Marcellus Shale in PA
By Brian Bowling
TRIBUNE-REVIEW
Wednesday, January 21, 2009
Ebensburg's first foray into leasing its Marcellus Shale natural gas rights apparently ended in a broken promise, but manager Dan Penatzer said that hasn't soured the Cambria County borough on the idea.
"We don't see it as anything lost," he said.
GFI Oil & Gas of Williamsport missed its 90-day deadline for paying the $2.6 million it bid to develop Ebensburg's 1,300 acres. Given the economy, no one is offering to pick up the lease, but that doesn't worry Penatzer.
"(The market) is going to return, and the gas isn't going anywhere," he said.
A GFI spokesman couldn't be reached for comment.
The Marcellus Shale could offer Pennsylvania taxpayers a boon not seen from other oil, gas and coal operations because much of the developable property is public land.
Although many local governments and school districts have conventional gas wells on their properties, they typically generate only a few thousand dollars a year in royalties. The higher-volume Marcellus Shale wells are expected to produce hundred of thousands of dollars a year in addition to millions in up-front lease payments. That could pay for capital improvements or shore up pension funds that otherwise would soak up tax dollars.
Geologists knew about the Marcellus Shale for 75 years, but exploration companies didn't think extracting mile-deep gas was worthwhile until drilling technologies and a run-up in natural gas prices changed calculations about two years ago. The result was a boom in leases that started at $150 to $200 per acre and peaked at more than $2,000 an acre last year.
Most of the activity has been with private landowners, but companies such as GFI and Zoom Resources of North Versailles see potential in leasing public land.
Zoom Resources wants Monroeville and several other communities to hire it as a Marcellus Shale broker/consultant.
David Ball said his 2-month-old company doesn't have oil and gas experience, but its principals put together several real estate deals.
"We see an opportunity, particularly for municipalities, to package their interests," he said. "There's going to be a competition, if you look at it that way, for drilling."
Penatzer said GFI was a relatively new company when Ebensburg negotiated its deal, but that didn't worry officials. "There's all kind of people entering that market. Somebody is going to be their first customer," he said.
Jim Brown, one of three Monroeville council members looking into Zoom Resources' proposal, said the municipality will approach it with an open mind but won't rush into a decision.
"This is obviously something that needs to be researched and thoroughly discussed," he said.
In addition to $2.6 million upfront, GFI offered Ebensburg a 15 percent royalty on gas produced. The other bidder, Running Foxes Petroleum of Centennial, Colo., offered $1.9 million and a 17 percent royalty.
Running Foxes spokesman Dennis Mann said the borough already would have $1.9 million and some royalty checks if it had accepted his company's proposal. From the start, the Pennsylvania market has been different from other states, Mann said.
"This has been like the Wild West up here," he said.
Except for Texas and Oklahoma, oil and gas leases typically run $10 to $15 an acre. They started at $150 to $200 an acre in Pennsylvania and quickly soared past $1,000 an acre. At the same time, landowners attached special conditions to leases, such as no drilling during hunting season.
"The companies soon got weary of the whole thing," Mann said. "There were too many demands on the landowners' side. It ended up where a lot of these people didn't get paid."
Matt Pitzarella, spokesman for Fort Worth-based Range Resources, sees things differently. The recession and drop in natural gas prices from about $13 per thousand cubic feet this summer to $6 per thousand cubic feet has slowed leasing.
The Marcellus Shale activity has shifted from leasing to drilling, he said. After the initial rush to secure drilling sites, Range Resources and its competitors need to produce gas so they'd have cash to buy more leases.
"The investors want to see you get a return on those investments after a while," Pitzarella said.
Although much of the buzz has been about the upfront lease payments, Pitzarella said municipalities and other landowners should pay more attention to royalties. Depending on production and natural gas prices, each well could generate $2 million in royalties over an average 50-year life, he said.
Because a well's production peaks at the start and then tapers off, "the heavy percentage of those royalties are in the first few years," Pitzarella said.
