Wednesday, August 10, 2011

Deconstructing Marcellus Metrics

Worth a read by all from some (other) folks at Penn State:  - Reverse Engineering the Economic Impacts of Pennsylvania Marcellus Natural Gas Industry.

Just to make sure the vanity surfers catch it..  we will just add the keyword here: "Marcellus Shale".  That always bumps up the readership here...  for real. 

Some key points in there.  Look at how much of the economic impact they show there is coming from construction and related hotel/hospitality industries.  When you do economic impact analysis, or lets be clear that when I (and most everyone I know for that matter) does economic impact analysis,  you do not treat the up front construction employment associated with most any project the same as the net new jobs created for the long run.  

You might also note that this Penn State study (I do wonder if some in the industry will ever refer to more than the one series of studies as being from Penn State researchers) make available their work product calculations.


Anonymous The Wiz said...

Construction employment for many things like stadiums, hospitals, or even city towers are secondary impacts because they are short-lived, a year or two at the most. But this gas...and now oil....industry is a bit different. It will be ten or fifteen years of above normal construction rates due to Marcellus/Utica activities. Not only will there be roads, well pads, pipelines, and living quarters of some type but also treatment facilities, cracker plants, CNG refueling stations, and revived localized plastics/chemical industry. This is not a construction of a building but of an entire industry.

It will also cause a revitalized financial industry in the area that will induce its own construction phase. Dallas is the financial center of Texas but it is a financial center based on the petro-chemical industry. It may even spur a revitalized steel and manufacturing segment as companies take advantage of the cheap and reliable energy it provides.

People in the field say it will be a minimum of one hundred years before the oil and gas are played out. And they keep finding more. so the impact will continue to grow. There are several other strata below the Marcellus that are capable of producing gas. As of now, we are just in the very early stages. Companies of all sorts are trying to determine how to proceed. In about ten years we will have a better grasp on just how this new industry will benefit and/or hinder the area. And about twenty years for it to really hit the area.

While these studies are important to determine policy and plan for the future, they are but a tip of the iceberg of what is to come.

Thursday, August 11, 2011 10:13:00 AM  
Blogger C. Briem said...

yet Wiz you have stated you remain uncommitted yourself to leasing your property? After all these years even at this point? If it makes sense for you to continue holding out so long, and foregoing so much in royalities, why to you say others should do the opposite?

Thursday, August 11, 2011 2:34:00 PM  
Anonymous The Wiz said...

Hoped to be signed in a couple of months. But leases are for 5 yrs with an option for another five so drilling, and thus royalties, alas, will be many years down the road.

Leasing is tricky as land agents make used car salesmen look like amateurs. And the O & G companies don't like giving better terms because it sets a precedent as others will want the same terms. As I have said before, the local media should have done stories on how to lease and avoid the loopholes that are in the standard leases.

Besides, in northern Lawrence Co where I live, offers were very low because the Marcellus is very thin here, about 25' to 50' thick and companies weren't interested. But now offers are much better due to the new interest in the Utica, especially with CHK finding a large oil reserve in eastern Ohio. The Utica is much thicker, around 350' and should contain wet gas, which is much more profitable to produce.

I think it is a great opportunity for both landowners and the state. If I had land where the action is, I would have signed up long ago.

Thursday, August 11, 2011 9:58:00 PM  
Blogger C. Briem said...

Ah yes, as I have predicted for some time now.. it was only a matter of time before they realize they can frack to develop oil. Now that will be interesting.

... Hard to believe the Mt. Jackson folks took you in if there was so little interest for your parcels. That and you really had become quite the expert if the potential payoff appeared relatively low years ago.

It just seems that it might have been prudent for lots of others across the state to exercise the same level of due diligence you have to date. You have spent more time planning before leasing than even the state bureaucracy has. Maybe the state should have followed your lead more and folks across the state would be getting the better deals you have held out for. I wonder how much land owners lost across the state by proceeding so quickly. That would be a great paper to study leasing activity and especially do document some of those $5/acre bonus payments paid to many early on.

Friday, August 12, 2011 2:45:00 PM  
Anonymous The Wiz said...

Wish I could claim some prescient abilities about lease pricing but it is just lucky timing. When people in Greene and Washington Co were getting offers of $5000 or $6000/acre we were getting only $300. No need to rush into anything at that price. And I wanted to learn about the leases and not get ripped off like some people had. I could tell you some real horror stories. Its a shame what some people signed.

When it got about $800 to $900 our group contracted with a small broker to market the gas rights..and they did a lousy job which costs us 9 months time. But the price went to $1500.

Then we joined the Mt Jackson group. It got so large that it was hard to for two guys to handle. Plus all the buyouts of the little fish by the big fish caused further delays. Big corporations have a lot more bureaucracy and the transition periods made it worse.

But again the price went up. Our current broker brought in an outside firm that offered $2600 which was quickly topped by another. Now with the oil find, there are rumors of better offers to come. We shall see.

They have been doing horizontal drilling for oil in the Bakken field in N Dakota and Wyoming for several years. But the Bakken was a known oil field that had been worked for decades. They have been doing horizontal in the Eagle Ford Shale in W Texas for about two years. Again they knew the oil was there but only now had figured out how to get it out in economically worthwhile amounts.

The Utica is a new find. They had suspicions but never explored it because it was a tight shale that was deeper than most wells had been drilled. What they learned in the Eagle Ford made it worth the attempt and it seems to have paid off bigtime. People in E Ohio sure are excited.

Friday, August 12, 2011 10:42:00 PM  

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