Getting schooled on shale

By Chrissy Kadleck

I

n the home stretch of earning his bachelor’s degree in mechanical engineering, Derek Troyer netted himself an unexpected scholarship from the Ohio Oil and Gas Energy Education Program (OOGEEP) and its foundation.

The 23-yearold Mr. Troyer fit all the criteria to win one of the 40 scholarships given out by the Granville, Ohiobased organization this spring: 1. Must have a career goal in the crude oil and natural gas industry, or related energy field; check. Mr. Troyer was already Derek Troyer working full-time as an engineer technician, an entry-level position, with Access Midstream’s North Canton operation.

2. Must be an Ohio resident, or a student attending or planning to attend an Ohio college, university or vocational school; check. Mr. Troyer was born and raised in the Buckeye State.

3. Must be enrolled full-time in an undergraduate program at a college or university, or a high school senior enrolling in a four-year college program, or a student attending or enrolling in a vocational school; check. He was in his fifth year at the University of Akron.

Luckily, though, Mr. Troyer was connected to the world beyond the state’s borders, too. He said he learned about the $1,000 scholarship from an internal email sent to him from Access’ headquarters in Oklahoma.

“I realized I qualified and I just decided to apply for it,” he said.

The money will help him pay for his final two classes this fall.

“I’ve wanted to be in the industry ever since I have been in college,” Mr. Troyer said. “I have family members who have been in the pipeline and oil and gas indus-

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try since they were my age, so I have kind of grown up around it.”

His father started in the industry about 30 years ago as a pipeline welder and now works as a facilities inspector for Dominion. His uncle works as a foreman at a company that installs gathering lines and his brother works for Ariel Corp., which makes compressors for the industry.

Mr. Troyer said he has been impressed with the industry since joining Access in December, 2012.

“I didn’t know what to expect coming into it, I just knew I was interested in it,” he said. “We are so busy and there is so much changing, but yet it is a lot less stressful and a little more laid back than the manu-

“We are so busy and there is so much changing, but yet it is a lot less stressful and a little more laid back than the

”

manufacturing world. facturing world (where he had interned previously). I am definitely happy. I can say I love my job.”

That’s exactly the kind of success story OOGEEP has been striving for since the inception of its scholarship program in 2007, though participation in the program has ramped up since shale drilling came to Ohio. In the last six years, the program has provided 148 scholarships — half of which were awarded in 2012 and 2013 — to students pursuing careers in the oil and gas industry, said Charlie Dixon, safety and workforce administrator with OOGEEP. “The number of applicants requesting scholarships has been going up each and every year,” Mr. Dixon said. “We have been working with over 70 different schools throughout the state, and we have identified 75 different careers. This year, our scholarship winners represent 13 dif-

ferent college majors.”

The Ohio schools where scholarship students plan to get their education include Bowling Green State University, Kent State University, Marietta College, Malone University, Ohio University, Ohio State University, Zane State College, the University of Akron, the University of Cincinnati, the University of Mount Union, and the Hobart Institute of Welding.

“Typically scholarships have been awarded for four-year degrees, but we recognized the importance of ongoing workforce development and the need for a certain amount of entry-level training,” said Mr. Dixon. “Last year was the first time we gave out a scholarship for welding, which is a huge area of need in the industry.”

The scholarships, funded voluntarily

by Ohio’s natural gas and crude oil producers, are renewable for up to four years.

That’s great news to Kyle Howe, a recent graduate of Brunswick High School, who this fall will begin pursuing a degree in petrology geology at Bowling Green.

“I’m really intrigued with the natural world and what it can give,” said the 18-year-old Mr. Howe. “I looked at a lot of areas within geology and petroleum seemed to have the most job opportunities, too.”

A high school teacher who knew of his interest in environmental science and geology found the scholarship opportunity for him. He’ll apply the funds to pay for a nine-week summer geology expedition that he’ll take during his junior year. He plans to apply annually for the scholarship.

“One of the things we have been trying to get people to understand is that there are solid careers that are out there,” Mr. Dixon said. “We have over 600 independent oil and gas producers in the state and there are over 6,000 products of everyday life that come from the industry. It’s more than just gasoline and gas to heat your home.”

He added, “We are an energy nation and we have a lot of challenges ahead of us. Being a part of the oil and gas industry is an opportunity to be involved in helping our nation.” n

Laying pipe One of the country’s premier pipeline companies has already hired hundreds to build infrastructure for the Utica.

And Willbros says it isn’t done yet.

One law firm for all energy-related legal needs

By Dan Shingler

T

he building boom for pipelines and midstream infrastructure that can process and transport the Utica’s booty has meant at least one out-of-state construction company suddenly is becoming an Ohio giant.

Willbros is a Houstonbased construction company that generates about $2 billion in revenue a year building the kind of infrastructure the Utica needs — things such as pipelines, compressor stations and natural gas processing facilities. So it’s no surprise Ohio quickly has become a big market for the company.

But the speed at which it has been able to hire and put Mike Futch in place an effective work force has been impressive — and necessary, given the timetables for some of the Utica’s big projects.