The boom in Marcellus Shale leases has Gov. Ed Rendell and some legislators considering a natural gas severance tax. Pitzarella said such a tax would slow the Marcellus Shale industry. State and local governments stand to gain more in lease payments and royalties than they would make from a tax, he said.
House Environmental Resources and Energy Chairman Bud George, D-Clearfield County, is a proponent of a severance tax. He authored a column arguing that enacting a tax is unlikely to drive exploration companies to other states because those states have such taxes.
TRIBUNE-REVIEW
Wednesday, January 21, 2009
Ebensburg's first foray into leasing its Marcellus Shale natural gas rights apparently ended in a broken promise, but manager Dan Penatzer said that hasn't soured the Cambria County borough on the idea.
"We don't see it as anything lost," he said.
GFI Oil & Gas of Williamsport missed its 90-day deadline for paying the $2.6 million it bid to develop Ebensburg's 1,300 acres. Given the economy, no one is offering to pick up the lease, but that doesn't worry Penatzer.
"(The market) is going to return, and the gas isn't going anywhere," he said.
A GFI spokesman couldn't be reached for comment.
The Marcellus Shale could offer Pennsylvania taxpayers a boon not seen from other oil, gas and coal operations because much of the developable property is public land.
Although many local governments and school districts have conventional gas wells on their properties, they typically generate only a few thousand dollars a year in royalties. The higher-volume Marcellus Shale wells are expected to produce hundred of thousands of dollars a year in addition to millions in up-front lease payments. That could pay for capital improvements or shore up pension funds that otherwise would soak up tax dollars.
Geologists knew about the Marcellus Shale for 75 years, but exploration companies didn't think extracting mile-deep gas was worthwhile until drilling technologies and a run-up in natural gas prices changed calculations about two years ago. The result was a boom in leases that started at $150 to $200 per acre and peaked at more than $2,000 an acre last year.
Most of the activity has been with private landowners, but companies such as GFI and Zoom Resources of North Versailles see potential in leasing public land.
Zoom Resources wants Monroeville and several other communities to hire it as a Marcellus Shale broker/consultant.
David Ball said his 2-month-old company doesn't have oil and gas experience, but its principals put together several real estate deals.
"We see an opportunity, particularly for municipalities, to package their interests," he said. "There's going to be a competition, if you look at it that way, for drilling."
Penatzer said GFI was a relatively new company when Ebensburg negotiated its deal, but that didn't worry officials. "There's all kind of people entering that market. Somebody is going to be their first customer," he said.
Jim Brown, one of three Monroeville council members looking into Zoom Resources' proposal, said the municipality will approach it with an open mind but won't rush into a decision.
"This is obviously something that needs to be researched and thoroughly discussed," he said.
In addition to $2.6 million upfront, GFI offered Ebensburg a 15 percent royalty on gas produced. The other bidder, Running Foxes Petroleum of Centennial, Colo., offered $1.9 million and a 17 percent royalty.
Running Foxes spokesman Dennis Mann said the borough already would have $1.9 million and some royalty checks if it had accepted his company's proposal. From the start, the Pennsylvania market has been different from other states, Mann said.
"This has been like the Wild West up here," he said.
Except for Texas and Oklahoma, oil and gas leases typically run $10 to $15 an acre. They started at $150 to $200 an acre in Pennsylvania and quickly soared past $1,000 an acre. At the same time, landowners attached special conditions to leases, such as no drilling during hunting season.
"The companies soon got weary of the whole thing," Mann said. "There were too many demands on the landowners' side. It ended up where a lot of these people didn't get paid."
Matt Pitzarella, spokesman for Fort Worth-based Range Resources, sees things differently. The recession and drop in natural gas prices from about $13 per thousand cubic feet this summer to $6 per thousand cubic feet has slowed leasing.
The Marcellus Shale activity has shifted from leasing to drilling, he said. After the initial rush to secure drilling sites, Range Resources and its competitors need to produce gas so they'd have cash to buy more leases.
"The investors want to see you get a return on those investments after a while," Pitzarella said.
Although much of the buzz has been about the upfront lease payments, Pitzarella said municipalities and other landowners should pay more attention to royalties. Depending on production and natural gas prices, each well could generate $2 million in royalties over an average 50-year life, he said.
