PITTSBURGH – The Allegheny County Airport Authority approved a deal Friday with Consol Energy that could be worth $500 million for rights to drill for natural gas and oil at Pittsburgh International Airport.
Under the deal, Consol will pay a signing bonus of $50 million and then pay 18 percent royalties on future production. Officials expect the royalties to total $450 million over the next 20 years, though that figure isn’t guaranteed.
Officials think the first wells will be drilled in late 2014 or early 2015, after lengthy reviews from both the state Department of Environmental Protection and the Federal Aviation Administration.
Airport authority treasurer Dennis Davin said the FAA has detailed rules on setbacks and how the drilling can be done.
“First and foremost, we’re running an airport. The airport can’t have any disruption of service from the drilling,” Davin said.
Consol, which is based in Southpointe, is planning six to seven well pads on airport property and 45 to 50 wells. The closest drilling will be several thousand feet from runways.
The airport, located about 10 miles outside the city, intends to use the money from drilling to lower costs to airlines in hopes of attracting more flights, and for capital improvements. It served 20.8 million passengers at its peak in 1997 but saw that plummet after US Airways dropped it as a hub. Last year it served 8 million passengers.
At a public hearing on Thursday, county executive Rich Fitzgerald said Consol is also projected to invest $500 million in infrastructure such as roads and utilities. Fitzgerald said that work will generate local jobs, too.
But experts said the current low wholesale price of natural gas hurt the county’s ability to strike a better deal.
In 2006 the Dallas/Fort Worth International Airport received a $181 million bonus for rights on about 18,000 acres of land, plus a royalty of 25 percent on all future production.
Jerry Simmons, the executive director of the National Association of Royalty Owners in Tulsa, Okla., said he found it “a little surprising” that Pittsburgh officials couldn’t negotiate a higher royalty rate. He noted that since the Pittsburgh airport controls 9,000 acres they’re in a stronger position to negotiate, compared to small landowners.
But Simmons said he also tells people that “when you get to the point when you think you got a good deal, take it,” since royalty rates vary from about 12.5 percent up to 25 percent. Davin, the authority treasurer, said officials believed the 18 percent rate to be “very good.”
Simmons said he doesn’t know of any other major airports in the northeast that have signed significant deals, and much of the gas-rich Marcellus Shale is far from major population centers. But many municipalities in Pennsylvania have leased smaller parcels or have debated doing so, and the state has also signed drilling leases for public forests and game lands.
Marcellus Protest, a local group that’s critical of the drilling industry, complained about a lack of hearings in nearby communities and that no environmental impact study was done in advance.
The Marcellus lies below parts of Pennsylvania, West Virginia, Ohio, Maryland and New York.