Penn State Study Finds Smaller Marcellus Jobs Impact; 'Still Big Numbers'

- Penn State Study Finds Smaller Marcellus Jobs Impact; 'Still Big Numbers'

Tuesday, August 30, 2011
Pittsburgh Post-Gazette
by Bill Toland

Jobs related to natural gas drilling in Pennsylvania's Marcellus Shale field were about half what previous studies had estimated for 2009, but the industry still supported about 23,500 jobs that year, according to a new study issued by Penn State researchers.

"It's still big numbers," said Timothy W. Kelsey, professor of agricultural economics with Penn State's College of Agricultural Sciences, and one of the study's authors.

"It's just not as big as what the industry is talking about."

The study, issued Monday by the Marcellus Shale Education & Training Center, a partnership of the Pennsylvania College of Technology and the Penn State Extension, also said that about half of the land being leased by drillers was owned by people living in those counties in 2009 -- the rest was owned by people or firms based out of state or elsewhere in Pennsylvania, or owned by the state itself.

That means much of the leasing and royalty money derived from drilling goes out of the county in which the drilling takes place, according to the study.

It's an economics phenomenon known as "leakage" -- money that looks as if it is benefitting a particular area is actually going elsewhere. And it's not an economic phenomenon native to gas drilling: Coal interests, limestone and gravel deposits and other mineral-related economic activity is subject to the same kind of leakage.

The study, "Economic Impacts of Marcellus Shale in Pennsylvania: Employment and Income in 2009," bills itself as the first paper to look at not just the number of jobs and amount of revenue generated by drilling but also where that money is going and how quickly it's being spent.

The jobs figure, as with previous studies, accounts for actual jobs created -- front office jobs, drilling jobs, engineering jobs -- as well as "induced" and "indirect" jobs, which are those not created by the industry itself but by the money the industry spreads around to local suppliers, hotels and restaurants, for example.

The study suggested that the industry generated around $3.1 billion in economic activity -- $1.2 billion in income and $1.9 billion in "added value."

Also of note was that locals who benefit from the gas play do not spend their lease and royalty checks immediately, meaning the money is not a direct, immediate benefit to the local economy. By surveying landowners in Bradford and Tioga counties, the study's authors estimate that leaseholders save or invest about 55 percent of leasing proceeds and about 66 percent of royalty payments in the year they are received, instead of spending the money.

The study's attempt to get a more accurate read on who -- and which areas -- benefit from drilling activity was hampered, Mr. Kelsey said, by the absence of any state or county database for who owns mineral rights (and thus owns the royalty rights to gas and shale deposits).

While it was relatively easier to find out who owns the land being leased -- about 51 percent of drilling plots are owned by people in that county -- it's far less clear who owns the rights to the gas below the surface and where those people live. The researchers, in calculating the economic benefits of the shale play, assumed an identical local ownership share (51 percent) for the mineral rights as well as the surface rights.

"We know that's not accurate," Mr. Kelsey said. "But there isn't anybody who has that data."

In many cases, mineral rights were separated from surface rights decades ago. It's more likely, he said, that the mineral rights owner lives out of state than the actual landowners, which means that it's also more likely gas royalty payments are going out of state.

But suspecting that and finding data to prove it are two different things, he said.

The state and county assessment offices need to do a better job of tracking that information if they want to have a more accurate picture of where mineral rights royalties are going, he said.

The study also surveyed 2,000 randomly selected businesses in Bradford and Washington counties to "identify the impacts they are experiencing from Marcellus Shale development." The responses "indicated positive economic impacts are occurring broadly across the economy in the communities where drilling is very actively occurring."

About 23 percent of Washington County business respondents said that natural gas drilling had helped to improve sales, while only 2 percent of respondents said that the drilling had hurt sales.

The full paper is available at http://extension.psu.edu/naturalgas/publications.

The study was paid for by funding from state Department of Community and Economic Development and money from Penn State and the Pennsylvania College of Technology.

(c)2011 the Pittsburgh Post-Gazette. Distributed by MCT Information Services.


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Penn Virginia to Sell Arkoma Basin Properties

- Penn Virginia to Sell Arkoma Basin Properties

Friday, July 29, 2011
Penn Virginia Corp.

Penn Virginia has entered into a definitive agreement to sell substantially all of its Arkoma Basin properties, together with certain other Mid-Continent properties, to an undisclosed buyer for $30.5 million in cash. This sale is expected to close by the end of August and is subject to customary closing conditions and purchase price adjustments.

The properties being sold include the Hartshorne coalbed methane and Woodford Shale formations, as well as a number of conventional natural gas play types. The properties are currently producing, on a net basis, approximately 7.8 million cubic feet of natural gas equivalent (MMcfe) per day, approximately 97 percent of which is natural gas. As a result of the divestiture, PVA's 2011 production will decrease by an estimated 0.9 billion cubic feet of natural gas equivalent (Bcfe). Estimated proved reserves associated with the divested properties, as determined by PVA's third party engineers at year-end 2010, were 42.5 Bcfe, 78 percent of which were proved developed. PVA intends to use the net proceeds from this sale to fund, in part, its 2011 capital expenditure plan, as well as for general corporate purposes.

RBC Richardson Barr served as PVA's financial advisor in connection with the transaction.

H. Baird Whitehead, President and Chief Executive Officer, stated, "Our strategy to shift the focus of our capital spending to oil and natural gas liquids made our Arkoma and other Mid-Continent assets appropriate divestiture candidates. The increase in liquidity generated by the sale of these properties will give us further flexibility to help fund investment in our liquids-rich plays, such as the Eagle Ford Shale, that generate higher rates of return and also improve our growth and profitability going forward."

