The Importance of Administrative Pooling to Unconventional Oil and Natural Gas Development and Economic Activity in West Virginia: Final Report

Transcription

1 The Importance of Administrative Pooling to Unconventional Oil and Natural Gas Development and Economic Activity in West Virginia: Final Report West Virginia Oil and Natural Gas Association Charleston, WV Harry Vidas and Bob Hugman ICF International 9300 Lee Highway Fairfax Virginia December 15,

2 Contents Page Objectives 2 Approach 3 Scenarios Evaluated 4 Survey Results Distributions 5 Survey Results Costs 10 Cost of supply curves 13 Forecast impacts on drilling, economy, jobs, revenues 16 Appendices 31 1

3 Objectives of Project Determine impact of administrative pooling on West Virginia oil and gas production Determine impact on investment levels in West Virginia Evaluate impact on state, county, and local taxes, including direct, indirect, and induced effects Determine impacts to the owners of royalty payments and mineral rights Determine employment impacts, including direct, indirect, and induced impacts 2

4 Approach Define the legislation to be evaluated. Develop and implement an industry survey to evaluate how the current lease situation is impacting Marcellus development. Acreage without pooling clauses Working interest holdouts Potential for the addition of unleased acreage Based on the survey, develop a statistical characterization of Marcellus development in WV. Develop cost of supply curves with and without the pooling/unitization legislation. Develop drilling and production forecasts through 2035 to estimate the impact on development with and without the subject legislation. Evaluate economic impacts as the difference in activity, spending, jobs, lease revenues, royalties, taxes, etc. between the forecasts. 3

5 Scenarios Evaluated Three scenarios were evaluated: Continuation of the current situation with no administrative unitization. (Case 0) Proposed legislation allowing administrative pooling for those leases without a pooling clause, as well as limited ability to bring in other working interests and additional unleased acreage. (Case 1) A full development scenario that includes administrative pooling plus widespread addition of unleased and other working interest. (Case 2) Each scenario has a distribution of developable acreage and wells by horizontal lateral length derived from the industry survey. This distribution has an impact on well economics, with the longer laterals representing lower resource costs. 4

6 Survey Results by Acreage Type 826,000 net leased Marcellus play acres covered in survey An additional 314,000 acres could be brought in through other working interests within units An additional 135,000 acres of currently unleased acreage could be included Total survey response acreage comes to 1.27 million acres or 1,991 square miles Areas with Survey Data Total Survey Response Developable Survey With Distributions of Lateral Length Acres Square Miles Acres Square Miles Company net acreage With pooling clause 492, , Without pooling clause 333, , Total 825,785 1, , Other working interest acres 313, , Additional unleased acreage 134, , Total potential acreage 1,274,187 1, ,

7 West Virginia Marcellus Play Area Counties with either significant horizontal drilling or adjacent to counties with horizontal drilling Approximately 5,600 square miles 6

8 Well Spacing Estimates by Lateral Length Category ICF evaluated the geometric/area implications of various lateral length scenarios; this is a theoretical evaluation separate apart from the survey These values were subsequently used in the analysis of the survey Average Lateral Length (ft) Vertical/ short lateral ,030 4,300 7,495 9,975 Average Well Spacing in Acres Per Well Assumed Vertical/ short lateral Average Distance Between Laterals ft Vertical/ short lateral ,713 1, Number of Pads per Square Mile Vertical/ short lateral Number of Wells Per Pad Vertical/ short lateral

9 Lateral Distributions from Survey Developable Area Case Distribution of Acres by Category Survey Coverage Vertical/ short lateral Total 0 148, , ,865 70,680 16, , ,791 66, , ,922 35, , ,920 69, , ,623 44, ,442 Case Number of potential wells by lateral category Survey Coverage Vertical/ short lateral Total Average Lateral Length (ft) 0 1,854 2,087 1, ,912 2, , ,427 1, ,112 4, , ,543 2, ,013 4,499 Case Number of potential pads by category Survey Coverage Vertical/ short lateral Total 0 1, , , , , ,173 8

