By Jon Hurdle
WELLSBORO, Pennsylvania (Reuters) – At a windswept rail yard at Wellsboro in northern Pennsylvania, dozens of railcars wait to load thousands of tons of sand onto trucks that will take the cargo to natural gas rigs across the state.
The freight railroad, which runs 35 miles north to Corning, New York, had its busiest year in more than two decades in 2009, fueled by demand from a booming natural gas industry, which uses sand in hydraulic fracturing operations.
Revenue doubled last year for Wellsboro & Corning Railroad, owned by Tom Myles and sons Tom Jr. and Bill, and the sand-hauling contracts that began a year ago are due to double revenue again in 2010 and make up 80 percent of business.
It’s a windfall for the Myles — who bought the railroad’s rolling stock for $750,000 in January 2008, expecting to serve two local manufacturing companies — and for Wellsboro, which has a population of about 3,200, and its surrounding farms.
“This is a huge opportunity for us to operate at these levels,” said Bill Myles, manager of the railroad’s operations. The company has just spent $1.5 million on four powerful new locomotives, is laying new track and has hired new workers.
Like many rural towns, Wellsboro is getting rich from the rush to develop the Marcellus Shale, a formation stretching from New York to West Virginia that contains enough natural gas to satisfy U.S. demand for 20 years or more, experts say.
It is expected to become the most productive of America’s shale gas fields.
The boom has also transformed the lives of some local farmers who, after struggling financially for years, now find themselves with six- or seven-figure checks from the gas companies in return for leasing their land for drilling.
Tim Gooch, a partner in the Wellsboro office of the accounting firm ParenteBeard LLC, recalled a dairy farmer client who had run up about $500,000 in debt over 20 years because of depressed milk prices and rising farm costs.
But then in 2008, the farmer got a gas-lease check for $800,000, allowing him to pay off his debts and own his 300 acres outright for the first time, Gooch said.
“Some of them have had tears in their eyes, thinking they may have to give up the farm,” said Gooch. “The gas checks have allowed them to stay on their land.”
Energy companies are paying around $2,500 an acre — a lump sum of about $375,000 for a typical 150-acre farm, he said. And more money will also flow into local economies from gas royalty payments, which are yet to be paid in significant quantities.
‘TIP OF THE ICEBERG’
Surging Marcellus gas demand tripled applications for Pennsylvania drilling permits this year to 5,200; produced twice the expected revenue from a recent auction of state lands for drilling, and encouraged Exxon Mobil to bid $31 billion for drilling company XTO late last year.
In Tioga County surrounding Wellsboro, the biggest local operator, East Resources Inc., drilled 42 Marcellus wells in 2009 and expects to sink another 200 this year. The company and its affiliates employ about 60 people in the county and it expects its work force there to grow by 30 percent in 2010.
Bob and Marsha Chesko own the Sherwood Motel in downtown Wellsboro and say it was full, or nearly so, throughout the 2009/10 winter — an unprecedented experience in their seven years there — due to an influx of workers at nearby gas rigs.
In previous years, the hotel’s winter occupancy struggled to reach 40 percent and traditionally depended largely on the summer trade of tourists visiting the picturesque northern Pennsylvania countryside.
The Chesko’s previously set aside money from the summer tourist trade to see them through lean winter months, but this year the jump in winter business has allowed them to meet running and renovation expenses without dipping into reserves.
And with the expected growth in the area’s gas industry, Bob Chesko said: “It’s just the tip of the iceberg. Some say it’s going to be a 20-year project.”
But some Wellsboro locals have raised concern over damage to roads from heavy truck traffic, worries about possible water contamination from the chemicals used in hydraulic fracturing, and unease that their quiet rural life style is being lost.
“I caught myself feeling very sad,” said Mary Worthington, treasurer of the local chamber of commerce, as she recently watched a constant stream of gas-industry trucks and mud-spattered pickups grind past her town-center office.
But Todd Coolidge, branch manager of Citizens & Northern Bank in Wellsboro, where the median income of $38,000 is well below the state average of $50,000, said those worries are outweighed by the new gas money.
Business has picked up at gas stations, auto repair shops, restaurants, realtors, and even the local movie theater, said Coolidge, adding, “I have seen so many businesses that it has touched in a positive way.”
(Editing by Michelle Nichols and Todd Eastham)