Utica drilling downturn to cost Ohioans lost royalty money and state tax income

CANTON: The downturn in shale drilling will likely be costly for Ohio landowners hoping to cash in on Utica Shale royalties, says an energy researcher.

The drilling slowdown and low commodity prices are projected to cost Ohio landowners $6.5 billion in lost income over the next five years, said Maria Cortez of Houston-based Wood Mackenzie, an energy research company.

Cortez, speaking Wednesday at the Canton Chamber of Commerce’s daylong Utica Upstream conference, said the downturn will also cost the state of Ohio about $665 million in lost tax income over the five years.

Those losses could reach $12 billion for landowners and $2 billion for the state of Ohio over the next nine years, she told the audience of 110 people at the Pro Football Hall of Fame.

Cortez also predicted an increase in drilling companies acquiring one another through late 2017 when prices are expected to rise. In addition, she expects companies to develop more joint ventures to share costs in the Utica Shale.

The Utica Shale in Ohio and the Marcellus Shale in West Virginia and Pennsylvania produce about one-third of all natural gas in the United States and will play an important role in exporting liquefied natural gas to other countries, she said.

Those areas are “the OPEC of natural gas liquids” but increased prices are still likely 18 months away, she said.

She said the Marcellus Shale should exceed 30 billion cubic feet per day by 2020, while the Utica Shale will double to 9 billion cubic feet per day in that time.

A billion cubic feet of natural gas is enough to heat 10,000 to 11,000 houses for a year.

Between 150 and 250 Utica wells were drilled but not completed by drilling companies before the downturn hit, Cortez said.

Completing those wells will be a cheaper alternative than drilling new wells for companies when drilling resumes, she said.

The drilling slowdown could result in fewer interstate pipelines being built because there is less natural gas and liquids to be moved, Cortez said.

The Rover Pipeline across northern Ohio has firm commitments and is likely to be constructed, but the need for the Nexus Pipeline that would transport natural gas across northern Ohio appears to have declined, she said. 

The market for that pipeline may not exist anymore, she said.

Read more: http://www.ohio.com/business/utica/utica-shale-drilling-downturn-to...

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Permalink Reply by Joseph-Ohio on April 6, 2016 at 8:58pm

Downturn ?

More like a 'politically - industrially engineered recession' should you ask me what to call it.

Thinking that the 'free market' is fixed / rigged.

Good luck to all of us - I think we need it.

Permalink Reply by David Allen Lilly on April 7, 2016 at 2:27am

These markets have always been manipulated through collusion, even if it is illegal. There are two things in play here, one is OPEC trying to crush American shale energy and the other is the American shale energy producers producing far above demand for their products.

EVERYONE is at fault here, they LL have flooded the market with their product, and what happens when there is an over supply of a commodity ?

Soon enough you will see them ALL colluding to increase prices through reduced supply which will evaporate the currently vastly over supplied market.

1xc6tw2xj1fwlPermalink Reply by 1xc6tw2xj1fwl on April 7, 2016 at 8:07am

You're an idiot!  Why would the industry artificially create lower gas prices.  It's not a conspiracy - there is too much of it.  Shale plays like the Marcellus and Utica exist all over the world.  If anything, it's over priced now.  The only way to fix it is to create more demand.

Permalink Reply by Joseph-Ohio on April 7, 2016 at 9:16am

Bakatcha Gebralter.

You must be unconscious; or if conscious then just gullible.

Gotta look at the bigger picture dude.

JMHOs

Permalink Reply by Joseph-Ohio on April 7, 2016 at 12:01pm

A theory :

Thinking the exported production to date is the production sold on the 'hedge' - pre 'downturn'.

Once that's gone or dwindles enough thinking prices will rise.

Don't know how long it will take but thinking it will happen.

I like low prices as a consumer but am hopeful to become a lessor / earner as well.

The sooner becoming a lessor / earner happens the better the way I see it.

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on April 7, 2016 at 1:32am

The evidence I have from Chesapeake Energy during the peak price period for all of our well products, shows that this multi billion dollar theft started long before OPEC stepped in to crush domestic oil with low prices.

The plan has been all along to steal all of Ohio's NGLs which Chesapeake has done, and will continue doing. Then use the Access Midstream processing plants to overcharge Ohioans for processing NGLs which will allow Chesapeake to pay for the plants. It's easy to see when you know PA has had the Access Midstream pipelines used to steal their royalties.

The evidence shows the overcharge for NGL processing has been used to cancel a large portion of the royalty paid for oil and natural gas.

Also Chesapeake has stolen the money Total E&P paid us for their 25% ownership of our wells. 

There's more, but you can read about it in the Hope Christian Fellowship vs Chesapeake Energy.