10 Lateral Distributions from Survey Entire Play Developable Area Case Distribution of Acres by Category Entire Play Vertical/ short lateral Total 0 648, , , ,111 72,718 2,241, , , , , ,092 2,241, , , ,811 1,257, ,007 2,748,416 Case Number of potential wells by lateral category Entire Play Vertical/ short lateral Total Average Lateral Length (ft) 0 8,109 9,128 6,006 2, ,857 2, ,455 3,657 6,241 6, ,357 4, ,681 3,778 6,748 9,050 1,043 26,299 4,499 Case Number of potential pads by category Entire Play Vertical/ short lateral Total 0 8,109 2, , ,455 1, , ,681 1,231 1,038 1, ,502 9

11 Survey Cost Averages Survey included cost information for typical WV Marcellus well Some respondents provided detailed AFE level data on all cost components, which were used in the economic impact analysis Average Total pad cost (exclude any cost of gathering lines or compression) $1,700,000 Drilling cost in $/foot (excluding stimulation) $332 Stimulation cost per stage $148,000 Stage spacing in feet for horizontal wells 250 Annual operating cost excluding taxes and royalties (excl. gath. and proc.) $37,660 10

12 Survey Costs Applied to Lateral Length Categories Vertical Wells or Short Laterals 1,000 to 3,000 ft Laterals 3,000 to 6,000 ft Laterals 6,000 to 9,000 ft Laterals Over 9,000 ft Laterals Wells/square mile Acres per well Lateral length (ft) 600 2,030 4,300 7,495 9,975 Distance between laterals (ft) 5,713 1, Nominal Well EUR bcf/well* EUR bcf/square mile* Mcf/Lateral Ft* 1,209 1,209 1,209 1,209 1,209 TVD in feet 7,000 7,000 7,000 7,000 7,000 Measured Well Length (ft) 7,600 9,030 11,300 14,495 16,975 Stim stages per well Pads/sqr mile Wells per Pad Pad Cost per Well $ 1,087,500 $ 413,177 $ 241,250 $ 241,250 $ 241,250 Drilling Cost per Well $ 2,523,200 $ 2,997,960 $ 3,751,600 $ 4,812,340 $ 5,635,700 Stimulation Cost per Well $ 355,200 $ 1,201,760 $ 2,545,600 $ 4,437,040 $ 5,905,200 Other Cost per Well $ 124,000 $ 124,000 $ 124,000 $ 141,833 $ 155,674 G&A per Well (@16%) $ 654,384 $ 757,904 $ 1,065,992 $ 1,541,194 $ 1,910,052 Total Capital per Well $ 4,744,284 $ 5,494,801 $ 7,728,442 $ 11,173,657 $ 13,847,876 Total Capital in $/Mcf* $ 6.54 $ 2.24 $ 1.49 $ 1.23 $ 1.15 * EURs, $/Mcf values etc. are illustrative and will vary by location. 11

13 Financial Assumptions Weighted Average Cost of Capital INCOME TAX RATE: 35.0% INFLATION: 2.5% Calculation of Real After-Tax Discount Rate CAPITALIZATION NOMINAL AFTER-TAX REAL, AFTER- RATIO RATE RATE TAX RATE DEBT 40.0% 7.0% 4.6% 2.0% EQUITY 60.0% 15.0% 15.0% 12.2% 11.8% 10.8% 8.1% Natural Gas Liquids Pricing ($/bbl) Lease Cond. Ethane Propane Butane Pentanes Plus Mont Belvieu $ $ $ $ $ Discount $ 1.00 $ 2.00 $ 2.00 $ 2.00 $ 2.00 WV Prices $ $ $ $ $

