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Gastar Signs Lease, Will Drill on Bayer Site Touted for Cracker

Gastar Exploration Ltd. has signed a lease with Bayer AG to drill Marcellus Shale gas wells on 1,400 gross acres in New Martinsville, a site that is being touted as a possible location for an ethane cracker in West Virginia.

Mike McCown, northeast vice president for Houston-based Gastar, told NGI's Shale Daily the company plans to drill on the site during its 2013 fiscal year. He added that although other media had reported Bayer's calculation that the deal was worth $30 million, the precise figure depended upon several factors, including commodities prices.

"In this part of the Marcellus we're fortunate that the gas has a lot of pre-wellhead condensate and it's a high-BTU gas," McCown said Wednesday. "So even at these depressed natural gas prices, it's still economic to drill wells in this particular area."

McCown predicted that Gastar's wells, plus other infrastructure going up in the immediate area, would complement an ethane cracker if such a facility were sited there.

"The Marcellus is rich in ethane [and] a lot of the infrastructure needed is here and the raw materials are going to be produced all around," McCown said. "Certainly as an industry we have been very supportive of the efforts of the chemical industry to have an ethane cracker put somewhere in the state. Up here would be a very strategic location.

"These wells will have horizontal laterals in excess of a mile long, so it would have no impact at all on the existing Bayer chemical plant or any future construction. We would choose locations in concert with them and their efforts going forward."

Bayer's acreage in New Martinsville is on the short list of possible sites for an ethane cracker in West Virginia, its feasibility studied last year by the Marcellus to Manufacturing Task Force at the direction of Gov. Earl Ray Tomblin (see Shale Daily, Aug. 26, 2011; Dec. 23, 2010).

"It would certainly make the resource closer to the ethane facility, but the gas would still have to be shipped out of there to be separated, fractionated and then shipped back to an ethane cracker," West Virginia Oil and Natural Gas Association Executive Director Corky DeMarco told NGI's Shale Daily on Wednesday.

DeMarco said the natural gas processing and fractionation plant being built by Dominion Transmission Inc. five miles away in Natrium, WV -- as well as Dominion's Hastings Extraction/Fractionation Plant near Pine Grove, WV -- could both support Gastar's production from the Bayer site (see Shale Daily, Jan. 31; Aug. 8, 2011).

"All of the gas produced in the Appalachian Basin is going to be a help," DeMarco said. "I can't say whether there is a direct cause and effect [of whether more drilling would lure an ethane cracker], but any time you can produce more gas in the wet zone, it's a good thing."

Gastar is also in Natrium, having signed a lease nearly one year ago with PPG Industries Inc. for 3,300 gross acres (see Shale Daily, March 1, 2011). That leasehold is on the site of PPG's Natrium chemicals plant along the Ohio River in Marshall County. McCown said Gastar drilled 20 wells in Marshall County last year, including six on leases that PPG has an interest in.

"We continue to develop and we've been fortunate to attract these large corporations to lease to us," McCown said. "I think that just exhibits the fact that we're a responsible, prudent operator and we plan to be in this area for a long time. This area is competitive and it's hard to get those size leases. We're fortunate to have leased both of those large tracts."

Competition has been intensifying in recent weeks among three Marcellus Shale states -- West Virginia, Ohio and Pennsylvania -- to lure a company to build an ethane cracker, a facility expected to create thousands of direct and indirect jobs.

On Tuesday Pennsylvania Gov. Tom Corbett signed a bill (SB 1237) that would offer 15 years of tax breaks to companies that invest at least $1 billion and create at least 400 permanent full-time jobs within seven years (see Shale Daily, Feb. 6). Tomblin recently signed a bill offering tax breaks to companies that build an ethane cracker in his state just before he went to Houston to meet with Royal Dutch Shell plc executives (see Shale Daily, Jan. 30).

Shell has proposed building a "world-scale" ethane cracker in one of the three states, but has yet to make an announcement. The facility would have a processing capacity of 60,000-80,000 b/d (see Shale Daily, Dec. 5, 2011; Sept. 7, 2011; June 7, 2011). Shell said it was still evaluating what products to make at the facility, but the leading option is polyethylene.

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