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DIGGING DEEP
GAS EXPLORATION COULD FUEL A BOOM IN WNY

The 117-foot drilling rig rising out of the fog on Rose Hill in this Steuben County town is a scene that Western New Yorkers can soon expect to see closer to home.

The same natural gas fields that feed spectacularly productive new wells in the southern Finger Lakes also run under Erie, Chautauqua, Cattaraugus and Allegany counties, exploration experts agree.

Combine those discoveries with the current high prices and demand for natural gas, and it's easy to understand why many see the beginnings of a boom in what had been a stagnant gas and oil business in the nation's oldest successful natural gas field. The first natural gas well was drilled in Fredonia in 1821.

"It's very exciting," said Brad Gill, executive director of the Hamburg-based Independent Oil and Gas Association of New York. "I was in Texas two weeks ago and, for a change, everybody around the country has heard about the oil and gas industry in New York. And this is why."

"This" is the successful drilling that has tapped into the Trenton-Black River reservoir, a gas-rich zone that runs underneath the Appalachians. Most of the wells drilled to date are around 2 miles deep, about 7,000 feet below the shallower Medina wells that currently produce gas in Western New York.

A handful of larger gas and oil companies have drilled wells in central New York that have shown an initial production of up to 15 million cubic feet of gas a day. An average Medina well might produce 50,000 to 100,000 cubic feet a day.

To put that in perspective, the average U.S. home uses 1,000 cubic feet of gas every four days.

"We have four wells on line, and we believe those lines are heating 44,000 homes in New York this winter," said David Lind of Pennsylvania General Energy, whose company is drilling several new wells, including the one on Rose Hill in Corning.

The recently announced partnership between National Fuel Gas' exploration and production arm, Seneca Resources, and Talisman Energy, Canada's largest independent oil and gas producer, is a signal that Western New York discoveries could be just as lucrative, according to Lind.

"When somebody like Talisman, which talks about budgets in the hundreds of millions of dollars, starts talking about a partnership, it is potentially a very big deal," he said.

How lucrative depends on what Talisman finds when it examines the seismic data for Seneca's lease holdings in New York and Pennsylvania.

Talisman is committed to a full exploration of the Trenton-Black River formation in Western New York beginning this year, according to Dave Mann, Talisman's manager of investor relations. He described Talisman as "cautiously optimistic."

If the "play" -- the term given to the production from a specific field -- is right, the investment in Western New York could be enormous, said Seneca Resources President Jim Beck.

"If we're very, very successful and had to spend $70 million to $100 million, we would do that in Western New York," he said.

Mann said it will cost Talisman tens of millions of dollars to get started, drill the first few wells and assess the results.

"Beyond that, the sky's the limit based on what we find," he said. "Both partners have to feel comfortable with the plays and the prospects."

Talisman's eagerness to look at Western New York is in part based on success it has had tapping into the Trenton-Black River in Ontario, where the company has even drilled down, then horizontally under Lake Erie. The company has 90 wells in Ontario and got production out of 90 percent of the wells, Mann said.

In 'middle' of formation

Columbia Natural Resources was one of the first companies to penetrate the Trenton-Black River, in Roane County, W.Va. Those examining the formation point to that find, the discoveries in the Finger Lakes, recent discoveries in Ohio and the production in Ontario.

"If you draw a line and connect the dots," Western New York is in the middle, said John P. Martin, who monitors gas and oil exploration for the state Energy Research and Development Authority.

The trick is precisely locating the pockets of gas. Geophysicists run seismic readings through computer programs to try to determine exactly where to drill. With the deep wells costing anywhere from $750,000 to $1.25 million to dig, producers can't afford too many misses.

Medina wells, which are shallow and cost about one-fifth as much to drill, are a much surer bet to produce. But the outflow is lower. Drilling deeper produces a lot more misses than hits.

"But the ones that have hit have been big enough to draw the interest of some significant players," Martin said.

Big hit in Elmira area

Earlier this month, Fairman Drilling Co. announced a well it had drilled in the Chemung County town of Veteran, just north of Elmira, had an estimated flow in excess of 15 million standard cubic feet of natural gas per day. Excellent flow from a Medina well would be about a million cubic feet a day.

"It's surreal. Sometimes I have to pinch myself," said Alan Fairman, a third-generation gas and oil man who said his company has drilled eight wells in the Finger Lakes, of which six have been "very significant" producers.

"It's beginning to look more and more like a development play than an exploratory play," said Fairman. "New York State will look like Texas soon with the amount of development going on."

Those familiar with the industry say there are rumblings that even the big multinational energy companies are beginning to show an interest.

Already, state Department of Environmental Conservation officials say they're hearing from landowners who have been approached by agents who want to lease the mineral rights under their property.

"We have received calls from landowners everywhere from Friendship, Cuba and Rushford, as far north as Holland, Freedom and Ashford," said John Dahl, the DEC's regional minerals manager, based in Olean. "We're seeing a lot of activity out there."

Some of the increased interest in production can also be attributed to the phenomenal jump in the price of natural gas over the past year.

Worth the cost

Wellhead prices of $2 per thousand cubic feet or less were the norm throughout the 1990s, but the price in 2000 averaged $3.88. In January, prices shot up to $9.98 and are now in the $5 to $6 range. Industry observers have traditionally used the $3 per thousand cubic feet guideline as a benchmark for making additional exploration worthwhile.

"Most people are projecting that prices are going to stay strong," said Bill Campbell, editor of the trade publication American Oil & Gas Reporter. "There is a growing demand for electric power, and the fuel of choice for power generation is natural gas."

Not everyone is ready to jump on the deep-well bandwagon. One longtime Chautauqua County producer, who asked that he not be identified, said he and many other smaller producers will let the major companies do their spadework.

"The large ones are looking for the big play, and the local boys will be looking for the Medina play," he said. "I'm going to let the big boys play with it, and when they find it, we'll look at it."

And there are some questions about how long the deep wells will produce gas. Terry Pegula of East Resources, which has partnered with Fairman Drilling on its central New York wells, said they are still in the process of building connections between the wells and distribution pipelines.

"You have to get these wells on line and see what they do," he said. "If you produce the well for three months and the pressure doesn't drop, you're home free."

Dahl believes Cattaraugus County will be the first place those seeking Trenton-Black River gas will go.

"I expect to have my first Trenton permit (there) sometime within the next few weeks," he said.

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