Bethany College and Marcellus Shale: The Board's Perspective

On June 30, 2011 Bethany College announced that it reached an agreement with Chesapeake Energy in regard to Marcellus Shale natural gas drilling.  The news was carried in local newspapers, national wire services and in the Old Main Journal e-newsletter.  Within the next week, some alums raised questions by contacting the College and/or individual Board members directly, while others have commented on a Facebook page colorfully named "No Fracking Way." 

Two things became clear from the questions and comments; they were raised by people who love Bethany College and don't want to see it hurt, and the news of gas drilling caught them off guard.  For a small college like Bethany, all of our constituents are significant, particularly our alumni, so it is important that we add additional transparency and the Board's perspective to this discussion. 

The Board's Role
Bethany College is a special place, as anyone who has attended the college or even spent any time there knows.   Its beautiful setting in the rolling hills of West Virginia with the historically significant Old Main at the center provides an ideal place for study and personal growth.  This is especially true today as technology allows its students to be closely connected with a rapidly globalizing world. Over the years, Bethany's graduates have gone on to success in a wide array of fields, including the arts, media, medicine, ministry, business, education, technology, law and many other areas.

All of us on the Board volunteer our time and talents as stewards to try to help make sure we keep Bethany College strong and attractive for future generations.  The vast majority of trustees are graduates of the college, while a few others represent families who have supported the mission and work of the college for 100 years or more.  It is with this sense of doing what is right for Bethany that we approach every issue, including something as important as Marcellus Shale.

While our consideration of Marcellus Shale gas rights is the issue of the day, it is not the only time that Bethany College has dealt with the licensing of rights to harvest natural resources.  Over the years, the college has permitted the mining of coal and the harvesting of timber on college-owned land when doing so could be done to help support the institution financially and without interfering too much with the campus or in the college’s operations.  The campus location known to many as the "Coal Bowl" was one such example. 

Indeed, there has been one contract or another allowing for the extraction of natural gas in place at Bethany for more than a decade.  However, it is the relatively recent development of new drilling technologies and techniques that allow drillers to reach and extract gas located more than a mile beneath the surface which makes gas an even more attractive natural resource today, thereby giving rise to the need and the opportunity for the Board to decide what to do.

More particularly, the need to decide whether to license college-owned land for Marcellus drilling arose in connection with a rolling wave of drilling activity that has swept through Pennsylvania and into West Virginia.  Bethany played no role in the development of this wave or in lobbying to permit it.  Drilling is lawful and regulated in both states.  Brooke County, W. Va. has become an active and attractive area for drilling.  Scores of drilling sites are or soon will be active throughout this county in which the college and the town of Bethany sit.  The media have reported that license fees of up to $5,000 per acre have been paid for gas drilling rights in the local market, so it is not difficult to see why local farmers and other landowners -- including some Bethany professors and staff members -- have negotiated licenses.

In considering what to do, the Board recognized there are strong opinions on both sides of the Marcellus Shale debate.  Proponents cite the opportunity to create energy independence for the United States, as well as new wealth and robust employment growth in regions of the country where shale exists.  Opponents cite concerns about fracking, possible ground water impact, and what the toll on local roads will be from increased truck traffic.  Throughout the Board’s deliberations, our focus was on what was in the best interests of Bethany College, the town of Bethany and the surrounding community.

As far back as 2008-09 two companies, Range Resources and Chesapeake Energy, held early discussions with the administration of Bethany College about how the shale drilling could create opportunities for the college.  In 2010, Range and Chesapeake reached an agreement regarding which company would develop which territories, with the land around Bethany falling under the control of Chesapeake -- one of the nation’s largest natural gas companies.  Beginning that same year, the college, represented by Executive Vice President and General Counsel and alumnus Bill Kiefer ‘71 and trustee-alums Marc Chernenko ’78 and Jim Companion ‘63, began discussions with Chesapeake about what the terms of a license might look like.  The Board was briefed on the discussions and began a series of in-person meetings and conference calls to make sure we understood and fully considered all aspects of any such transaction. 

Jim, Marc and Bill negotiated hard with Chesapeake to get the best possible terms for Bethany -- both economically and for managing risk.  The latter in particular was the focus of extensive discussion during our various Board meetings.  In the second quarter of 2011, a final set of terms was presented by the college administration to the Board.  After yet another meeting and discussion, the Board unanimously agreed that the college should enter into the license.  Here is some additional detail about our consideration of both the economic rewards of the license and the risks associated with it.

The Economic Assessment
One of the questions that has been asked is whether the college is in such dire straits that the Board would expose the campus to great risk for drilling money.  The answer is no. 

Under President Miller, Bethany is enjoying a solid resurgence that has helped improve and stabilize the college's financial footing.   We have enjoyed three record recruiting years in a row, with improvement in both the number of enrolled students and in increased selectivity.  The college now has more than 1,000 students on campus for the first time in 25-plus years.  The admissions team has expanded the recruiting territory, and is having some success in formerly fertile parts of the country that have not been active for several years.  On campus, the new turf field and lights are a huge improvement, as are the newly renovated Cochran Hall dorm and the enhanced student center.  For the first time in many years, the president of the college is back living and entertaining on campus in the restored Christman Manor at Pendleton Heights.  Alumni giving is also up some and the college has operated with a balanced budget without touching its credit line for the past three years -- something that had not happened consistently prior to that. 

