Could Gas Become Real Estate Speculation?

Mr. Saffer:

I understand your concern over this very complex, confusing, and frightening issue, but has there been a wave of speculators and gas companies procuring contracts here in Pocahontas County? I know of a few wells already drilled in Pendleton County, but none here yet. My family owns quite a bit of land there and no companies have approached them yet and there are maybe 2 wells within a 15 mile radius of the land. I understand the need to protect our natural resources, and yes, the mess that is associated with Marcellus Shale is troublesome, but sounding the alarm without knowing how many land owners have marketed their mineral rights and which companies are exploring prospects within Pocahontas County is somewhat premature. I do agree that a plan needs to be in place should a "rush" occur, but are you looking to enact ordinances now to discourage speculators from considering Pocahontas County land? And, what is a consensus of county residents? I know from your forum that there are those vehemently opposed and others that are in favor with conditions, but that is a very small sampling of the land owners. How can you or the CC determine the opinions of county residents except through CC meetings or phone calls concerning the issue? I would like to see some statistics regarding the number of contracts procured and what companies are infiltrating Pocahontas County.

Ruth Bland

I have another question. Given the vast amount of federal land here in Pocahontas County, could the natural gas harvesting potential be akin to the timbering restrictions and be eligible for the payment in lieu of taxes for roads and schools?

https://www.facebook.com/home.php?sk=app_2915120374#!/Partnr4RuralAMR

http://naturalresources.house.gov/Calendar/EventSingle.aspx?EventID=249959

Could be a potentially great move on our part to preserve our beautiful county as well as bringing revenue for roads and schools. Anybody exploring this? Shirlene Groseclose has been testifying before the subcommittee during the past year and I am wondering about the CC support for continuation of these funds.

"Payments in Lieu of Taxes" (or PILT) are Federal payments to local governments that help offset losses in property taxes due to nontaxable Federal lands within their boundaries.

The PILT payment is important to the county budget as well. Please put yourself on our agenda to discuss this matter and what the Commission can do to support the program in the future. The coal and gas in the forest is a complex issue that involves private ownership in some instances and impacts on areas outside forest boundaries. As well is the matter of takings which private holders have demanded payments for not mining coal as did Senator Helmick.

Shale in Texas is also a hot commodity for purchase and speculation.
At this rate everyone in America will have to drink Perrier in the next twenty years and bath with... and water cattle with...well it seems that the country is on a road the end of which is not well thought out.

Reuters) - BHP Billiton's $12.1 billion agreed takeover of U.S. shale gas producer Petrohawk Energy Corp shows environmental concerns and weak margins have not cooled interest in this controversial energy source.

Since the countries with the biggest oil and mineral resources restrict foreign companies' ability to access those reserves, companies have been forced to reinvest their cash from bumper commodity prices in possibly the most widely criticized and least lucrative part of the industry.

BHP's move into U.S. shale gas is therefore only the latest example of a trend that appears resistant to growing political headwinds.

Companies splashed out $39 billion buying U.S. shale gas companies and assets last year, equivalent to 21 percent of all global oil and gas mergers and acquisitions activity, according to data from industry consultants Wood Mackenzie.

The players at the top of the oil industry, such as Exxon Mobil and BP Plc, were slow to realize the potential of U.S. shale gas, forcing them to buy companies to gain a foothold.

Now mid-tier international groups such as BHP and Norway's Statoil are joining the game, even though the logic of these transactions is threatened by environmentalists' calls for restrictions on shale gas drilling.

Shale and other forms of "tight" or hard to extract gas are extracted by a process known as hydraulic fracturing, or fracking. This involves shooting a mixture of water, sand and chemicals such as hydrochloric acid and kerosene into a well to break up or fracture the rock and release the natural gas contained within.

Critics say the process leads to the chemicals seeping into the water table and causes climate change-causing methane gas to leak into the atmosphere. France, South Africa, Quebec and New York state have imposed outright shale drilling bans or moratoriums until the risks are better studied.

The rash of shale deals is also despite shale gas production not making anyone rich. Low U.S. gas prices and rising production costs led Petrohawk to report a net loss in the first quarter.

UNDERLYING APPEAL

Analysts at UBS investment research estimate natural gas prices need to be between $5.50 and $6.00 per million British thermal units (BTU) to justify tapping into shale gas fields.

Between 2004 and 2008, U.S. natural gas prices traded well above this level, but have not done so since then. Prices averaged $4.32/million BTU in the second quarter, according to data from BP.

So what is the underlying appeal of the spate of deals in the sector?

To a large extent, it's due to a paucity of other opportunities.

Countries with big oil and gasfields tend to keep their deposits for their state oil companies to develop. And where foreign companies are given access, it is often on unattractive and highly variable terms.

By contrast, U.S. shale gas resources are open to investment, offer low legal risk, low taxes and a big prize.

Total reserves could be 650 trillion cubic feet of gas equivalent, Wood Mackenzie said. Even at today's depressed gas prices, this would be worth some $2.7 trillion.

"Its a paradigm shift. Unconventionals (shale and tight gas)are large scale, low-to-zero exploration risk," said Oswald Clint, oil analyst at brokerage Bernstein. "The majors (big oil companies) need resources."

What's more, while gas prices are weak, many shale fields also produce a form of light oil that offers fat margins. Petrohawk said it aimed for liquids to account for 16 percent of production by year-end.

Some acquirers are hoping to use the shale gas expertise they are buying in the United States to exploit shale reserves in other countries, expanding the potential prize.

The risk of losing this resource has prompted the industry to work harder to engage the public, promising greater transparency, and also to more aggressively fight critics.

"We must work hard to respond to the concerns of our neighbors," Malcolm Brinded, head of Royal Dutch Shell's oil and gas production outside the U.S., told an industry conference late last month,

"The industry should vigorously refute the significant misconceptions about tight gas production."

(Additional reporting by Sarah Young; Editing by David Holmes)