Fracking Boom Divides Small Businesses

When drilling companies flocked to Bradford County, Pa., in 2008, Steve Pelton wasn't happy. He lost 15 of his 100 trucking company employees, who quit for better pay with drilling contractors.

Rather than fight the drilling boom, Pelton jumped aboard. Now he's busier than ever. He's still hauling milk, but each day, 80 of Pelton Trucking Co.'s vehicles take barrels of clean municipal water to sites where contractors are testing for natural gas deposits. The water, mixed with chemicals and sand, is blasted deep into the earth, splitting rock and pushing natural gas from the veins, a controversial process called hydraulic fracturing, or fracking.

With the new side business, Pelton, the company president, says he was able to buy 10 new trucks and tanks at about $200,000 each, while shoring up the business for his sons as he considers retirement. "Hauling milk didn't pay real well," he says. "Hauling water pays a lot better." His drivers are sharing in the spoils, earning $20 an hour, an increase of $8.

The fracking boom has benefited local business owners like Pelton as its large-scale drilling activity has brought more work and jobs to sometimes-depressed rural economies. But there are locals including in the small-business community who worry that its impact could result in more harm than good, both economically and environmentally.

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Dairy farmer Carol French is among Pelton's neighbors who don't see the quest to find gas in the energy-rich Marcellus Shale region as an economic blessing. French and several other homeowners have reported that their water turned odd colors or had high levels of methane. But French, who's been dairy-farming the same Bradford County land for 28 years, says some people with contaminated water are keeping quiet. "They're just going down to the Wal-Mart and buying water,” she says. "You don't want to admit your water is contaminated. You're going to sell your cows and get out of here and shove it off on someone else."

Dave Buck, who runs Endless Mountain Outfitters, rents kayaks to about 1,000 customers annually and is concerned about a different kind of pollution: noise. There was a time when he could glide all day on the Susquehanna River and hear nothing but birds. Today, he hears trucks and fears that will hurt his business.

Property owners in many oil- and gas-rich regions from Texas to North Dakota are locked in heated arguments over the safety and economic benefits of fracking. The U.S. Environmental Protection Agency, which is studying the safety issue nationally, found chemicals used in fracking in Wyoming well water. In New York State, meanwhile, environmental officials are sifting through hours of heated public testimony to decide if the state should lift a moratorium and allow the process to proceed.

In Pennsylvania, several lawsuits have been filed, and the state has imposed fines, including some for work done in Bradford County. But the gas industry and Pennsylvania Gov. Tom Corbett insist that not only is the fracking process safe, it is spurring an economic boom. The Marcellus Shale Coalition, a trade group, says the total economic impact of shale drilling in Pennsylvania could exceed $12 billion in 2011 and could employ one million workers in the region by 2025.

State labor economists estimate that fracking work has produced about 13,500 new jobs in Pennsylvania. Some of those jobs have benefited Bradford County, a once-sleepy rural area of 62,000 people near the New York state border. Before fracking, the county's economy relied heavily on its dairy farms. But the recession and a spike in gas and feed prices took their toll. Pelton Trucking, which has hauled raw milk to dairy processors for 40 years, saw its loads drop to 700,000 pounds in 2011 from a million pounds a day in 2010, Pelton says. Dairy prices were falling, and more farmers were leaving the business.

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With the state's blessing, a group of geologists, surveyors, rig men, technicians and drillers poured into Pennsylvania looking for natural gas. Contractors dug 386 wells in Bradford in 2010, the state says, more than in any other county in Pennsylvania, much of which lies on the energy-rich sweep of the Marcellus geological formation. Out-of-state companies scooped up local electricians, welders and pipefitters, leaving local employers scrambling to find more help.

Some small businesses have flourished. The new industry has meant more coffee brewed, more sheets changed, water hauled, tools sold and laundry washed than Bradford has ever seen. "Economically, it's been a godsend," says Mark Smith, a Bradford County commissioner. "You're bringing in a whole workforce for a whole new segment of business into the county."

The total of U.S. Small Business Administration-backed loans in Bradford jumped to $4.1 million in fiscal 2011 from $909,000 in the fiscal year ended in September 2008. Bradford's unemployment rate of 5.4 percent in December was nearly two points below that of the entire state as a whole.

Empowered Staffing Solutions, a six-year-old temporary-employment agency in Sayre, Pa., placed about 750 workers last year, often at minimum wage, in manufacturing, production and food jobs, says Fred Cavallaro, the agency's vice president. The placements often became full-time workers with heftier wages. He estimates that he could probably place about 50 more people in jobs. "If there were more people in the area, I could offer them jobs," he says. "I would love to expand, but I don't have the people I would need."

But the labor demand is a problem for established employers that can't afford to pay people what the energy companies offer. Employees who work for the sheriff's office or the prison, for example, can instead work an energy company security detail and make $5 more an hour, Smith says. As a result, the county has lost many longtime workers and is having trouble keeping certain jobs filled.

The atmosphere reminds Carl Knoblock of a gold rush. "People have to be very smart to capitalize on it, but at the same time be prepared for when the boom goes away," says Knoblock, the SBA's district director for Western Pennsylvania.

He has seen many Pennsylvania companies jump into the water-hauling business and many hotels spruce up and expand. But he has advised them that the need for water hauling and hotel rooms could shrink quickly once energy companies identify precisely where the richest gas deposits lie and concentrate their work in those areas. It isn't clear how long booms like this will last. Bradford County, Knoblock notes, is quite rocky, and extracting gas will be more time consuming and therefore more expensive than in some other areas.

Ashwin Patel, for one, is heeding Knoblock's advice. As dozens of workers from Texas and Arkansas streamed into Bradford, he realized there was a dearth of places where tired men could rest their heads after 12-hour shifts. Last fall, he opened a 65-room Best Western motel in North Towanda, Pa., financed with $7 million in loans. As many as 140 people stay each night in rooms costing up to $170 a night, keeping his 15 employees hopping.

Even so, Patel says he is being conservative. He decided against building a restaurant and a fourth floor on the motel. "Right now they are drilling and they need a lot of people," says the native of Mumbai. "At some time it's going to slow down. I know down the road there will be a lot of empty rooms."

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This article originally posted on Entrepreneur.com

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