“I believe right now on the payroll we have about 464 people from the Ohio River valley and I think 289 of those are from

“I believe right now on the payroll we have about 464 people from the Ohio River valley and I think 289 of those are from Ohio.”

Ohio,” said Mike Futch, Willbros’ senior vice president of operations for regional delivery in the Northeast.

That’s a lot of workers for a company that only has been operating in the Buckeye State since the beginning of 2012, but Willbros already has established a Carrollton office for its U.S. construction division, as well as a pipeline testing and service operation in Columbus.

continued on page 30

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17

Western sunset?

The Western edge of the Utica shale was supposed to be an oil bananza, but it went bust. Or did it ...

By Dan McGraw

W

hen drilling in the Utica shale play first began, there was hope the western portion of the Ohio shale region might be among its best areas. Geologists had separated the Utica into sections — some wet gas plays, some dry gas, and some plays where some expected to find mostly oil.

It was the western portion that was believed to hold the best chance for producing oil, which is worth far more than natural gas these days. But there has not been much oil pulled from the western Utica so far — and some have declared the oil play dead.

Devon Energy drilled in Medina, Ashland, Wayne and Knox counties, but the results were lackluster. Since then, Devon and other companies have been trying to manage their holdings along the western edge of the Utica play in Ohio as a longterm investment, acquiring and swapping land, selling acreage outright, and partnering with other companies — often midstream infrastructure builders – to soften their investment risk.

Landowners in this portion of the Utica might need to wait to see actual drilling — but perhaps not forever.

“Geologists have identified parts of cen-

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tral Ohio as a place that has oil with little natural gas mixed in, but at this point, the drilling companies have their hands full with market prices and infrastructure needs to get their product to market,” said Jeff Daniels, director of Ohio State University’s Subsurface Energy Resource Center.

“The wet gas drilling is the part of the play that has the most potential, and the drilling companies are putting their efforts and resources into those areas right now,” he said. “But the oil plays to the west will provide some interesting potential as the

market stabilizes.”

The Utica shale play can be seen as four bands of energy-rich geological formations. Moving east to west, there are the dry gas regions (mostly in central and western Pennsylvania), followed by the wet gas “condensate window” to the west along the Ohio border. This wet gas drilling area extends from far western Pennsylvania into eastern Ohio.

Next is what geologists term the “volatile oil window,” a relatively narrow band that runs through Stark and Portage counties, and has a fairly even mixture of natural gas, oil and other valuable liquids.

Then, finally, you come to the black oil window, which runs from Cuyahoga County southwest to Fairfield County, basically in the area between Interstates 71 and 77, until the oil peters out just south of Columbus.

So-so so far Mark Houser, CEO of EV Energy Partners/EnerVest, spoke about the drilling opportunities in the western part of the Utica Shale at the Credit Suisse MLP and Energy Logistics Conference in June. Mr. Houser said EV Energy Partners has about 50,000 acres in the Utica’s wet gas window, about 80,000 acres in the volatile oil window, and about 44,000 acres in other areas.

At this point, EV Energy Partners mostly is looking to sell its interests in the western part of the Utica, but it still hopes to wring oil from the play, Mr. Houser said.

“Now on the volatile oil side the calculations that we’ve done — based on about 600 wells EnerVest has drilled over time to penetrate the whole Utica — suggest that out in this volatile oil window there’s about 20 million to 30 million barrels of oil per section,” Mr. Houser said. “However, there’s been very limited drilling activity. Only about six wells have really tested the volatile oil window so far, and the results so far have been somewhat marginal.”

But that doesn’t mean wells there won’t perform better in the future, Mr. Houser suggested.

“So the question we have is what do we do about helping (to) improve the flow capacity of these wells, and we believe the answer is going to come through enhanced fracturing, and so we’re looking and working with some folks to do something about that,” Mr. Houser said.

One reason for the interest in the oil play in central Ohio is the difference in composition between traditional oil and oil from fracked shale plays. Traditional oil is thicker and heavier, and requires more refining to convert to gasoline.

The shale oil is closer to gasoline and gives energy companies more options as they figure out how to best get their product out of the wellhead, processed and into the marketplace.

Then there is the speed at which shale oil can be produced.

In the Eagle Ford Shale region in south Texas, operators have been able to drill wells in as little as 10 days. That oil often is delivered by tanker car in order to get it to a refinery quickly, which allows drillers to produce as needed and rely less on market speculation.

Shakeout period At this point, though, drillers in the Utica seem to be approaching the western oil play with a wait-and-see attitude.

The oil market is undergoing as much upheaval as the natural gas market as U.S. production plays out. While oil imports have decreased substantially and Middle East oil-producing nations are countering with production changes to keep their market share high, American also are driving less and prices are still close to $4 a gallon.

“The uncertainty of the market surely has a lot to do with the decisions to move into the oil-only parts of the Utica,” said Tim Carr, professor of energy at West Virginia University. “But I’m sure as things get sorted out in the wet gas drilling, especially getting the infrastructure in place to get the natural gas products to market, the oil drilling will become something that a lot of the drilling companies will be taking a much closer look at.”