14 Cost of Supply Curves Developed cost of supply curves for the WV Marcellus for the three scenarios. A supply curve is a representation of the volume of recoverable resource that is economic at a given wellhead gas price. Supply curves are developed by evaluating shale gas recoverable resources and economics for a typical well in each area or analytic cell evaluated. (6 by 6 square mile units). A discounted cash flow analysis is carried out for each cell including data such as well recovery, capital expenditures, operating costs, Btu and liquids content of the gas, and production over time. Each cell has a volume of gas and a cost of supply associated with that volume. The ICF model was expanded to include the lateral length/well spacing scenarios generated from the survey results. Longer laterals equate to higher well costs, but lower resource costs. The supply curves for the three cases are shown on the following slide. 13

15 Gas Supply Curves WV Marcellus Gas Supply Curves 2012$ per MMBtu $15 $14 $13 $12 $11 $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0 Case Zero Case One Case Two 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 Bcf of Marketable Dry Gas 14

16 Gas Supply Table Case Gas Price in $/MMBtu Recoverable Gas Quantity (bcf) Wells Capital Costs ($/Well) Capital Expend. ($mm) Marketed Dry Gas (bcf) Lease Cond. (mmb) Ethane (mmb) Propane (mmb) Butane (mmb) Pentanes Plus (mmb) Bcf/ Well All Liq/gas (bbl/mmcf) Case Zero $ ,886 1,788 $ 5,889,053 10,527 4, Case Zero $ ,083 2,590 $ 5,954,414 15,421 5, Case Zero $ ,273 3,895 $ 6,033,289 23,502 9, Case Zero $ ,245 5,552 $ 6,087,717 33,798 14, Case One $ ,159 2,655 $ 7,313,752 19,415 9, Case One $ ,491 4,856 $ 7,432,885 36,094 18, Case One $ ,982 6,383 $ 7,485,292 47,775 24, Case One $ ,382 7,984 $ 7,504,893 59,917 29, , Case Two $ ,190 4,293 $ 7,751,386 33,280 17, Case Two $ ,163 6,019 $ 7,807,726 46,996 25, , Case Two $ ,291 8,279 $ 7,844,134 64,938 33, , Case Two $ ,444 11,231 $ 7,885,773 88,565 43, , Note: The EIA AEO 2014 Reference Price for the year 2035 is approximately $7.00. Therefore, the volumes appearing in last row for each case ($7) represent quatities that could be developed between now and

17 Forecast of Drilling Activity and Economic Impacts ICF created forecast of annual drilling and production based on the three supply curves described above. o o o Case 0: Continuation of the current situation with no administrative unitization Case 1: Proposed legislation allowing administrative pooling for those leases without a pooling clause, as well as limited ability to bring in other working interests and additional unleased acreage. Case 2: A full development scenario that includes administrative pooling plus widespread addition of unleased and other working interest. All cases are based on the 2014 Energy Information Administration s Annual Energy Outlook and its projection of oil and natural gas prices. The higher WV natural gas production in Case 1 and Case 2 will reduce natural gas prices and this effect was included in the forecast. Estimates of economic activity in WV and job impacts are based on ICF calculations including estimates made using the WV state and national versions of the IMPLAN model. The assumption made in estimating WV jobs was that local and state government jobs would not be affected by higher tax revenues. Therefore, jobs shown here are almost entirely private sector jobs. 16

18 Case 1 leads to an average of 98 more wells per year than Case 0; Case 2 leads to 223 more wells per year than Case 0. 17

19 Case 1 leads to an average of 1.01 bcf per day more gas production than Case 0; Case 2 leads to 1.96 bcf per day more than Case 0. 18

20 Case 1 averages 48,000 bbls per day more liquids production than Case 0; Case 2 leads to 96,000 bpd more than Case 0. 19

21 During the peak years, annual capex is about $1.3 billion higher in Case 1 and in Case 2 $2.7 billion higher than Case 0. 20

22 The gas price forecast is from EIA s 2014 Annual Energy Outlook; Differences relate to the additional gas production in Cases 1 and 2. 21

23 Case 1 leads to an average of 11,700 more WV jobs than Case 0; Case 2 leads to an average of 23,800 more jobs than Case 0. Job totals include direct, indirect and induced impacts. 22

