Seneca Uses Abandoned Mine Water for Marcellus Fracking

Seneca Resources Corporation, the exploration and production (E&P) arm of National Fuel Gas Co. of Williamsville, N.Y., is utilizing water from an abandoned coal mine in the hydraulic fracturing of shale gas wells in Pennsylvania.

"By utilizing a contaminated water source and actually improving its quality, Seneca is demonstrating its commitment to protecting the environment in the communities in which it operates," Seneca said in a statement.

A drilling boom has occurred in Pennsylvania and oil and gas companies seek to tap the Marcellus shale play, which is estimated to hold potential resources of between 8 and 15 Tcfe. However, significant volumes of water are required to produce shale gas through hydraulic fracturing, in which wells are stimulated with water to enhance production. Environmentalists and local Pennsylvania residents have expressed concern over hydraulic fracturing's impact on local water resources.

While Pennsylvania has ample fresh water resources, the company decided instead to utilize acidic water from a coal mine in Arnot, Penn., that was abandoned many years ago. Water flowing from the mine was polluting Johnson Creek, a local trout stream, and causing orange discoloration of the creek bed. The contaminated water also flows into the Tioga River. The Susquehanna River Basin Commission (SRBC) and the Pennsylvania Department of Environmental Protection (DEP) ranked the contaminated water, flowing from the Arnot mine into the Tioga, fifth in a report of the top 20 most severe discharges in terms of pollutant load impacting the Upper Tioga River Watershed.

Seneca decided to target this contaminated water flow as a source of frack water, turning the abandoned mine into a "lemons into lemonade" tale. Seneca got permission from SRBC to draw 500,000 gallons per day of the mine run-off water for its fracking operations. By using this water, Seneca is reducing the amount of contaminated mine water flowing into Johnson Creek and the Tioga River.

Seneca has constructed--at a cost of US $3.8 million--two four-inch pipelines laid next to each other that run 6.5 miles from the mine to Covington Township, Penn. The water pipeline system provides all the water for Seneca's fracking operations for 90 wells in Tioga County, Penn., enough for three fracs a month. This system will be extended into branch lines to carry water across Seneca's lease area.

Not all coal-mine run-off water is suitable for hydro-fracking, but this source water is compatible with Seneca's needs, said Seneca spokesperson Nancy Taylor. By using the mine run-off water instead of fresh water resources, Seneca estimates it is saving $120,000 per well it drills. In addition to monetary savings, this method also reduces the truck traffic on the roads, saving wear and tear on roads. It's too soon to tell what positive effects the removal of mine water will have on the local trout population.

In addition, Seneca is working with the SRBC and DEP on a continual pretreatment plan that will not only reduce the mineral loading in the water shed attributable to the water it consumes, but will also provide quality water to Johnson Creek to enable the direct restoration of an impacted trout stream.

Well-known as a utility in the Buffalo and Niagara area of western New York, National Fuel is looking to grow its exploration and production business in comparison to its other business units. This plan includes accelerating development of its Marcellus shale acreage; the company is utilizing cash flow from Seneca's low-cost California E&P operations to fuel this growth.

Seneca owns over 738,000 net acres in the Marcellus Fairway, with the all of its land holdings located in Pennsylvania. Seneca's holding consists of large contiguous blocks of acreage that allow multi-well pad drilling and maximum efficiency and lower than average well costs.

Of those holdings, approximately 80% is fee acreage, owned outright by Seneca. The remaining Pennsylvania land rights, approximately 20%, are leasehold interests, most of which are held by production. This ratio of fee ownership to leasehold interests provides Seneca with an outstanding netback number compared to other companies active in the Marcellus, said Taylor. The company is able to drill the best acreage and drill where infrastructure already is in place.

The company will have produced 4.3 Bcfe of Marcellus gas as of Sept. 30, 2010, the end of Seneca's Fiscal Year (FY) 2010. As of Aug. 20, the company was producing approximately 25 MMcf/d between its EOG Resources joint venture and Seneca's own production.

Seneca forecasts its 2010 production to be between 48 Bcfe to 51 Bcfe, of which 6.8 Bcfe to 7.5 Bcfe is expected to come from the Marcellus. Seneca estimates that its fiscal year 2011 production will be 60 Bcfe to 70 Bcfe, of which 25 Bcfe to 30 Bcfe is expected to come from the Marcellus.

Seneca expects to spend between US $320 million to US $370 million for FY 2010 on exploration and production spending, of which US $260 million to US $280 million is directed toward the development of the Marcellus. The company estimates it will spend between US $425 million to US $500 million for FY 2011, and which US $380 million to US $425 million will be directed toward development of Marcellus shale.

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