For EV Energy Partners’ Mr. Houser, the plan is to join with other companies that have had success with shale oil drilling in other plays around the country.

“We’re working with service companies and some of the established producers in other basins — the folks who have de-risked the Eagle Ford, the folks who have de-risked the Bakken — and coming up with a joint venture plan,” Mr. Houser said at the conference.n

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19

From the Keys to the freeze

By Dan Shingler

Kenny Lopez

G

ive up Key West, Fla., for “Uticaville,” Ohio?

Sure, why not — there’s a lot more pipe to be installed in Ohio these days than in the Sunshine State, says Kenny Lopez. He’s the native of the nation’s southernmost point who moved here last December to help launch Praxair’s efforts to capture the Utica play’s welding market.

To be fair, Mr. Lopez’s last residence in Florida was actually Tampa, but the Keys native says Florida’s entire construction market is on the skids, and that was making his last job selling construction piping, well, a tough sell.

“It’s the whole state, it’s bad,” Mr. Lopez said Now, he isn’t selling pipe, but the equipment needed to weld it together into pipelines and processing centers, which are snaking out and sprouting up all around Praxair’s shop here.

It’s a razor-and-blades business and Praxair sells both — welding machines, such as those made by Lincoln Electric

in Cleveland, as well as the gas, rods and other consumables needed to work them.

A major national provider of industrial gases for all sorts of uses, Praxair recently has targeted some of the nation’s shale plays — including the Utica — to capture what it sees as a source of new business, Mr. Lopez said.

Things are going well, he said, but it’s a lot different from the construction market. You don’t often get carpenters calling with an emergency need for hammers at midnight — but if a pipeline crew or pipefitter at a processing plant runs into a need on the night shift, they call.

“I have a pager that can go off any time,” Mr. Lopez said, Income-wise, Mr. Lopez is just another tax-paying Ohioan already, but he has yet to buy a residence here, he said.

Why? Unlike in Ohio, selling a house in Florida is not an easy or quick proposition these days.

“And I’ve got two down there I need to sell first,” Mr. Lopez said. n

Shale 101

By Dan Shingler

G

etting ready for school this year means boning up on shale gas and oil drilling. At least that was the case when we caught up with about 35 teachers who devoted the first day of August to visiting a string of gas wells and a disposal well in and around Canfield.

The teachers were largely from Mahoning and surrounding counties, though some came from as far as Dayton. They said students from elementary school to high school are interested in what they know is going on in their state as a result of shale gas.

Student opinions of the industry vary, and more often than not mirror the views of their parents, teachers said. In areas where drilling is taking hold, those opinions also sometimes line up with whether their own family has received a bonus payment and is expecting royalty payments from gas on their land, or whether they feel like they’ve been left out of the gold rush going on around them.

They’re also aware the oil and gas industry is creating jobs all around them, but they don’t necessarily know what training or connections they need to get those jobs.

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Les Dundics teaches the teachers.

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Teachers got schooled on shale and didn’t mind one bit.

“They’re hearing what their parents tell them, and they’re also hearing ‘jobs, jobs, jobs, jobs, jobs’ — and they’re like, ‘OK, how do I get one?’” said Heather Moran, a high school science teacher from Boardman who was on the tour.

As for the teachers, they were a curious but polite audience, said Les Dundics, leasing manager for Everflow Eastern Partners in Canfield. He was the tour guide for his company’s wells, which were not shale wells but were drilled into the Clinton formation above the Utica. Mr. Dundics took the teachers via a chartered bus to wells his company op-

“They’re hearing what their parents tell them, and they’re also hearing ‘jobs, jobs, jobs, jobs, jobs’ — and they’re like, ‘OK, how do I get one?” erates near schools and even in some of Canfield’s toniest areas, where a well was going in next to upscale homes with gated driveways and manicured lawns.

Teachers also were interested in what shale gas and oil would mean to them personally, not as landowners but as educators who rely on local tax money. Some, including from Carroll County where drilling has taken off faster than in other parts of Ohio, said their school boards are telling them that they’ve yet to see any new shale money that could be spent on education.

Mr. Dundics said local governments will see the biggest influx of new cash not from bonus payments, but from royalty payments after wells are drilled and brought into full production.

“You should be rolling in money down there,” Mr. Dundics told teachers from the Carrollton area.

For now, though, the teachers seem most interested in getting their facts straight to augment their lessons.

“This fits perfectly with environmental science,” Ms. Moran said. n

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21

The problem posed by unfairly traded, imported pipe

By Randy Boswell I Opinion

F

or domestic oil and gas pipe producers, the worst times have passed. The industry and economy are on the upswing and, with a 10 million-ton annual market for oilcountry tubular goods, there’s even room for fair competition from imports.

However, doRANDY BOSWELL mestic producers still face challenges.

Among the biggest is competition from unfairly traded imports, which accounted for more than 50% of the oil-country tubular goods market and upwards of 70% in the small-diameter line pipe market in 2012, with a similar pace in 2013.

These unfairly traded imports threaten the performance of U.S. pipe manufacturers as a whole, and the employment opportunities we, as domestic producers, create.