24 State and local tax revenues increase an average of $351 MM per year in Case 1 and an average of $677 MM per year more in Case 2. 23

25 Summary of Results to 2035 WV Horizontal Drilling Case 0 Case 1 Case 2 Case 1 vs. Case 0 Case 2 vs. Case 0 Wells Drilled Gas Production (bcf) Liquids Production (mm bbl) Value of NG & Liquids Production ($mm) WV Job Years WV Government Revenues ($mm) 5,066 7,132 9,756 2,067 4,690 14,338 22,084 29,278 7,746 14, ,325 1, $ 115,378 $ 172,738 $ 226,880 $ 57,360 $ 111, , , , , ,735 $ 15,133 $ 22,506 $ 29,330 $ 7,373 $ 14,196 24

26 CASE 0 DETAILS Case 0 Case 0 Case 0 Case 0 Case 0 Case 0 Case 0 Case 0 Case 0 Case 0 Case 0 Case 0 Year New Wells Drilled Gas Production (bcf/day) Liquids Production (bbl/day) Annual Capital Expenditures Annual O&M Expenditures ($/mm/year) Value of Dry Natural Gas Production Value of Liquids Production Value of NG & Liquids Production Liquids Value $/bbl Gas Value $/MMBtu National Direct & Indirect Jobs (from E&P expenditures) National Direct, Indirect and Induced Jobs (from E&P expenditures) $ $ , $ $ ,892 2, , $ $ ,330 5, ,005 1, ,008.3 $ $ ,484 10, ,220 1, ,372.8 $ $ ,892 12, ,774 1, , ,322.3 $ $ ,538 14, ,341 1, , , ,280.9 $ $ ,642 15, ,892 1, , , ,608.7 $ $ ,707 15, ,925 1, , , ,919.2 $ $ ,777 15, ,735 1, , , ,366.2 $ $ ,851 16, ,872 1, , , ,867.4 $ $ ,917 16, ,528 1, , , ,987.5 $ $ ,998 16, ,298 1, , , ,971.6 $ $ ,080 16, ,458 1, , , ,304.5 $ $ ,161 16, ,121 1, , , ,528.7 $ $ ,243 16, ,607 1, , , ,654.7 $ $ ,179 15, ,478 1, , , ,725.1 $ $ ,118 13, ,670 1, , , ,679.6 $ $ ,175 12, ,670 1, , , ,620.6 $ $ ,337 11, , , , ,548.7 $ $ ,591 10, , , , ,454.7 $ $ ,929 9, , , , ,366.4 $ $ ,340 8, , , , ,319.1 $ $ ,817 7, , , , ,197.5 $ $ ,351 7, , , , ,116.3 $ $ ,938 6, , , , ,016.5 $ $ ,570 6, , , , ,885.3 $ $ ,243 5, , , , ,767.2 $ $ ,953 5,265 5,066 14, ,339,338 30,879 3, ,378 25

27 Case 0 Details (continued) Case 0 Case 0 Case 0 Case 0 Case 0 Case 0 Case 0 Case 0 Case 0 Case 0 Year WV Direct & Indirect Jobs (from E&P expenditures) WV Direct, Indirect and Induced Jobs (from E&P expenditures) All WV Jobs including from spending of royalties WV Royalty Payments WV Severance Tax Payments WV Property Tax Payments WV Income Tax Payments WV All Tax Payments WV State All Taxes as % Income Gains of WV Income % ,209 1,634 1, % ,768 3,738 4, % ,784 6,460 8, , % ,686 7,677 10, , % ,740 9,098 14, , % ,449 10,052 17, , % ,494 10,109 17, , % ,542 10,170 18, , % ,592 10,234 19, , % ,638 10,293 20, , % ,694 10,364 21, , % ,749 10,435 21, , % ,804 10,506 21, , % ,860 10,577 22, , % ,183 9,659 21, , % ,508 8,744 21, , % ,908 7,931 20, , % ,375 7,207 19, , % ,901 6,565 18, , % ,479 5,993 17, , % ,105 5,485 17, , % ,772 5,034 16, , % ,476 4,632 15, , % ,213 4,275 15, , % ,979 3,958 14, , % ,771 3,676 14, , % ,586 3,426 13, , % 446,191 17,307 5,769 3,090 6,274 15,133 96, % 26