Despite these improvements, the Board is keenly aware that our need for further stability and improvement is not to be taken lightly, notwithstanding our recent success.  It has been said that small colleges inhabit a dangerous zone if they have less than $100M in endowment and have fewer than 1,000 students -- two conditions that have existed at Bethany for more than two decades.  The recession has been particularly hard on small colleges and the failure rate continues to increase -- particularly for those located in hard hit markets like the Ohio Valley where Bethany is located.  High unemployment, pressure on household budgets, and turmoil in the student loan market all combine to make for a challenging environment for small colleges like Bethany -- and the projected longer term reduction in the number of potential college age students will not make things any better.  

Of course, even in our improved state, there is much to be done.  While we now have 1,000 students, our endowment stands at approximately $40M -- a level that it is too low and must grow to ensure the college’s long-term stability.  We have been blessed with a wonderfully talented and loyal faculty -- yet we have only been able to afford salary levels that are less than we would want them to be.  The Bethany building and grounds team does a superb job making the campus work, but deferred maintenance and delayed improvement projects await. 

In short, while our circumstances are not so dire that we should or would do anything to put the college and surrounding community at serious risk -- our circumstances are not so secure that we can dismiss the opportunity to raise millions of dollars for the college if we can do so without taking on unreasonable risk.  While the precise license payment as part of the agreement with Chesapeake is confidential, the skilled negotiators acting on behalf of the college secured a significant payment for drilling rights on college land and a royalty stream toward the upper end of ranges reported in the media.  Those funds will allow us to build our endowment and to provide added resources for more competitive faculty salaries and campus improvements -- all of which are extremely important to the long term health and well being of the college.

The Risk Assessment
In considering the risks, we took into account where the drilling would occur, what impact it would have on the campus and surrounding community, what impact the drilling might have on the water supply, and what the risks would be if we just said no to drilling. In sum, after thorough consideration, the Board does not believe that entering into the license with Chesapeake will materially increase the risk of exposure to Bethany College. 

First, as to location, some of the questions have related to the specific location where the drilling will occur, like the strip mine that produced the Coal Bowl, in the center of campus or on one of the sports fields.  Of course, we would never allow that to be the case and have rights to approve any drilling site.  While the drilling will be on college-owned land, it will not be on the campus or in the town of Bethany.  The College owns more than 1,200 acres, including lands adjacent to Route 88 toward the Highland Springs Golf Course well off of campus.  It is that location, away from campus and outside the town limits of Bethany, where the drilling pad will be located.  Indeed, because of the plethora of sites in the area, it is possible that other drilling sites not involving the college will be more visible than the one associated with our license.

We also do not expect the license to have any impact on the water supply.  Both the town of Bethany and the college draw water from the Ohio County system in Wheeling, which takes water from the Ohio River and purifies it for delivery through its extensive underground piping system. 

Moreover, the license agreement requires Chesapeake to comply with all regulations, and among other things to utilize state of the art materials, which include double lined concrete casing for the pipes, to avoid any contact at all with the campus, to refrain from any contact with timber or water sources on college property, to maintain fences and gates for safety, to remove fracking water, to reclaim the land after the drilling ceases, and to restore local streets and roadsides to quality levels at least as good as, if not better than, their condition at the outset of the process.  

Because there are already and will be even more Marcellus drilling sites in Brooke County, including around Bethany, the college's license does not really add to the risk of impact to the local environment or any increase in the number of trucks on the local roads outside the campus.  If anything, one advantage of the license is that it gives the college standing to make sure Chesapeake abides by its contractual and regulatory obligations -- something that local farmers or homeowners might be less apt or less suited to do. 

The Conclusion
In conclusion, after considering all of the issues concerning the potential risks and rewards, the Board unanimously determined that entering into the Marcellus Shale license with a responsible company like Chesapeake was consistent with the college's history and in the best long term interests of the institution.  

The Bethany College Board of Trustees

Rev. William Burwell Allen, Class of 1962
Dr. Arthur B. Keys, Jr., Class of 1967
Ms. Elizabeth S. Athol Esq., Class of 1982
Dr. Linda Donelle Lewis, Class of 1961
Mr. George M. “Ken” Bado, Class of 1977
The Rev. Janet Adele Long, Class of 1978
Mr. Marc B. Chernenko, Class of 1978
Dr. Robert J. McCann, Class of 1980
Mr. Richard G. Clancy, Class of 1976
Dr. Eugene Miller, Class of 1947
Rev. W. Darwin Collins
Mr. John W. Mullen, Class of 1969
Mr. George M. Davis, Class of 1978
Mr. G. William “Bill” Newton, Class of 1975
Mr. James F. Companion, Class of 1963
Mr. Gary M. Novak, Class of 1976
Ms. Scarlett L. Foster, Class of 1979
Mr. G. Ogden Nutting
Mr. Fred Harris, Class of 1967
Mr. Robert M. Nutting
Mr. Sy Holzer
Mr. Edward J. See, Class of 1983
Mr. Asa J. Johnson
 Mr. Lewis P. Wheeler
Mr. Gregory B. Jordan, Class of 1981