With the American manufacturing industry and jobs on the line, it’s important to do everything possible to combat unfairly traded import pipe — now more than ever.

Fairly traded pipe is a challenge we can compete against. Yes, import pipe may have cost advantages, and most of it meets the quality standards domestic pipe meets. But because of how import pipe is purchased and distributed, inventory is not ordered on demand, but instead stockpiled on the ground.

These stockpiles prevent distributors from flexing inventory to meet the flow of drilling activity, line pipe construction and pipe fabrication due to the general price volatility of steel. Stockpiles also are exposed to the elements, which can result in questionable quality assurance. This results in inventory — and dollars — lost.

Domestic producers can combat fairly traded imports by continuing to provide flexible inventory through supply chain

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management, lessening the risk to distributors and end users that occurs with price volatility.

It’s the unfairly traded import pipe that is the real threat. And this threat is to U.S. jobs that may be lost when unfairly traded imports fill demand instead of domestic pipe.

Of course, the correlation is understood that if a plant is producing more pipe, it’s hiring more people. What isn’t as well known is that the jobs at our Wheatland Tube plant in Warren — or any other manufacturing facility — aren’t the only ones impacted by import pipe.

In addition to the 180 jobs at the Warren plant, there are many more jobs that support the running of that plant and the manufacturing of all the components to finish the pipe — all jobs with other U.S. manufacturers.

From those running pipe in Ohio’s Utica shale and in the Marcellus shale of Pennsylvania to the local distributors, transportation companies and firms providing support products and consumables, domestic jobs are in jeopardy because of unfairly traded imports taking market share from domestic pipe. These American manufacturing plant jobs, and every other job that supports them, are what builds communities. This is what builds cities.

Fight the good fight As an industry, we are making great strides in preventing unfairly traded pipe from being imported. Since 2009, when the first trade case was filed in front of the International Trade Commission regarding China unfairly trading products in the U.S. market, we’ve seen a significant drop in imports.

Now that imports again have risen to levels similar to those of 2009, domestic manufacturers are taking action. In early July, a group of U.S. steel manufacturers,

including Energex Tube, filed petitions against nine countries for unfairly traded imports. We continue to stand against unfairly traded import pipe and to fight for the domestic manufacturing economy.

Promising action from the U.S government includes two bills that sit in front of Congress — the ENFORCE Act and the PROTECT Act. The ENFORCE Act calls for stricter enforcement of trade laws; the PROTECT Act is designed to tighten the laws on duties and dumping circumvention. Although these two acts provide promise, there is more that can be done to combat unfair imports, protect this country’s jobs and strengthen the manufacturing industry.

Congress can be more efficiently involved — offering better support to domestic producers and, in turn, domestic jobs — by taking a proactive approach against unfairly traded imports. As it currently stands, U.S. manufacturers must show evidence that imports hurt business before filing a trade case. In Canada, manufacturers can show a threat of injury to do the same. If U.S. manufacturers could be proactive instead of reactive, the import problem could be much better mitigated.

When building our nation’s roads, from local streets to interstates, there is a strong “Buy American” narrative. We, as domestic pipe manufacturers, should take this same approach with drilling and oil country applications. We need to make our economy stronger by promoting domestic producers and suppliers. We need to make people realize that cheaper doesn’t always mean better. We need to make the clear case for domestic pipe.n Randy Boswell is the president of Energex Tube, a Houston-based manufacture of oil country tubular goods with operations in Ohio.

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Banking on the Utica Gold in the ground is turning into money in the bank, and that’s pumping up the profits for many eastern Ohio financial institutions.

By Dan Shingler

I

T

Farmers are investing in their operations and looking for places to put their gas money, and bankers like Mark Witmer are getting new business, often from old customers, as a result.

here appear to be favorable winds at last for those at the helm of the many small community banks doing business in the eastern Ohio region known simply as “the Utica” in oil and gas circles.

Following years, even decades, of mostly decay or stagnation in both town and country, bankers in many Utica communities say they are seeing economic growth, business loan demand and folks looking for a place to safely store newfound cash.

John Gulas “It’s created consumer and business confidence that we haven’t seen in a number of

24

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years,” said Rick Hull, president and CEO of Premier Bank & Trust in North Canton.

Mr. Hull’s headquarters are on the western edge of the Utica, but his business is driven by the play, where he is expanding.

Just like banks to the east and closer to the drilling, Mr. Hull says he isn’t getting business directly from the big drillers and oilfield service companies — they don’t need financing from small-town, smalltime banks. But their suppliers and beneficiaries do, and Mr. Hull and his peers say they are seeing increased loan demand from new and existing customers to finance purchases ranging from equipment used in the shale fields, to farm equipment and collectible automobiles.

“We have a major trucking company, for example, that’s providing services to all the massive vehicles that are being sold,” Mr. Hull said. “I have calls with two companies in the next two days and one is a tank company that makes big storage tanks used in

oil and gas.”

Milk money Mark Witmer tells a similar story. As president and CEO of First National Bank in Orrville, Mr. Witmer said he’s doing construction lending for businesses that are expanding because of shale — but he’s also issuing loans to his longtime agricultural customers.