28 CASE 1 DETAILS Year Case 1 Case 1 Case 1 Case 1 Case 1 Case 1 Case 1 Case 1 Case 1 Case 1 Case 1 Case 1 New Wells Drilled Gas Production (bcf/day) Liquids Production (bbl/day) Annual Capital Expenditures Annual O&M Expenditures ($/mm/year) Value of Dry Natural Gas Production Value of Liquids Production Value of NG & Liquids Production Liquids Value $/bbl Gas Value $/MMBtu National National Direct, Direct & Indirect and Indirect Jobs Induced Jobs (from E&P (from E&P expenditures) expenditures) $ $ , $ $ ,892 2, , $ $ ,330 5, ,005 1, ,008 $ $ ,484 10, ,220 1, ,373 $ $ ,892 12, ,774 1, , ,322 $ $ ,538 14, ,680 1, ,206 1,143 3,349 $ $ ,614 17, ,689 2, ,561 1,371 3,932 $ $ ,830 21, ,432 2, ,030 1,622 4,652 $ $ ,886 25, ,990 2, ,649 1,866 5,515 $ $ ,551 26, ,985 2, ,345 2,068 6,413 $ $ ,765 28, ,584 2, ,501 2,269 6,770 $ $ ,882 28, ,773 2, ,452 2,458 6,910 $ $ ,999 28, ,719 2, ,937 2,625 7,562 $ $ ,116 28, ,884 2, ,273 2,787 8,060 $ $ ,233 28, ,982 2, ,565 2,940 8,505 $ $ ,350 28, ,181 2, ,810 3,046 8,856 $ $ ,392 26, ,377 2, ,883 3,084 8,967 $ $ ,560 23, ,357 2, ,932 3,089 9,022 $ $ ,925 21, ,254 1, ,942 3,089 9,031 $ $ ,465 19, ,892 1, ,917 3,068 8,985 $ $ ,162 17, ,139 1, ,919 3,022 8,941 $ $ ,999 16, ,560 1, ,991 2,966 8,957 $ $ ,961 14, ,782 1, ,918 2,914 8,832 $ $ ,035 13, ,292 1, ,898 2,869 8,767 $ $ ,208 12, , ,865 2,802 8,667 $ $ ,470 11, , ,765 2,736 8,501 $ $ ,812 10, , ,687 2,665 8,352 $ $ ,224 9,671 7,132 22,084 1,325,051,720 51,250 3, ,738 27

29 Case 1 Details (continued) Case 1 Case 1 Case 1 Case 1 Case 1 Case 1 Case 1 Case 1 Case 1 Case 1 Year WV Direct & Indirect Jobs (from E&P expenditures) WV Direct, Indirect and Induced Jobs (from E&P expenditures) All WV Jobs including from spending of royalties WV Royalty Payments WV Severance Tax Payments WV Property Tax Payments WV Income Tax Payments WV All Tax Payments WV State Income Gains All Taxes as % of WV Income % ,209 1,634 1, % ,768 3,738 4, % ,784 6,460 8, , % ,686 7,677 10, , % ,740 9,098 14, , % ,070 10,891 18, , % ,128 13,668 22, , % ,085 16,307 26, , % ,515 16,882 28, , % ,295 17,931 31, , % ,374 18,033 32,584 1, , % ,454 18,135 32,987 1, , % ,534 18,237 34,490 1, ,007 6, % ,613 18,339 35,662 1, ,067 6, % ,693 18,441 36,721 1, ,122 7, % ,447 16,753 35,786 1, ,155 7, % ,280 15,172 34,444 1, ,161 7, % ,239 13,761 33,151 1, ,160 7, % ,310 12,502 31,912 1, ,155 7, % ,481 11,378 30,690 1, ,143 6, % ,740 10,375 29,590 1, ,133 6, % ,080 9,479 28,731 1, ,130 6, % ,490 8,680 27,662 1, ,110 6, % ,964 7,967 26,810 1, ,099 6, % ,494 7,330 25,958 1, ,083 6, % ,074 6,762 25,033 1, ,060 6, % ,700 6,255 24,206 1, ,040 6, % 693,428 25,911 8,637 4,641 9,229 22, , % 28

