Transcript Slide 1

Oil
Coal Fields Of Pennsylvania
Valuation Issues in the Marcellus
Shale Play
Geology I Pennsylvania Geology
Grabbing the Lease
The Gas Industry’s Footprints
What’s a person to Do?
Boom & Bust
Current Boom & Bust
• The Marcellus has been identified since the mid
1920’s. At 5000 feet in depth, it was unavailable to
the drilling techniques at the time. When
technology advanced significantly to economically
drill to this depth, conventional (vertical bore) wells
extracted gas only in the immediate area;
horizontal (unconventional) techniques were
adopted to extract product from a narrow band of
gas bearing shale.
• An overview of Pennsylvania’s Second Petroleum
Rush
Geology I: What’s underground
• Oil (Western PA: Quaker State, Pennzoil,
Kendall-Still shipping PA crude!)
• Shallow Gas and mid range gas (conventional)
• Soft Coal(Bituminous) West PA,
• Hard Coal (Anthracite) Eastern PA
• Shale Gas (Marcellus, Utica)
Legal Possession of the Lease
Fee Simple Deed
Mineral (Non-Coal) Deed
Non-Participating Royalty Interest
Royalty Interest
Acquiring Leasehold
Bonus Money: An inducement to
transfer the rights from the lessee to a
lessor for a undisclosed sum of money
NOT an indicator of the market value of
gas rights being sought!
Bonus Money ≠ Value
Bonus Money is the inducement paid to a
landowner to do something based on the
amount of value given to him/her by the
landman. The acquisition of lands by
companies is dependant issues such as::
– Unitization needs
– Check-checkmate other lessees
– Acquire blocks for future trade off
BONUS MONEY ≠ VALUE
PRICE ≠ VALUE
VIP Definitions
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Differences Between Conventional/Unconventional Drilling
Long before interest grew in developing Appalachian shale formations, there was a healthy
oil and gas industry in Pennsylvania. The world’s first commercial oil well was drilled near
Titusville, Venango County, in 1859. An estimated 350,000 oil and gas wells have been drilled
in Pennsylvania over the years, with about 70,000 currently in production; by contrast, an
estimated 6,100 unconventional wells have been drilled in Pennsylvania since 2008.
Conventional oil and gas wells can be found in parks and on public land, along highways, even
in residential neighborhoods. A 2008 study showed the conventional industry supported
more than 27,000 jobs and generated more than $7 billion in annual economic activity –
much of it in the state’s rural areas, supporting local businesses with revenue, farmers with
royalty income and workers with excellent wages.
An important distinction of the conventional industry focuses on the cost to develop those
wells, their reduced production and the smaller return on investment they usually achieve, in
comparison to shale wells. This translates into reduced profitability from these wells, and the
influence that oil and natural gas commodity prices and other market forces have on their
viability. If either the cost to drill these wells increases, or if the cost of oil and gas decreases,
to certain levels, conventional wells become less viable.
VIP DEFINITIONS 2
• A well pad cleared for a conventional oil or natural gas well is
smaller than that of a deep well and requires a smaller drilling rig to
drill vertically and reach the targeted formation. It typically takes
less than two weeks to drill these wells, with a few additional days
required to stimulate and complete the well. Since the number of
fractures into the rock are fewer than those of a horizontal well, the
scope of the well stimulation operation is not as significant and
does not require as much equipment or water.
• Conventional wells in Pennsylvania are also not limited to just
producing natural gas. These vertical, wells can produce oil, natural
gas and both forms of energy. There are many uses for
“Pennsylvania Grade” crude oil due to its high quality, including
refining into gasoline, motor oil, lubricants and white oil. It is also
further processed and used in cosmetics and topical ointments
Conventional vs. Unconventional
• Conventional: straight down
• Unconventional: Twists-turns
Fracking I
The Compressor
Truck
Fracking Site
Process
Well Site: 2H
Gas Interstate-Intrastate Lines
hydraulic fracturing. In this process,
they inject water combined with
chemicals into the well with enough
pressure to create fractures in the rock
formations -- fractures that can extend
hundreds of feet long. To keep the
fractures from closing again, drillers
send down a proppant, which is a
mixture of fluids, sand and pellets.
These fractures allow oil to flow more
freely from the rock.
According to the American Petroleum
Average & Median Values
250000
200000
150000
SALES
DOM
SALE AVE
100000
MEDIAN
50000
0
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
Number of Sales/DOM
1200
1000
800
SALES
600
DOM
400
200
0
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
LEASE FLOW CHART
Bonus Money Ups and Down
Royalty Calculator
Schematic Flow of Gas