Lending to farmers is a specialty of Mr. Witmer and his bank, and he said farmers for the most part are not taking their shale money and leaving their land fallow or behind. Far from it; they’re investing in their operations. Not only are shale revenues coming in, but prices for crops and other commodities are up and farmers are investing in what they know.

Farmers also are finding ways to make their lives easier in the process.

“In the past two or three months, we’ve financed three farms where we put robotic

milkers in,” Mr. Witmer said.

That’s no small expense and no small change in lifestyle. The milkers cost $250,000 apiece and several can go on a single farm.

But they automatically prepare a cow for milking, milk it and can do one cow after another – relieving dairy farmers from a chore they’ve done twice every day, birthdays and Christmas included, since cows first grew udders.

Just like the farmers who are benefitting from good weather and crop prices lately, bankers in rural eastern Ohio are benefitting from conditions that make their harvests easier to reap.

Real estate values are rising, which makes it easier to make both residential and commercial real estate loans, said John Gulas, president and CEO of Farmers National Bank in Canfield.

Even his staff is having trouble finding available homes to buy, he said.

“We’re seeing a pick up in home sales. My assistant and her husband were looking for a house and every time they found one they liked, it was sold. But it’s nice to see some of that,” Mr. Gulas said.

And, for all sorts of loans, there are simply more creditworthy borrowers with which to do business as residents increase their incomes and personal wealth.

“A lot of credit scores have been enhanced,” says Charles Crowley, a managing director in the Beachwood office of investing banking firm Boenning & Scattergood, who has worked with community banks in the region for more than 20 years.

Mr. Crowley and his firm recently helped Consumers National Bank of Minerva raise $10 million in a secondary stock offering that was anything but hard to sell, he said. Existing shareholders snapped up all but $400,000 of the offering, and other investors, many of them local, bought up what was left, he said.

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The challenge many of the rural banks still have ahead of them, however, might be to prove their ability to manage wealth. Unlike many of their super-regional competitors, which have hundreds of billions of dollars in assets and giant trust departments, small banks often are thinly equipped for wealth management duties.

They’re working hard to change that, though. Consumers Bank president Ralph Lober said his wealth management division is growing and is an area targeted for future growth due to shale revenues — and he isn’t alone.

Premier Bank’s Mr. Hull said it’s not by chance that the word “Trust” is in the name of his bank. He said he’s growing his wealth management business and also is working to partner with other, smaller banks that are in the Utica region and have customers seeking to manage their new wealth.

The small banks think they can leverage their close relationships with customers — and with their communities — to get wealth management business, in part because residents in their towns don’t trust the bigger, out-of-town banks suddenly offering to manage their money.

“We just kill the super-regionals with that,” Mr. Hull said. “I play the carpetbagger card all the time.”

Mr. Gulas’s bank was fortunate to have purchased an established $600 million trust department in 2009, as well as a pension consulting firm adept at administrating investment accounts in

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25

Still building

If you haven’t had a meeting here ...

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By Dan Shingler

C

hesapeake Energy is getting close to completing its new Utica headquarters just east of Canton in Louisville. It’s also close to having more than 1,000 Ohioans on its payroll.

So far, the Utica’s biggest driller has hired or transferred more than 950 employees for its Ohio operations, the company reported. That was as of mid August, about three years after Chesapeake began its Ohio operations, and its local hiring, in the summer of 2010.

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Only about 150 of those employees work from the company’s Utica headquarters, which will remain in Canton until the new headquarters in Louisville is ready for them early next year. The rest work at field offices that Chesapeake maintains across the Utica, as well as on the 18 drilling rigs the company has been running in Ohio recently.

There’s no telling how many Ohio employees Chesapeake eventually will need, but for now Chesapeake says it’s still hiring, at least for its drilling operations.

“While we expect continued growth, we are not able to provide a forecast. So far in 2013 we have filled 290 positions in Ohio and have 61 job openings in the state,” said Pete Kenworthy, formerly Chesapeake’s Ohio spokesman.

Ironically, shortly after he spoke with Shale, Mr. Kenworthy was one of about 80 Chesapeake employees nationwide who were let go in mid August. The layoffs included about 28 people working in community relations, as well as media and governmental affairs, in the Utica and Marcellus region.

However, Chesapeake still is moving ahead with plans to hire operational staff in the region. The company’s employment website, www.chk.com/careers, listed openings in 21 job categories in Ohio when it was checked in late August.

While the company, like most drillers in the Utica, does bring in experienced help from out of state, it also has been hiring Ohioans.

“In 2012, we filled 327 positions in Ohio and 247 (75%) showed an Ohio address at the time of hire,” Mr. Kenworthy said.

Chesapeake also tries to hire military veterans, with good success. Among the roughly 250 people it has hired in Ohio so far in 2013, were 59 were veterans, the company reports.n

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Chemical Bond The chemical and plastic industries might have found a savior in shale gas.

ETHYLENE CHAIN

By Dan Shingler

A

Ethane Natural Gas

Ethylene Chain

Cracker

side from the oil and gas industry itself, you’d be hard pressed to find a sector of the Intermediate Products American economy with more hopes pinned PVC Vinyl Chloride on shale drilling than the chemical industry.

