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Gas drillers await green light; others pull out of NC

Posted May 20, 2014

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— Two small energy companies are ready to begin exploring Lee County for natural gas as soon as the state signs off on drilling and hydraulic fracking.

Two other exploration companies are pulling out of the state, despite signing gas leases with landowners in 2010.

The startup companies still interested in the Sandhills' natural gas reserves would drill investigative wells. They are run by executives of other energy companies from Texas and Louisiana who would sell the gas they extract to businesses that use or market the mineral.

One of them, Triassic Energy Resources of Raleigh, has spent about $2 million in initial capital costs and is looking to spend $5 million to $15 million in research, field work, seismic testing and exploration mainly in Lee County, said the chief operations officer, Nick Spiro. The work would determine the economic viability of the Sanford subbasin.

"Based on the amazing work the state has done, there appears to be substantial reserves," Spiro said.

Triassic Energy Resources would use "thumper" trucks to form a below-ground ultrasound image of Lee County. Public meetings would be held before the trucks are deployed, he said.

Spiro said he hopes to know by the end of this year the extent of gas reserves in Lee County.

Triassic's founder, Dallas businessman Phil Barnett, is president of Industry Petroleum. Barnett has discussed his plans for gas development with Gov. Pat McCrory, according to Spiro.

"We made a commitment to McCrory on the first day of his office that we were committed to seeing this initiative from conception," Spiro said. "They've had some face time."

McCrory said state officials need to allow companies to begin exploring.

"Let's first find out what do we have, and that gives us the opportunity to participate in the negotiations on who do we allow to explore this energy in North Carolina and what type of financial deals we do make with people who are interested in exploring North Carolina," McCrory said, without identifying companies.

Drilling plans

The second company interested in exploring the Sandhills is Tar Heel Natural Gas of Charlotte. Owner Mark Miller was born in Spruce Pine, northeast of Asheville, and grew up in Charlotte.

"I'm taking back the technology and the industry I know to the state I love," Miller said.

Miller, 56, is president of Merlin Oil & Gas Inc., based in Lafayette, Louisiana. He also has an environmental company.

Miller said he would drill exploratory wells after the state adopts its rules and begins issuing permits. If exploratory wells prove fruitful, Miller said, he would form a business partnership to drill for natural gas. He said he could drill three to 10 gas wells a year.

Miller said he would look to sell the gas to Piedmont Natural Gas, Duke Energy or local consumers, such as Lee Brick Co. in Sanford. Duke Energy uses gas to fire electricity-generating plants.

Miller said he plans to renew 22 leases on a total of 939 acres after the state allows drilling. He signed the leases in 2010, but they have since expired.

Unrenewed leases

Two companies are pulling out. The Old North State Energy Co., which formed in 2010 with a Sanford office, did not renew leases last year that were signed in Lee County four years ago. The leases are for a total of 2,100 acres.

Founder Charlie Roberts is a Lee County native who went to school at N.C. State University. He has been a petroleum geologist for 34 years, he said.

Roberts said the Sanford shale subbasin is not economically viable, especially with today's low price of natural gas and the lack of drilling infrastructure in the state.

After hovering around $6 per 1,000 cubic feet in 2010, the price of natural gas at the wellhead plummeted to below $3 last year.

This spring, the price has surged past $4.

When the price returns to $6, Roberts said, drilling in Lee County will become economically attractive.

"It's going to be expensive to develop any resources that may be present," Roberts said.

The cost to develop one unconventional well for natural gas can exceed $3 million.

Roberts said he did not renew leases because people in Lee County are pushing back against fracking, and some landowners have unrealistic expectations for lease terms and royalties.

A much larger company pulling out is WhitMar Exploration Co., headquartered in Denver. WhitMar announced this spring it would focus its investments elsewhere.

"From our point of view, we feel that development is still years out," said Phillip Blower, the company's land manager.

Blower expressed frustration with the pace of North Carolina's writing of drilling rules. Four years after those leases were signed, Blower said, the state still has not begun granting permits for gas exploration.

WhitMar is either canceling or not renewing more than 170 mineral leases signed with Lee County property owners in 2010.

In February, the company canceled a 2,716-acre gas lease in Lee County signed with Dan Butler of Southern Pines. Butler said he is looking to sign with another company.

Staff writer Andrew Barksdale can be reached at barksdalea@fayobserver.com or 486-3565.


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