Because a well's production peaks at the start and then tapers off, "the heavy percentage of those royalties are in the first few years," Pitzarella said.
The boom in Marcellus Shale leases has Gov. Ed Rendell and some legislators considering a natural gas severance tax. Pitzarella said such a tax would slow the Marcellus Shale industry. State and local governments stand to gain more in lease payments and royalties than they would make from a tax, he said.
House Environmental Resources and Energy Chairman Bud George, D-Clearfield County, is a proponent of a severance tax. He authored a column arguing that enacting a tax is unlikely to drive exploration companies to other states because those states have such taxes.
Views: 136
Replies to This Discussion
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Permalink Reply by The_Baron on -
It just shows that lease terms are set by the individual markets. They are what they are because there are individuals willing to accept those terms in exchange for the hope of receiving royalties one day.
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Permalink Reply by cw on
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Just remember the whole idea of this post was to get you to divest your mineral rights etc....just look at the big picture. The person that posted this admits he only wants to buy you mineral rights or some of them. You will be asked to EMail them later and a request shortly after to be friends and then you get the I can buy some of your mineral interest for 2 bucks if you want me too line? Duh! Oh but come in the water it is not deep, then if they only get you for 1/2 your mineral rights hold out for the 1/4 off offer on royalties while they hold your families head under water. Cmon guys your better than that now offer some real deals!
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Permalink Reply by ELLIS HUGH on
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Are you kidding me?
My post regarding lease terms and activity in the Marcellus Shale is really a conspiracy to buy mineral rights in the Haynesville Shale for cheap.... I guess my friends list full of Haynesville Shale mineral owners supports your theory!
GET A LIFE!
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Permalink Reply by BirdDawg, plain ole' idiot on
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CW,
Ellis may buy mineral rights on occasion, but nothing on this post suggest that that was his intention. People need to learn not to jump to ridiculous conclusions.
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good point and the only thing ridiculous is 4-30 dollar per acre. this is not a attack on the person that posted the discussion but be careful what you assume is ridiculous. i only posted what i think could be going on and wanted future posters to understand not only what they have posted but what you or i have posted
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CW,
I think Ellis was trying bring to our attention the fact of the ridiculous leases in the Marcellus. Just my opinion.
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okay than great post and if that is what you think i respect that.but some just may know more than others in some cases and if i choose to take their advise than great. that is why we are all here. gotta go read something worth reading about.
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CW,
Glad to know another on this site that knows more than most other people.
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LSU,
This is were you have to ask yourself do you want these guys to keep making useless comments and others see or do you delete the discussion? My post are only my opinion and the best information that i have gotten came from what was posted. but the offers that some have taken was do to not being informed or just flat out being taken advantage of. But if you want this one to go on and on that is your choice. i only posted here because i wanted to give others the chance to accept or not accept what you or any of the other posters are going to say today. but i can tell you if you operate in their area it will go on all day so it's your call. I GOT A LIFE OF MY OWN -
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cw,
First, I am not the author of the above article, the source is provided. If members choose to 'accept' the information provided by the Tribue-Review Author it is up to them.
Second, when reading the article I thought people in the Marcellus Shale would benefit from a site like this, maybe gomarcellusshale.com (what ya think, Keith?) Also, I was interested in other opinions on why the lease terms of the Marcellus Shale was so different from the Haynesville.
Third, I am not (or have I been) buying leases in the Haynesville Shale, so your idea of a conspiracy theory on my part is not valid. --I also do not 'operate'. Period. I am a landman, read my profile.
I have no reason to delete this discussion, members will draw their own conclusions regarding my motives. I have no hidden agenda, again, read my profile. For full disclosure, I provided details at the request of a member of this site that I respect.
You are entitled to provide your opinion, however, I would request you don't make baseless accusations.
I am not going to continue to defend my comments/blog post. People here are smart enough to know what is going on. If you interepreted this 'cut-and-pasted article' as some sort of 'mineral stealing ploy', you need to get your head out of the clouds. -
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