Ethylene Glycol Natural gas is the source of the raw Styrene Polystyrene materials that make up many of the plastic Adhesives Polyethylene Pool Liners goods most people buy every day, in addition Coatings Window Siding Films Trash Bags to being a source of many industrial films, Papter Coatings Sealants Models Carpet Backing coatings and specialty chemicals. After deInstrument Lenses Insulation cades of watching U.S. supplies of natural Detergent Flooring gas dwindle — and seeing big suppliers eiPipes Tires Food Packaging ther shut down production or move it overSealants Bottles Paint Housewears seas — the chemical industry believes it has Footwear Antifreeze Crates Clothes found a savior in shale.

Diapers Calvin Dooley, president and CEO of the Stockings Toys American Chemistry Council, has become a American Chemistry Council Textiles fracking apostle, carrying the message that Middle East, where oil is used to produce similar raw materials. In shale drilling already is saving his industry the process, they had been shutting down or decreasing the size of from a domestic demise.

“Natural gas is to chemicals as flour is to bakeries,” Mr. Dooley their U.S. operations. says. And to those who will listen, he is more than willing to elaboThe game changes rate.

Now, Mr. Dooley and other experts are predicting the chemical “There was not one conversation with a CEO in 2008 representing the chemical industry that was talking about making major new and plastics industries again will grow in the United States, thanks investments in manufacturing in the U.S.,” Mr. Dooley said. “And to pricing and supplies that give the nation a competitive advantage now, just four or five years later, you can talk to every chemical over other parts of the world. leader — be they in the United States, be they in Brazil, be they “We have moved to being one of the lowest-cost producers and in India, be they in Europe — and each and every one of them one of the most competitive manufacturers of chemicals in the enare now talking about making major new investments in chemi- tire world,” Mr. Dooley said. cal manufacturing in the United States. And why is that the case?

Others agree. In July, the economic research arm of consulting There’s really one reason, and it’s because of shale gas.” firm McKinsey & Co. issued a report entitled “Game Changers: Those remarks came in a presentation on the promise of shale Five Opportunities for U.S. Growth and Renewal,” in which shale drilling Mr. Dooley made before the City Club of Cleveland last gas’ impact on the chemical industry figures prominently. spring. That appearance was only one of at least three recent trips “If the United States fully realizes the opportunity, shale energy Mr. Dooley has made to Ohio, each to talk to business and civic could revitalize the oil and gas industry, have downstream benefits groups, community leaders and the media in support of increased for energy-intensive manufacturing, and send ripple effects across shale drilling. the economy,” McKinsey researchers reported.

That’s because, he says, shale gas is the most important thing “We estimate that it could add 2 to 4 percent ($380 billion to $690 to happen to the chemical industry since, well, the last time major billion) to annual GDP and create up to 1.7 million permanent jobs U.S. oil and gas discoveries were made, leading to the establish- by 2020. This could be an important source of high-wage employment of a strong chemical industry in this country in the first part ment for workers without college degrees, generating economic of the 20th century. activity in parts of the country that have seen little investment in In recent years, though, the chemical industry has been threat- recent decades.” ened by rising prices and declining supplies of natural gas in the While much of that wealth and job creation would be in the oil United States. It’s a situation that caused many companies that and gas industry itself, as well as in the general economy, McKinmake chemical feedstocks to move operations to places such as the sey noted specific benefits to the U.S. chemical industry.

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The close relationship between natural gas and the chemical and plastics industries has been cited as a chief reason energy giant Shell has proposed building a large “cracker” plant to separate other raw materials from the natural gas being extracted in Ohio and Pennsylvania. The proposed site, along the Ohio River near Beaver, Pa., is close to drilling in the Utica and Marcellus shale plays and to big chemical and plastics companies in Northeast Ohio and western Pennsylvania.

Companies that would use those raw materials are well aware of how shale gas is changing their industry, said Jim Hollman, senior vice president of performance chemicals for Omnova Solutions Inc., a maker of special polymers, coatings and chemicals based in Fairlawn.

“This will shift the center (of the petrochemical industry) back from the Middle East to the U.S.,” Mr. Hollman predicts. “This will be the biggest impact on the chemical industry in North America, certainly in my career of 40 years.”

Like Mr. Dooley, Mr. Hollman said his industry is going from a state of decline to a state of growth in the United States.

“Less than 10 years ago, we thought the U.S. chemical industry was just going to continue to decline,” Mr. Hollman said.

“This is a 180-degree reversal from that.”

As is the case with many chemical companies, Omnova relies on ethylene and other raw materials that eventually are turned into polyethylene and used to make a variety of plastics, films, paints, coatings and other materials.

“It’s everything that’s plastic,” Mr. Hollman says of ethylenebased materials — and he predicts the rebirth of his industry only will begin with suppliers such as Omnova, not end there.

“We’re going to see a bigger U.S. chemical industry generally,” Mr. Hollman said. “More downstream investments, all the way to finished products. Everything that is ethylene-based will become much more economical (to make) in the United States.”

