In this edition of Buchanan Ingersoll & Rooney’s Energy Insider Interview Series, Jim O'Toole speaks with Greg Quatchak, Founding Principal and Strategic Development Officer at Civil & Environmental Consultants (CEC). CEC has been a leader in helping oil and gas companies design and build critical projects since the very early days of the Marcellus Shale boom.
In the interview, Greg discusses the current state of the permitting process for oil and gas companies in Pennsylvania, the opportunity for downstream development in the Marcellus Shale region, and CEC’s critical role in the production of the Pennsylvania Department of Community and Economic Development's playbook on the decommissioning and redevelopment of the Mitchell Power Station.
1. Your company was engaged in the development of the Marcellus Shale region from the very beginning. What role did CEC have in the origin of the Marcellus play, and how has your work in the region changed over the past 10 years?
Our first Marcellus Shale work was in a support role, providing survey services to another surveyor who was overloaded with well pad and gathering line layout work. During that time, we learned a lot of valuable lessons about the full scope of services Marcellus producers needed in order to obtain regulatory approvals. We excelled at providing those services and the producers that worked with us experienced the complete CEC value proposition: single-source, multi-disciplined services from a responsive firm with diverse regulatory experience and an excellent reputation with the regulators.
With those relationships established, we jumped fully into the market. Our abilities to provide ecological, land survey, environmental, geotechnical, and civil engineering and construction support services and obtain regulatory permits in a timely manner fueled CEC’s growth in the Marcellus and Utica Shale plays. Once we had a proven record of performance with producers. our growth accelerated and we began to pick up more work in the mid-stream and transmission markets. This led to expanded services such as air quality permitting, spill response and cleanup, stormwater management facility maintenance, and construction quality assurance services.
2. You've made three acquisitions over the past year, the most recent of which was the acquisition of Oklahoma City-based Shepherd Engineering Design Company, Inc. What's fueling these acquisitions and what do you hope your expansion helps you accomplish?
In March of this year, we acquired KBGE, a 40-person Austin, Texas based civil engineering firm. The KBGE acquisition complemented our existing six-person Austin office, and included a five-person Oklahoma City office. The acquisition of Shepherd Engineering added a diverse solid waste practice to our new Oklahoma City presence. Both of these acquisitions have been very positive in terms of growing our client base and services and having a wider geographic presence. In addition, the new capabilities of the Austin and Oklahoma City offices will help us expand into the oil and gas plays in the western basins of the U.S.
Our fundamental strategy for acquisitions is to diversify and expand our client base and services within our core markets. We are very strategic and thoughtful about the acquisitions we make and are focused on making sure that they help to deliver more value to our clients. The majority of our acquisitions are endorsed by key clients before they’re even completed.
3. For oil and gas companies coming into Pennsylvania from other regions of the country there is often an adjustment that has to be made because the regulatory environment is different than it is in say Texas or Oklahoma. But it seems that PA largely recognizes the economic benefits of oil and gas development and has adjusted over the last few years and made some efforts to improve the approval process. Is this something you've seen in your experience? How do things like staffing at the state level impact the approval process?
Wow, you can say that again! The Marcellus Shale producers faced a major regulatory culture shock. For example, natural gas well permits in Texas are regulated by the Texas Railroad Commission, and new well pad permits are typically obtained within one week. So you can imagine the frustration these producers experienced when faced with a 6 – 9 month, or longer, permitting timeframe.
The Pennsylvania Department of Environmental Protection (PADEP) is charged with protecting the Commonwealth’s environmental resources. Clearly, well pad, mid-stream and transmission facility development involves significantly more effort in Pennsylvania due to our topography and abundance of environmental resources (water courses, wetlands, threatened/endangered species and archaeological). At the beginning of the Marcellus Shale boom, the sheer volume of permit applications overwhelmed the regulators, adding to the permit approval timeframes. CEC has experienced some improvements in efficiency in the regulatory process. This is primarily related to increased staffing levels at the PADEP, funded by increased fees and taxes paid for by the industry. However, regulatory permitting timeframes continue to be a major hurdle for the scheduling of these projects.
4. It's currently estimated that around 75-80% of Pennsylvania's natural gas is exported to other markets beyond Pennsylvania, whether domestically or internationally. How do you see the future of Pennsylvania's downstream opportunities shaping out? Is there a path where Pennsylvania can keep more of this natural resource in-state and enable even more industries to thrive in the Commonwealth?
