Saturday, January 15, 2011

Marcellus Watch

So there is and isn't lots of Marcellus news floating around.  A lot, but most has been written before in other formats.... but on it goes.

Trib has today: Low natural gas prices no boon for shale.  PG had related article yesterday: Shale gas affecting industry's pricing

Yet Forbes has this: Chesapeake Could Be $30 Stock, Shale Reserves Are Huge

Yin and Yang?

On the state of Pennsylvania policy on this, really worth a read is this from the (Towanda-Sayre) Daily Review:  Sen. Yaw introduces Marcellus Shale legislation.  Note the section on the proposal for the state to merely 'allow' localities to use value of reserves is calculating property value and property taxes.  If the MSC was mad at the city of Pittsburgh, they must just hate anyone proposing anything like that. 

Why would localities ever want property tax to reflect shale value?  Well, it looks like some Pennsylvania counties are having a hard time even funding their state-mandated hazmat teams.  No growing need for those I suppose. 

Beyond PA wassup?

Industry exec in Dallas says:  Natural gas prices' wild ride is over, Atmos Energy chairman says

Speaking of Dallas... everyone likes to tout how Fort Worth is an American city that allows drilling inside its city limits.  Nobody ever mentions how much less dense Fort Worth is than say Pittsburgh. But what I didn't realize is that even if Fort Worth is ok with it all, Dallas isn't.  Few mention that.

Marcellus drilling is extending into Maryland.

and while virtually nothing is impeding Marcellus Shale drilling in Pennsylvania, New York continues its virtually complete moratorium.  Here is a quote in a Buffalo News story yesterday
“It’s so frustrating, losing people to Pennsylvania,”
Just to begin with.  Think about that statement some next time you hear folks talk about the bad business climate in Pennsylvania.  Is the economy in North Central PA booming compared to upstate New York? It's not quite obvious in unemployment stats.   We will have to keep an eye out if any migration stats ever back that claim up.  Do the movement into man-camps count though?

Speaking of Pennylvania and policy.  Johnstown Tribune Democrat the other day: State officials are no-shows for Marcellus forum

Anyway... just doing my bit to keep the social media consultants employed.. if there are no blog comments on the whole Marcellus thing, the contracts may not continue.  If you ask my thoughts on some of it, the price of natural gas is really the center of it all. And if you have been around long enough you know that few folks who claim to predict future energy prices ever ever get it right.  Dire warnings of price escalation have been followed by price collapses and stable periods have seen spikes appear out of nowhere. The emergence of Marcellus Shale is itself just one small (or huge dependng on your perspective) datapoint in the unpredicability of energy markets.  I used to love talking to the small energy derivatives desk at Lehman when I was there...  then one day out of the blue they were all let go.  Why?  The energy markets in the very early 90's were so stable that it just wasn't an easy play to make money off of... especially when you had all these other fun new derivative markets exploding.  Note the use of the term 'explode' probably changes in that context over the coming years.

In a sense there is a huge speculation going on in all energy development in that it depends.  Here we are in the middle of a cold-enough winter and generally speaking natural gas prices are below the basement of the range of prices most natural gas developers were pitching to their investors.   You would think something has to give.. Then you hear others say things like "Prices are at 15 year lows" with the implication they will rebound. Lots of money has been lost waiting for that reversion to the mean to eventually set in. The belief that prices will eventually have to revert to what their long term trend or pattern has been is the logic fundamentially that first did in LTCM, and later much of the CDO market.   

For the intermediate term.. Natural gas is not quite like other commodities. I think I will agree with Duquesne's Kent Moors who has an article on "seeking alpha" where he points out that the issue is storing the gas.

Then there is coal.. gotta talk about coal.  Later.


Anonymous n'at said...

Storing gas, you say? Atlas is looking for a V.P. in charge of their "Railway" segment. Why would they need that!?

Curiouser and curiouser.

Saturday, January 15, 2011 9:05:00 AM  
Anonymous The Wiz said...

Lots of good info there. Gas prices are low and should stay there for some time. But don't forget that much of the gas in Pa is wet gas so it has a higher valuation. I don't know what is the premium that wet gas gets but I will try to find out. I'm sure it varies substantially based on quality and volume.

And the $4.45 price is based on the Henry Hub in Louisiana. Pa gas should get a better price as it is closer to the huge East Coast markets and will not have the transportation costs involved.

Plus reports say the break even point is somewhere in the $2.50 to $2.75 range. At $4.45 that gives an ROI of 46% if my math is right. The guys on Natural Gas Matters on 104.7 FM today said that the new year's budgets are out and the companies have increased their budgets for land acquisition so they are still active.

Sen Yaw has some good proposals. I'll have to contact him and give him my support. And, if I read the article right, you might need a correction. His proposal is for counties and municipalities to have the right to tax and asses the royalties paid only from producing wells, not to asses the value of the gas reserves. I also like his proposal on forced pooling and 21 yr limit on rights.

Prices will remain low for the foreseeable future as this technology is spreading world wide. Did you see that Israel has announced a huge gas field of their coastline? This will help Israel financially but many fear it will start another war in the ME.

Sunday, January 16, 2011 4:26:00 PM  

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