It beats the Middle East Like many area residents and business proponents, Mr. Hollman said it would be nice to see Shell follow up on its plans to build a cracker in Pennsylvania. But, in terms of being a source of raw materials, it doesn’t matter much to companies such as Omnova whether the plant is built close by or on the Gulf Coast, alongside other natural gas processing plants.

Omnova, after all, has six plants in North America, and transportation routes for raw materials to be shipped out of the Gulf Coast region are well established and reliable, he said.

Omnova simply will be happy to see the raw materials processed in the United States, whether that processing is done in Pennsylvania or along the Gulf.

“Both of them are way better than in Saudi Arabia,” he said.n

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Laying Pipe / from page 17 Since last December, the Carrollton office has overseen more than 500,000 man-hours of work on various construction sites, all without a major mishap or injury, Mr. Futch said. The company is handling big projects for pipeline developers associated with Chesapeake Energy, the biggest company in the Utica in terms of the leases it holds.

Willbros is working on major gathering systems, pipelines and processing centers, especially in and around Carroll County, where it has been both hiring and spending money. Mr. Futch said he’d gone over his local spending at the end of June and found his company had spent about $20 million in and around Carroll County in the first six months of this year on subcontractors, materials, labor and services.

Some of the big Utica projects Willbros is working on now will wrap up over the next year or so, but there still will be plenty of other projects to come, Mr. Futch said.

“We’re seeing the majority of our activity in Ohio right now; there is a lot of project development opportunity in Ohio and I don’t see that changing any time soon,” he said.

He’s still hiring, to boot.

“One of our largest initiatives is finding a work force here in Ohio,” Mr. Futch said.

Even after the major construction is complete, Ohio will continue to be a big market for Willbros, Mr. Futch predicts. Once built, pipelines will need to be maintained and their integrity tested. That’s the reason the company established the Columbus office, which will grow in the future, Mr. Futch said. n

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Willbros’ crews are installing pipelines like this across Eastern Ohio.

On A Roll / from page 12 That sale closed about two months before news of the Utica hit, Mr. Osborne said. The family bought it mainly because they thought it was a cheap price for something that would cost far more to build today, Greg Osborne said. Along with the actual pipeline, they also got unrestricted easement rights all along the line’s route, he said. Those rights by themselves are going for $15 to $35 per foot in areas where Utica drillers need to install pipelines, industry sources say.

“We could run a 30-inch pipe 160 miles east to west, going through the heart of all these large players’ acreages,” Mr. Osborne said. “We feel its value is north of $30 million today and we’ve been out marketing it.”

Don’t put your profits or royalties at

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They deliver But none of the above is in the Osbornes’ core natural gas business. That business, which they run through Gas Natural Inc., a publicly traded company, involves the delivery of natural gas to homes and businesses.

Greg Osborne has been working to build Gas Natural over the last 10 years and has made a string of acquisitions, picking up small natural gas utility companies that have virtual monopolies in their territories. To date, Gas Natural has accumulated operations in Ohio, Kentucky, Maine, Montana, North Carolina, Pennsylvania and Wyoming. It has more than 73,000 business and residential customers.

Like most gas utilities, Gas Natural doesn’t make money selling gas, but by delivering it. Since its delivery charges do not change with the price of gas, low gas prices are good for Gas Natural because they encourage consumption.

“Natural gas has been the most volatile commodity there is,” Mr. Osborne said. “But it’s still the most economical (fuel). It’s not a coincidence that 80% of the country is on natural gas.”

His business model apparently makes sense to investors as well. Not only did the market capitalization of Gas Natural recently top $100 million for the first time, but a July stock offering was oversubscribed.

“We were going out to raise $10 (million) and got oversubscribed by almost double,” Mr. Osborne said, noting that the offering ultimately raised $17.3 million.

And that’s on top of $20 million the company easily raised in another stock offering in 2010.

That money will go mostly toward further developing the network of pipelines and other infrastructure at Gas Natural, which will use it to expand and sign up more customers, Mr. Osborne said.

That’s another reason why Mr. Osborne hopes natural gas prices remain low. Once customers sign up for natural gas, they tend to stay on the fuel, he said.

“Once you have a customer, it’s like an annuity for life,” Mr. Osborne said.

So far, low gas prices are helping him to capture customers, expand his distribution network and grow his company.

They also leave Mr. Osborne hoping that drillers in the Utica, as well as other shale plays, are wildly successful. That would keep prices low, bring still more customers and bolster the economies in some of the states where his company has business and industrial clients, he said. n

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CRACKERS/ from page 15 permits in an area that already has high levels of other hazardous plant emissions.

“There may be air emission permitting problems in Texas due to the large scale of refining already being done in the area,” says Mr. Sullivan of Alembic Global Advisors. “But there are also perceived problems in Pennsylvania, that that state would present its own set of permitting problems.”

MarkWest may be key

So, the role of Pennsylvania and Ohio in the natural gas liquids processing game is far from set, even though Ohio already is seeing billions of dollars of midstream infrastructure investment.

The deadline set by the owner of the zinc plant property for Shell to enter into a contract is now the end of the year. Mr. Sullivan thinks there is one thing to watch to see if Shell exercises that deal.