The 6.5 billion loss to landowners has already occurred over the past 3 years and the Citizens of Ohio have lost out on Billions in Tax Revenue.

You don't have to look into the future to see a loss, it already has happened, and not due to OPECs oil prices.

Permalink Reply by David Allen Lilly on April 7, 2016 at 2:36am

Great thread Mr. Mauck.

It is actually worse than you think, in my opinion.

Here is eastern Guernsey county the low oil prices have crushed our housing market. To sell now is very likely to realize a much lower return on investment, IF you can sell at all.

But I do disagree with the forecast and the notion that 5 year forecasts are ever relevant in the first place.

I believe there is a window opening up for an uptick in prices, coming sooner or later, maybe even this year IF the industry colludes to manipulate production to relieve the crushing over supply of product available for sale. The producers have been their own worst enemy here and in the middle east. They for various (and short sighted) reasons over supplied the world while we are in a very soft global economy that couldn't absorb all the product. Hopefully half of that problem is soon to be addressed and if the American people do the right thing in November the other half may get corrected. It is not polite to cheer for higher oil and gas prices, keep in mind that what benefits the very few of us does it at the cost of the very many rest of us.

This will all sort itself out in time.

Just keep searching the annals of oil history for the last episode where oil pricing went down and didn't come back up three-fold.

Permalink Reply by william on April 7, 2016 at 10:51am

Wow! Unbelievable bitterness regarding the whole industry. 

My opinion is contrary to a lot of people on this blog. Pretty plain and simple. If you don't want the shale money regardless of the amount then don't sign a lease. There is no guarantee of future riches in any business or economic model when it comes to commodities.

You want to blame the O/G companies then go ahead. If they are colluding then prove it and sue. If they are cheating you at the well head then hire an outside source to evaluate and present a lawsuit.

If anyone would have told me 10 years ago about the amount of money landowners would receive in bonuses I would think they were nuts.More millionaires were created in Ohio in the last 5 years than the last 5 centuries! That my friends was due to the "evil" O/G companies.

If the price of NG, NGL and oil doesn't come back any time soon the landowners are still better off collectively from their original signing bonuses.

Sure some folks signed poor to mediocre leases. I get that but you can't retrace time.If your lease isn't getting renewed I would sit tight and wait. Know what you want as far as your lease is concerned and maybe join a land group. There are strength in numbers.

The glass is still half full!! 

Permalink Reply by Joseph-Ohio on April 7, 2016 at 11:41am

Pro development here.

Pro jobs.

Pro making money.

Pro domestic prosperity.

Anti being stolen from.

Anti being cheated.

Permalink Reply by jerry lee nichols on April 8, 2016 at 10:43am

Its also brought every crook in exsistance out of the woodwork you I am suing you for your minerals my family sol 100 years ago.

Permalink Reply by LERRET on April 9, 2016 at 5:27am

Ah ha.... William has some common sense. Give you two likes. Supply & Demand. If you want some boogie man, then it is the FED. The energy banks are seeking yield because the low interest rates of the Fed has made it difficult to find good things to invest in. The result was bankers rushing in with baby boomer's retirement money to lend first one the internet (dotcom bubble), then the housing bubble and now energy bubble. It is this cheap low cost money that is fueling bubbles and the response was to be expected.  Too much money created stresses in other places dependent upon oil and created economic as well as political instability in Nigeria, Venezuela, and many other countries.  The Saudis took action and the price is the result of their dominance in the OPEC production and the Iranian oil coming on line soon.

The issue of the crookedness of the oil companies is two fold. Yes, they can be weasels. But lack of regulation by the states has resulted in them having a big advantage.  And the 1992 law that created the loophole of gouging mineral owners with post production expenses was simply a governmental action that hurt mineral owners than all the price fluctuations that have ever occurred. Deregulating pipelines led to the post-production expense problem. If I have a 50% royalty and the law allows them to deduct 90% of that, then why wouldn't I think 1/8 free of any expenses be better?

Does anyone know a landlord who rents a building to a company and then allows that company to deduct the cost of electric, telephone, and insurance from the rents? Only in the oil patch and only since 1992.

Permalink Reply by frank speaker on April 12, 2016 at 4:01am

The ultra-low interest rates of the Fed were instituted after the housing bubble and way after the dot-com bubble. It is true that low interest rates allow financing of projects to a point in excess of demand for them, but you are not looking at the other side of the coin. How many needed projects would not have gotten off the ground, how many businesses would have gone under with lending strangled, how many jobs not created and what kind of a recession would we be seeing if interest rates were higher. Banks are going to seek higher yields no matter what the interest environment, and high interest rates do not suppress inflation, they cause it. Low interest  rates do not cause a lack of projects to invest in, rather they promote projects. The banks and other lenders are doing just fine, they simply want more--- and more-- and more---  

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