Pennsylvania’s downstream energy opportunities are starting to be realized around the emerging petrochemical markets. Royal Dutch Shell’s commitment to our region with the ethylene cracker plant was driven by our region’s availability of low-cost natural gas. In my opinion, the petrochemical industries and their upstream and downstream supply chains are on the verge of explosive growth in our region. We’re already seeing this, with additional ethylene cracker plants proposed, increasing opportunities for natural gas to liquids (NGLs), energy-driven manufacturing and other petrochemical uses. These are all tied to our regional energy production.
5. CEC is a company with arms in a number of different practice areas, from oil and gas to air quality and waste management. Why is it important to you that CEC has diverse expertise in a number of different markets?
We live in a world where our clients are constantly demanding creative and varied solutions. There’s so much pressure on clients not only from a regulatory standpoint but also from company management to deliver on-time and under-budget projects. That creates a really competitive environment for us, so it’s important that we have a diversified offering. CEC’s success has been driven by our ability to provide single-source, multi-disciplined services structured to meet our customers’ needs. In every area in which we operate, we strive to be industry and market experts, to “think outside the box” and to advocate for our clients’ projects. In order to accomplish this, we hire talented and strategic thinkers who understand the needs of our clients and their markets.
6. You had a large role in the Pennsylvania Department of Community and Economic Development's playbook on the decommissioning and redevelopment of the Mitchell Power Station and adjacent Canestrale properties in Washington County. Can you tell us a bit about what part you played in the creation of the playbook and what you hope it accomplishes?
We are very proud of our firm’s work on that project and its outcome. CEC took a holistic approach to identifying solutions to the redevelopment of the Mitchell Power Plant and adjacent Canestrale property. We took a hard look at the attributes and assets of the real estate and then weighed that analysis against the market demographics of the area to come up with a number of redevelopment strategies. We then applied creative site analysis and conceptual planning and design to identify three alternative master plans supporting the redevelopment strategies. Lastly, we used our analyses of the market demographics and siting evaluations to recommend a preferred strategy and implementation steps.
Our work was very well received by the DCED, First Energy, the Canestrales, and the participating stakeholders. We’re confident the playbook can be the catalyst for redevelopment of the site, as well as a model for other playbooks to be prepared for other idled coal-fired power plants across the Commonwealth.
7. Based on the analysis that you did of the properties and others like it around the state, what would you say to those who might be hesitant to develop a higher-risk site like this? How do you think they might be able to navigate some of the more challenging issues related to brownfield redevelopment?
It is critical to understand the attributes and assets of the real estate. It has been CEC’s experience that the environmental liabilities generally present at coal-fired power plants, as well as similar brownfield sites, are manageable liabilities, and are typically not “deal killers.” Furthermore, these environmental liabilities are generally understood and quantified by the power companies.
Secondly, the identification of redevelopment strategies must be market based. These sites are not situations that “if you build it, they will come.” Market-based redevelopment strategies, combined with creative planning and public private partnerships present great opportunities for regional economic development projects at these sites.
Our clients are all across the globe and there’s a perception among some that this region lacks adequate sites for larger scale end users of energy. We understand where that perception comes from, but I think the Shell announcement, and other projects in various stages of development in neighboring West Virginia and Ohio, demonstrates that perception doesn’t match reality. We’re very confident in the availability of sites of all sizes and needs in this region, and it’s really up to the private sector to bring these locations to the market.
8. CEC is an employee-owned business, which provides some very distinct advantages for a company of your size and scope. Now approaching your 30th year in business, why is it important to you that CEC is employee-owned and what are some of the advantages of it for your company specifically? What do you need to do to remain in business for another 30 years?
CEC is regularly contacted by large firms interested in acquiring us. Many years ago the founding principals committed to not selling the firm. We developed and implemented an ownership transition plan built upon the cultural values of the firm; namely, client-first service, senior leadership, integrated services and personal business relationships. The ownership transition program is a performance-based, professional development career path. The program is focused on developing “complete consultants” who are collaborative and easy to work with in solving our clients problems. This culture encourages entrepreneurial thinking, market expertise, and presents exciting opportunities for a long and rewarding professional career at CEC. If we maintain this culture as the firm continues to grow and expand, CEC will continue to thrive and be successful for years to come.