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Penn Virginia Disappointed by Initial Marcellus Production Rates

- Penn Virginia Disappointed by Initial Marcellus Production Rates

Tuesday, June 28, 2011
Penn Virginia Corp.

Penn Virginia updated its activities in the Marcellus Shale.

Peak 24-hour production rates from our first three Marcellus horizontal wells, the Risser #A-1H, Risser #A-2H and Dunn #A-1H, were approximately 3.1, 2.8 and 4.0 million cubic feet (MMcf) per day, with an average rate over a 72-hour test period of 2.1, 1.7 and 2.7 MMcf per day, respectively. These three test wells are located in the central portion of our approximately 35,000 net acre position in Potter and Tioga Counties, Pennsylvania. Pipeline construction is in progress with sales expected to begin by early August. One additional well in the western portion of our acreage is currently waiting on completion. During the second half of 2011, we plan to test, initially with vertical wells, the eastern portion of our acreage, comprised of approximately 20,000 net acres.

H. Baird Whitehead, President and Chief Executive Officer, stated, "The Marcellus Shale test wells had initial production rates which fell short of our expectations. We will monitor longer term production once these wells are turned into the pipeline and determine if the reserves can support a development program in this immediate area. As important, we will begin testing our eastern acreage position during the second half of the year."

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Penn Virginia Briefs on Eagle Ford Wells

- Penn Virginia Briefs on Eagle Ford Wells

Tuesday, June 14, 2011
Penn Virginia Corp.

Penn Virginia provided an update of its activity in the Eagle Ford and Marcellus Shales.

Eagle Ford Shale

We currently have six producing Eagle Ford Shale wells. These six wells, in which we have an approximate 83 percent working interest, are currently producing an aggregate of 4,096 barrels of oil per day (BOPD) and 2,072 thousand cubic feet (Mcf) of natural gas per day on a gross basis. The natural gas associated with these wells is also expected to yield approximately 150 barrels of natural gas liquids (NGLs) per million cubic feet (MMcf).

• Our initial well, the Gardner #1-H, had a peak 24-hour production rate of approximately 1,250 barrels of oil equivalent (BOE) in late February 2011 and is still producing approximately 350 BOPD and 240 Mcf of natural gas per day after 129 days of production, bringing cumulative production to approximately 68,000 barrels of oil and 56 MMcf of natural gas all of which was flared, or approximately 77,000 BOE.
• We recently completed five additional wells, the Hawn Holt #1-H, #2-H, #4-H, #6-H and #9-H, which had peak 24-hour production rates, as reported to the Texas Railroad Commission, of approximately 726, 986, 560, 711 and 1,876 BOE per day, respectively. These same wells had corresponding peak 24-hour oil production rates of 650, 869, 514, 670, and 1,652 BOPD. The Hawn Holt #1-H and #4-H had subsequent increases in peak rates of production to 830 and 582 BOE per day, respectively. These five new wells were tested at restricted rates with flowing pressures that ranged between 1,180 and 2,994 pounds per square inch. The total horizontal lateral lengths ranged between 3,827 and 5,063 feet with between 14 and 18 frac stages per lateral.
• In addition to our six producing wells, we are currently drilling three wells and have three wells waiting on completion.

We extended our agreement with a private service contractor to provide hydraulic fracturing services primarily in the Eagle Ford Shale, as well as other plays in east Texas and Oklahoma. This agreement has a one-year term with an option to extend for additional one-year terms.

Our natural gas midstream service provider in Gonzales County recently connected our wells to its pipeline and processing facilities. As a result, we have begun to recognize sales revenue associated with NGL and residue gas production.

Marcellus Shale

We continue to test our approximately 35,000 net acreage position in Potter and Tioga Counties, Pennsylvania and have drilled four horizontal wells. We have completed and commenced testing of three of these wells, while the fourth well is waiting on completion. The three completed wells are located in the central portion of our acreage, and the fourth well is located in the western portion. We plan to move a drilling rig to test the eastern portion of our acreage during the second half of the year. In addition, pipeline construction is in progress with sales expected to begin by early August. Earlier in 2011, we conducted a formal process to seek a joint venture partner or other alternatives for this capital-intensive play. Although we are no longer conducting a formal process, we will continue to consider alternatives for our Marcellus acreage position.

Management Comments

H. Baird Whitehead, President and Chief Executive Officer, stated, "The strong results from our first six Eagle Ford Shale wells are consistent with our geological and economic models. Extending our fracturing services agreement in light of potential completion crew availability issues for the industry, as well as establishing our initial natural gas midstream takeaway and processing capacity, are important accomplishments as we look to maximize our returns from this play. We are currently running three drilling rigs in the Eagle Ford Shale play and expect to accelerate the growth of our oil and NGL production over the course of 2011 and beyond.

"We also continue to test our Marcellus Shale position, having recently completed our initial wells in the central portion of our acreage and looking to test primarily the eastern area later in the year. Once the pipeline is completed to these initial wells we will monitor the production and longer term results."

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Penn West Expects A Hit Due To Canadian Wildfire

- Penn West Expects A Hit Due To Canadian Wildfire



Jun 13, 2011

Penn West Petroleum Ltd. (NYSE: PWE) expects a hit on its cash flow from wildfires that are still blazing through northern Alberta, Canada. The company's chief operating officer Murray Nunns stated at a conference Monday that they expect to see a C$60 million to C$70 million hit due to the fires.

The wildfires are affecting around 35,000 barrels of oil a day as well as production. Nunns stated that about half of the shut-down facilities are ready to restart, and all of them will be ready by the end of June. By July, they expect to be back at full production.

Penn West Petroleum has a potential upside of 32.3% based on a current price of $23.13 and an average consensus analyst price target of $30.78.

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