“The success of the project with MarkWest doing a pilot program of shipping ethane to Europe is big for the Northeast and Midwest processing investment,” he said. “There is a market for ethane in Europe — higher prices — and a petrochemical processing and export hub near Philadelphia makes a cracker plant in Pennsylvania make much more sense.

“But ethane will also be able to be shipped from the Texas Gulf Coast, and the added on cost from there to Europe is not huge,” Mr. Sullivan says.

“So, it’s really anyone’s guess at this point,” he said.n

Banking ON the Utica/ from page 25 July of this year.

“Shale has helped with that. We’ve seen money come in from people getting lease payments,” Mr. Gulas said.

But small banks in the Utica are growing almost all parts of their businesses, and doing it faster than banks that are not in the shale region. Mr. Crowley recently took a look at how banks in the play were growing both their assets and deposits and found they were growing both sides of their balance sheet twice as fast as banks in Ohio as a whole, he said.

The banks in the Utica region are ready to grow, too, Mr. Crowley said. They have good bases of capital, are not burdened by large amounts of nonperforming assets, and they know their markets, he said.

They’re also expanding. Mr. Hull, for example, opened a branch in St. Clairsville last year, and Mr. Witmer said he is about to open a full-service branch in Columbiana County.

Mr. Gulas said Farmers Bank raised about $15 million in new capital, from existing shareholders, in 2011.

“We’re looking to grow,” he said. “We raised capital in 2011 for the purposes of finding additional acquisition opportunities.”

Not that eastern Ohio bankers generally planned for all this growth they’re now trying to manage. Even the bankers themselves conceded they just stumbled upon the economic engine that’s driving much of their increase.

“We didn’t see the shale play coming — not at all,” Mr. Hull said.

“I’ve got a good crystal ball, but it’s not that good,” laughed Mr. Gulas. n

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Natural Gas / from page 7 of that, natural gas burns cleaner and is easier on engines, so the trucks themselves may last longer.

So far, Akron-based JRayl Transport, R&J Trucking in Lorain and Arms Trucking have ordered new CNG trucks, according to Mr. Martin.

“JRayl, he just bought 30 CNG trucks from me. That’s a huge order, especially for CNG,” Mr. Martin said, adding up the sales in his head: “So 30 to him, 10 to Arms and 20 to R&J Trucking, that’s 60 (CNG) trucks we’ve sold already.”

Given that the trucks cost about $180,000 each — about $50,000 more than a diesel fuelpowered equivalent — 60 trucks represents about $10.8 million in sales for Mr. Martin’s dealership.

Power steering

their fuel costs, he said.

“We have been opening those kinds of communications with other haulers as well,” Mr. Van Zeeland said.

Which is, of course, exactly the kind of momentum Messrs. Martin and Moore hope to see take hold.

In for the long haul

Dean Martin

As long as natural gas remains cheaper than diesel fuel, the two think they’ll be able to sell trucks at a brisk pace. And the more gas that drillers produce, the more they help keep down the price of the fuel.

Initially, the market for CNG trucks will be mostly short-haul trucking companies, which can fuel at their own depots overnight, run during the day and then return in the evening to refuel.

That’s how most trucking companies hauling sand and other materials to shale drill sites run, so the industry is a logical point of sale for CNG trucks.

Eventually, however, CNG will become an established over-the-road fuel as well, just as it is in other countries, Mr. Moore said.

The missing piece is a national CNG fueling system, but it’s rapidly developing, especially along the interstate system, he said.

“We’ve been looking at using a route from North Carolina to here (for CNG trucks) and there’s fuel all the way now,” Mr. Moore said, adding that it’s just a matter of time before CNG takes hold as a fuel across the United States.

“The amazing thing is that it hasn’t happened already, given the savings that can be had,” Mr. Moore said.

Mr. Van Zeeland and others think he’s right, and that soon there will be more fueling stations for CNG vehicles everywhere, and more truck sales for folks such as Mr. Martin.

“Once the momentum gets going, you won’t be able to tell which was first: the chickens or the eggs,” Mr. Van Zeeland predicts. n

“This gas is coming

And the CNG truck business is just starting to get rolling, say some industry observers.

Those observers include some that are pushing their suppliers to use CNG vehicles, such as Chardon-based Fairmount Minerals and its frack sand subsidiary, Best Sand.

Arms Trucking is a primary hauler of Fairmount’s fracking sand in Ohio, and was encouraged by Fairmount to adopt CNG fuel, said Fairmount director of product performance Alan Van Zeeland.

“Fairmount and Arms have been working together for some time and have a long and healthy history together,” Mr. Van Zeeland said. “Several years ago, we started looking at converting some of our mining equipment to natural gas and it just made sense to pull Arms into that discussion.”

Fairmount is aggressive about reducing its environmental footprint wherever it can, Mr. Van Zeeland said. That push extends to its vendors, and it prefers to use haulers using CNG vehicles, especially for hauling frack sand to gas drillers. More of Fairmount’s trucking company vendors are likely to take the same path as Arms, both to suit Fairmount and to save money on

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