30 CASE 2 DETAILS Year Case 2 Case 2 Case 2 Case 2 Case 2 Case 2 Case 2 Case 2 Case 2 Case 2 Case 2 Case 2 New Wells Drilled Gas Production (bcf/day) Liquids Production (bbl/day) Annual Capital Expenditures Annual O&M Expenditures ($/mm/year) Value of Dry Natural Gas Production Value of Liquids Production Value of NG & Liquids Production Liquids Value $/bbl Gas Value $/MMBtu National National Direct, Direct & Indirect and Indirect Jobs Induced Jobs (from E&P (from E&P expenditures) expenditures) $ $ , $ $ ,892 2, , $ $ ,330 5, ,005 1, ,008 $ $ ,484 10, ,220 1, ,373 $ $ ,892 12, ,774 1, , ,322 $ $ ,538 14, ,806 1, ,212 1,131 3,343 $ $ ,614 17, ,388 2, ,590 1,353 3,943 $ $ ,317 22, ,769 2, ,101 1,613 4,714 $ $ ,909 27, ,737 3, ,887 1,930 5,817 $ $ ,511 31, ,270 4, ,891 2,264 7,155 $ $ ,955 37, ,313 4, ,347 2,631 7,978 $ $ ,543 41, ,910 4, ,480 2,964 8,443 $ $ ,708 41, ,694 4, ,223 3,245 9,468 $ $ ,872 41, ,447 4, ,760 3,508 10,267 $ $ ,037 42, ,220 4, ,228 3,753 10,981 $ $ ,201 42, ,937 4, ,718 3,983 11,700 $ $ ,366 42, ,052 4, ,009 4,137 12,146 $ $ ,701 40, ,455 3, ,218 4,218 12,436 $ $ ,923 36, ,797 3, ,332 4,267 12,599 $ $ ,437 33, ,932 2, ,374 4,276 12,650 $ $ ,213 30, ,609 2, ,445 4,242 12,686 $ $ ,223 27, ,147 2, ,611 4,187 12,798 $ $ ,442 24, ,129 2, ,557 4,134 12,691 $ $ ,848 22, ,310 1, ,576 4,089 12,665 $ $ ,423 20, ,084 1, ,573 4,010 12,582 $ $ ,147 19, ,319 1, ,467 3,928 12,395 $ $ ,005 17, ,484 1, ,389 3,840 12,229 $ $ ,983 16,091 9,756 29,278 1,693,077,301 73,986 5, ,880 29

31 Case 2 Details (continued) Case 2 Case 2 Case 2 Case 2 Case 2 Case 2 Case 2 Case 2 Case 2 Case 2 Year WV Direct & Indirect Jobs (from E&P expenditures) WV Direct, Indirect and Induced Jobs (from E&P expenditures) All WV Jobs including from spending of royalties WV Royalty Payments WV Severance Tax Payments WV Property Tax Payments WV Income Tax Payments WV All Tax Payments WV State Income Gains All Taxes as % of WV Income % ,209 1,634 1, % ,768 3,738 4, % ,784 6,460 8, , % ,686 7,677 10, , % ,740 9,098 14, , % ,070 10,891 18, , % ,440 14,088 22, , % ,739 17,190 27, , % ,045 20,301 32, , % ,890 24,138 39,514 1, , % ,549 26,373 43,519 1, ,084 7, % ,661 26,517 44,664 1, ,139 7, % ,773 26,660 47,010 1, ,262 8, % ,885 26,804 48,871 1, ,358 8, % ,997 26,948 50,549 1, ,444 9, % ,109 27,091 52,239 1, ,530 9, % ,052 25,655 51,761 1, ,576 9, % ,283 23,259 49,987 1, ,598 9, % ,701 21,115 48,193 1, ,606 9, % ,285 19,196 46,384 1, ,602 9, % ,018 17,479 44,745 1, ,598 9, % ,884 15,942 43,449 1, ,603 9, % ,869 14,568 41,844 1, ,583 9, % ,962 13,338 40,558 1, ,574 9, % ,149 12,237 39,280 1, ,558 9, % ,422 11,252 37,893 1, ,531 8, % ,772 10,371 36,654 1, ,506 8, % 947,925 34,032 11,344 6,100 11,885 29, , % 30

