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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Cobalt Posts Smaller Loss for Q1

Cobalt Posts Smaller Loss for Q1

Tuesday, May 03, 2011
Cobalt International Energy, Inc.

Cobalt International Energy, Inc. on Tuesday announced a net loss of $16.1 million, or $0.05 per basic and diluted share for the first quarter of 2011, compared to a net loss of $29.7 million, or $0.09 per basic and diluted share, for the first quarter of 2010.

Cash expenditures (excluding changes in working capital) for the quarter ended March 31, 2011 were approximately $11 million compared to guidance of $20 25 million. For the full year 2011, expected cash expenditures (excluding changes in working capital) including the cash expenditures associated with Block 20 offshore Angola are $325 to 400 million. The range depends principally on when Cobalt recommences Gulf of Mexico drilling activities in the second half of 2011, and the testing and appraisal expenditures associated with any discoveries offshore Angola.

Cash, cash equivalents and investments at the end of the first quarter were approximately $843 million. This excludes approximately $349 million designated for future operations held in escrow and collateralizing letters of credit, as well as approximately $196 million in the TOTAL drilling fund for the Gulf of Mexico. In addition to these balances, Cobalt closed a common stock offering on April 15, 2011, which resulted in total gross proceeds to Cobalt before underwriting discounts and offering expenses of $499.1 million. Cobalt has no short or long-term debt. Including the proceeds from the offering, Cobalt holds cash, cash equivalents and investments of over $1.67 billion which Cobalt expects will be sufficient to fund its planned exploration and appraisal program, including expenditures relating to Block 20 offshore Angola, through the end of 2013.
Cobalt is an independent oil exploration and production company focusing on the deepwater U.S. Gulf of Mexico and offshore Angola and Gabon. Cobalt was formed in 2005 and is headquartered in Houston, Texas.

UK Oil Tax Hike to Benefit Smaller Acquisitive N. Sea Producers

UK Oil Tax Hike to Benefit Smaller Acquisitive N. Sea Producers

Friday, April 08, 2011
Dow Jones Newswires

by  Sarah Kent & Iain Packham

The U.K.'s new levies on oil production could benefit small North Sea producers eager to snap up aging fields from international energy giants looking to minimize their exposure to the tax increase.

The tax, which increases the charge on profits from U.K. oil and gas production to 32% from 20%, is likely to force oil majors to lower the sale price of aging offshore fields, providing bargains for the smaller companies already in the market to buy them.

This could speed up the shift in ownership of North Sea assets, from the large companies that dominated production in the region when output was at its peak to smaller companies specializing in recovering oil and gas from fields well into their decline.

"I do see a silver lining. Fewer companies will be coming into the [North Sea]," said EnQuest's Chief Executive Amjad Bseisu. "There will be fewer buyers and more sellers because of the deterioration and degradation in the tax situation."

The tax increase, which took the industry by surprise, narrows already-slim profit margins on many of the older North Sea fields, where declining reserves are becoming more expensive to extract.

Larger companies tend to invest only when they expect a higher returns, and they usually view the expense of breathing new life into a mostly-depleted field as not worth the small reward. Smaller companies, which tend to have fewer qualms about lower returns, are now finding they can snap up assets at a fraction of the price of as little as two weeks ago when the tax was introduced.

Among the large international oil companies active in the North Sea, Statoil, Total and BASF subsidiary Wintershall have all said they are reviewing investment plans. Meanwhile, smaller independent oil companies including Valiant Petroleum and EnQuest have said that the tax hike will benefit their ongoing strategy to buy more North Sea reserves.

"The tax increase will make assets more peripheral to major companies because they will decrease in value," said Peter Basset, an oil and gas analyst at Westhouse Securities. "After a period of reflection quite a lot of assets will come on to the market at a lower price."

North Sea investment has profound consequences for global oil prices. The Brent blend, used as a pricing benchmark for much of the crude bought and sold in Europe and Asia, is produced from North Sea fields. Declining output has caused Brent prices to fall out of step with the global market in the past, and could do so again without continued investment in older fields and exploration.

The bargain hunting has already begun. Earlier this week Ithaca announced its acquisition of Hess' interest in two North Sea fields for $74.6 million and Ithaca's 10% stake in three North Sea exploration blocks.

Cenkos Securities said this is the equivalent of paying $14.30 a barrel for the assets, compared with $17.50 a barrel paid last October by Faroe Petroleum for an 18% stake in the Blane field.

The deal works out especially favorably for Ithaca as it expects to be shielded from the rise in taxes, at least initially. It posted a loss of $215 million at the start of 2011, which it estimates will exempt it from cash taxes for the next five years. In the U.K. companies are able to offset losses against their profits when paying tax. Other small North Sea operators are in a similar position.

However, the window of opportunity for smaller oil producers could be closing. The oil industry is lobbying the U.K. government for more favorable tax terms, including extra incentives for natural gas production, lower taxes on marginal fields and a tax reduction if oil prices drop. Some companies may hold off from selling their assets until the tax issue is settled.

"Until there is absolute clarity from the government as to what the fiscal regime will be, I can't see many large deals getting done," said James Hosie, an analyst at RBC Capital Markets.