Dec 3, 2017 8 min read

McMURRAY – At 35 years old, Matt Brewer can already count himself as a beneficiary and a survivor of the natural gas boom-and-bust cycle of the past decade.

After being hired for his first job in the oil and gas service industry in 2011, Brewer in 2013 formed HydroEdge Solutions, a McMurray-based turnkey provider of water solutions to the energy industry. The company counts as its customers many of the major players in natural gas extraction from the Marcellus Shale, including EQT, CNX Resources, Statoil and EdgeMarc Energy. Things went well until mid-2015, when the natural gas industry went into a downturn.

“We didn’t realize the extent of the downturn until the second or third quarter of 2015,” Brewer recalled last week, adding “2015 to 2016 was tough.” He kept the company afloat by cutting employees’ hours and implementing other cost-saving measures.

By late 2016, Brewer said, he was seeing a month-by-month increase in business. “Every month we’ve had has been better than the last,” he said.

The overwhelming evidence of the turnaround for Brewer was validated last month.

On Nov. 9, the company announced that it completed an $8 million round of debt financing with a third-party lender, the proceeds of which will be used to grow HydroEdge to keep up with customer demand.

“Aggressively expanding our product and servicing offering, while maintaining lean operations, are key components of our strategy,” Brewer said in announcing the financing. He said last week that he wants to expand his staff of 92 to 130 “as soon as possible,” looking to add positions from equipment operators to technicians to petroleum engineers.

But his emphasis on lean operations is something that Brewer and others in the industry are noting as a theme of the current turnaround, acknowledging that this time is different from the last boom.

“It felt like the Wild West,” Brewer said of his early days in the business. And while his business suffered in the downturn, Brewer said, “It needed to happen. Everybody became more efficient.”

The companies he works for now are more systematic and measured as they plan and drill wells.

Historic time

A big part of the efficiency being seen is a result of consolidations that occurred as the energy companies emerged from the downturn. The changes are historic for several reasons:

* On Nov. 9, EQT shareholders approved the company’s merger with Southpointe-based Rice Energy, whose shareholders took similar action that day. In the short term, the merger caused an undisclosed number of layoffs, mostly as a result of redundancies between the two companies, but the historic result of the merger is that EQT became the country’s largest natural gas production company.

* Consolidation took a different path for Consol Energy. On Wednesday, CNX Resources Corp., formerly Consol Energy Inc., completed the previously announced spin-off of Consol Energy Inc., formerly Consol Mining Corp., creating two publicly traded companies – a natural gas exploration and production company and a coal company.

“Today’s historic announcement is the culmination of a strategy over a decade in the making,” said CNX CEO Nick DeIuliis. “Our objective was to once again transform a 150-year-old institution, which owns and operates the best natural gas and coal assets in the world. We have accomplished that goal and, in doing so, positioned two new companies to dedicate singular focus to their individual industries and market segments.”

DeIuliis said earlier the split will enable CNX to focus on its core operations as a natural gas production company. He added that by year’s end, CNX will grow substantially.

* It was just over a decade ago that Range Resources, the first company to ply the Marcellus Shale for natural gas through unconventional drilling, predicted that it could make Pennsylvania a net exporter of natural gas.

In a Nov. 15 presentation, Range noted that its Appalachian production now reaches multiple markets, with the company currently selling natural gas in the Gulf Coast, Midwest, Southeast and Northeast markets, with its added ability to export ethane and propane internationally, while sending ethane to Canada and the Gulf Coast. The company also notes that the Mariner East line can be used to ship its propane for international sale or into premium Northeastern U.S. winter markets. The company predicts that by the first quarter of 2018, more than 90 percent of its gas will be sold in favorable markets.

Range spokesman Mark Windle said Monday that developing markets for its products was always part of the company’s strategy. He also agreed with Brewer’s comment that the current turnaround in the region’s natural gas industry is marked by a much more measured approach to drilling for gas to reach a variety of markets.

“We took a long-term approach early on because we knew we had to get our product out” to the various markets, Windle said.

* When he updated Washington County Chamber of Commerce on Tuesday about the current state of the natural gas industry in the Appalachian Basin, David Spigelmyer, president of the Marcellus Shale Coalition, noted that the industry, which in the early days was focused on upstream drilling and midstream processing, is now migrating to downstream opportunities that are becoming available in the end uses of natural gas products.

The Shell factor

The response to market opportunities comes at a time when Shell has begun construction of its $6 billion ethane cracker plant in Beaver County, which, when completed in a couple of years, will itself create industrial history as the first cracker plant outside of the Gulf Coast. While Shell’s plant will serve the company’s customers within a 700-mile radius with plastic pellets for a variety of finished products, the hope is that the region will attract additional crackers and more petrochemical and plastics manufacturers to the region.

Spigelmyer cited a recent McKinsey study that identified $60 billion in economic opportunities in the region “if we get the downstream equation right.”

In addition to the potential of attracting other petrochemical manufacturers in the region, Spiegelmyer noted that there are other many other market opportunities for natural gas, including electricity generation, light- and heavy-duty transportation applications; feedstock for industries; and exports.

Pa.’s growing role

Pennsylvania now supplies about 25 percent of the country’s natural gas demand. The Energy Information Administration in early November noted that Pennsylvania’s natural gas production reached a new high of 15 billion cubic feet per day in October, an increase of 25 percent from year-ago levels and an increase of 80 percent from January 2013.

The EIA noted that the Keystone State accounts for 19 percent of total U.S. natural gas production, mostly from Appalachia’s Marcellus shale formation.

It specifically noted that Washington and Greene counties contributed the lion’s share of production in the Southwestern corner of the state, where the two counties account for the largest number of permits and rig counts, while Susquehanna County in the northeast has the third-highest number of rigs and permits.

EIA said pipeline projects are being developed close to the state’s southwest and northeast regions to carry natural gas from these counties to demand centers. Current pipeline projects include the 3.25 billion-cubic-feet-per-day Rover Pipeline project and the 1.5 Bcf/d Nexus Gas Transmission Project, both slated to begin operations during the first quarter of 2018.

In Range’s November presentation, the company noted that with about 1.5 million net effective acres in Southwestern Pennsylvania, it has decades of drilling inventory, backed by a “gas-in-place” analysis that shows the greatest potential for production is in Southwestern Pennsylvania.

Range’s projections about the Appalachian Basin’s future were backed by a Nov. 14 report from the International Energy Agency, which predicted that a dramatic increase in shale production will transform the U.S. into the world’s largest exporter of liquefied natural gas by the mid-2020s. Shortly thereafter, another milestone will be reached, the IEA said, noting that by the late 2020s, the U.S., which only lifted its ban on oil exports in 2015, will ship more oil to foreign markets than it imports.

Aside from looking at what appears to be a long-term future for natural gas production in the region, the turnaround of the past year is having some immediate positive effects on businesses like HydroEdge and others, including commercial real estate.

Kelley Hoover Heckathorne, director of brokerage for Burns Scalo Brokerage, said recently she’s seeing a pickup from large-square-footage users in Southpointe, including some energy companies.

Heckathorne recently signed Crown Castle to a 50,000-square-foot lease in The Fountainhead building, which reached full occupancy with the deal. She also was able to place EQT in 30,000 square feet at 400 Woodcliff Drive in Southpointe II, in space formerly occupied by Rice Energy.

EQT now occupies all of the space in Southpointe previously held by Rice, including its former headquarters building in Southpointe II. Other energy companies also are seeking space in the business park, as are companies from the technology sector.

“Southpointe is seeing a lot of activity for large users,” she said. “This absorption of space is a positive for the real estate market.”