32 Appendices 31

33 West Virginia Survey Map of Horizontal Marcellus Wells 32

34 West Virginia Counties 33

35 County Areas and Marcellus Drilling Statistics Through 2012 Counties with Significant Horizontal Drilling Source: State Well Database County Sq Mi Horizontal Vertical Total Barbour Brooke Calhoun Doddridge Gilmer Harrison Lewis Marion Marshall Monongalia Ohio Pleasants Preston Ritchie Taylor Tyler Upshur Wetzel Total of above 5, State total 24, ,424 1,979 34

36 Marcellus Horizontal Pad and Well Distribution by County ICF Analysis A. Pad Counts by Density B. Well Counts by Pad Density Wells Per Pad Pad Wells per Pad Well Total Total Barbour Brooke Doddridge Harrison Jackson Lewis Lincoln Logan Marion Marshall Mason McDowell Monongalia Ohio Preston Ritchie Taylor Tyler Upshur Wetzel

37 2012 Vertical and Horizontal Marcellus Locations and Laterals (ICF) 36

38 2012 Wells per Pad (ICF) 37

39 Horizontal Marcellus Wells and Production by Operator WV Geological Survey Data Through 2012 ICF January LGR Horiz. Gas Prod Oil Prod bbls per Operator Marc. Wells MMcf/d Bbls/d MMcf Antero Resources Appalachian Corp Chesapeake Appalachia, LLC EQT Production Company XTO Energy, Inc Equitable Production Company Grenadier Energy Partners, LLC Stone Energy Corporation Hall Drilling, LLC Triad Hunter LLC Trans Energy, Inc PDC Mountaineer, LLC Antero Resources Bluestone LLC Northeast Natural Energy LLC Consol Gas Company Jay-Bee Oil & Gas Co CNX Gas Co. LLC (North) Stone Oil & Gas Gastar Exploration USA, Inc Petroleum Development Corp Other Total ,897 38

40 ICF Analysis of 2012 WV Marcellus Database 1,979 Marcellus wells, consisting of 555 horizontals and 1,424 verticals. Verticals averaging 6,800 feet true vertical depth (TVD) Horizontals averaging 7,000 feet TVD and 6,100 foot laterals, up from 3,700 foot laterals in 2009 and 4,900 feet in 2011 TVD about constant since 2007 Maximum horizontal TVD is 9,600 feet Maximum vertical TVD is 10,300 feet Maximum lateral is 10,800 feet 39

41 ICF Analysis of WV Marcellus Well EUR vs. Lateral Length 40

42 Marcellus Gas and Liquids Production Peak database production (wells through 2012) was bcf/d and 4,480 bbls per day of liquids in December, 2012 December 2012 gas production consisted of bcf/d from horizontals and bcf/d from verticals Increase in gas production from December, 2011 to December 2012 was 352 MMcf/d 41

43 42

44 Horizontal Wells Only Average EUR per Well by County (WV Marcellus wells) ICF Horizontal Well EUR by County Year of 1st Prod. Well Count Oil Cum (bbl/well) Oil EUR (bbl/well) Gas Cum (bcf/well) Gas EUR (bcf/well) BOE EUR (boe/well) Oil:Gas Ratio (bbl/mmcf) Barbour ,015,236 Boone 0 Braxton 0 Brooke , ,682 4,058.0 Calhoun 0 Clay 0 Doddridge 76 2,750 12, , Fayette 0 Gilmer 0 Grant 0 Hancock 0 Harrison ,603,301 Jackson ,069 Kanawha 0 Lewis ,685 Lincoln , Logan ,739 Marion ,384 Marshall 82 4,969 19, ,161, Mason ,880 McDowell ,945 Mingo 0 Monongalia ,353,846 Nicholas 0 Ohio 24 6,041 52, , Pendleton 0 Pleasants 0 Preston ,992 Putnam 0 Raleigh 0 Randolph 0 Ritchie 7 2,621 61, ,318, Roane 0 Taylor ,079, Tucker 0 Tyler 8 5,369 16, , Upshur ,612 Wayne 0 Wetzel 92 7,791 19, ,403, Wirt 0 Wyoming 0 Sum All 555 2,783 11, ,136,

45 Economic Impact of a Ethylene Cracker/Polyethylene Plant Rising natural gas and natural gas liquids production in WV may make more likely the construction of an ethylene cracker/polyethylene plant in the state. The economic impact of such a plant was estimated by ICF based on an assumed output capacity of one million metric tons per year of low density and highdensity polyethylene. Such a plant would consume about 60,000 barrels per day of ethane or an ethane/propane mix. The construction cost of such a plant would be $3 billion or more (excluding land, financing and owners costs) and would support approximately 3,300 direct, indirect and induced jobs in the state over a three year construction period. The operating cost of such a plant would be about $100 million per year (excluding the cost of feedstocks) and would support approximately 750 direct, indirect and induced jobs in the state. The annual feedstock costs for the plant (per the 2014 AEO energy prices) would average about $580 million dollars and the polyethylene output would have a value of roughly $1.3 billion per year. These values are based on 90% capacity utilization. The value added by the plant (contribution to national GDP) would be about $720 million per year. 44

46 Job Impact of a 1 MTPY Ethylene Cracker/Polyethylene Plant (excludes jobs related to feedstock production) U.S. Construction related Jobs (1) (2) WV Construction related Jobs (2) Direct Indirect Induced Total 4,572 3,420 5,837 13,829 1, ,257 U.S. Operation related Jobs (excluding feedstock) ,435 WV Operation related Jobs (excluding feedstock) (3) Notes: (1) Capital cost for a 1 million metric tons per year plant to convert ethane into polyethylene assumed to be $3 billion. Non feedstock O&M costs are assumed to be $100 million per year. (2) Construction jobs are the average jobs that will exist each year over the expected 3 year construction period. (3) Actual portion of jobs to be located in WV will depend on what portion of needed materials, equipment and services are purchased within state. Employment at the operating plant itself is expected to be approximately 300 persons. WV job calculations exclude possible impact of higher state and local spending due to incremental tax revenues. 45

47 Economic and Employment Impact Definitions Direct Impacts represent the immediate impacts (e.g., employment or output changes) in Sector A due to greater demand for and output from Sector A. These are the immediate impacts (e.g., employment or value added changes) in a sector due to an increase in output in that sector. Indirect Impacts represent the impacts outside of Sector A in those industries that supply or contribute to the production of intermediate goods and services to Sector A. These are impacts due to the industry inter linkages caused by the iteration of industries purchasing from other industries, brought about by the changes in direct output. Induced Impacts represent the cumulative impacts of spending of income earned in the direct and indirect sectors and subsequent spending of income in each successive round. Examples include a restaurant worker who takes a vacation to Florida, or a store owner who sends children to college, based on higher income that arises from the initial activity of natural gas or liquids oil production. These are impacts on all local and national industries due to consumers consumption expenditures rising from the new household incomes that are generated by the direct and indirect effects flowing through to the general economy. The term is used in industry level input output modeling and is similar to the term Multiplier Effect used in macroeconomics. 46

48 Harry Vidas Bob Hugman