Pennsylvania earns billions from gas exploration

According to AP analysts, the states of Pennsylvania and West Virginia earned $3.5 billion and $1.2 billion, respectively, in gross income owing to shale gas drilling activities last year.

Rock formations known as Marcellus are rich in natural gas, and the states of Pennsylvania and West Virginia, among others, are blessed with this gas resource.  It‘s no surprise why oil investment in these areas has been on the rise.

Starting 2007 until the current year, breakthroughs in exploration and drilling technology helped pave the way for increased shale discovery and production. This has apparently benefited many states as more jobs were created, profits were realized, and prices of natural gas have declined.

Last year, Pennsylvania was able to produce 1 trillion cubic ft. of gas, followed by West Virginia which generated 350 billion cubic ft.  Despite very bright prospects in gas output, some observers say that industry earnings may slip in 2012. Drilling jobs now fetch a measly $2.50 per 1,000 cubic ft. of gas compared with the past years’ fee range of $4 to $6.

AP’s projected 2011 revenues were based on average gas price of $3.50 – wholesale.  Revenues however are quite sensitive to the slightest price movements, given the high gas output.  A $1 slide in price, for instance, will cost the sector about one billion dollars, which applies only to Pennsylvania’s gas sector.

New York’s Oppenheimer & Co. Senior Analyst Fadel Gheit believes that the current abundance of gas would extend well into the future as companies discover more gas-rich fields with potential income.  This may thwart industry attempts to ease gas output just to drive prices up.

The Marcellus Shale Coalition disclosed that in order to invest in oil or gas well operation, about $5 million is required. Pennsylvania has more than 2,000 productive wells; that translates to more than $10 billion in total investments. Given the volume of operative wells and huge production, more new pipelines costing billions of dollars are expected to be installed.

On the other hand, royalties charged amounted to 12.5 percent of total revenues from gas well operations. Landowners have collected about $400 million in 2011 alone.

The real benefit from shale gas and its low prices help U.S. industries operate viably. This price advantage does help companies to compete globally. Continuing oil and gas investments are expected to pour into selected states, and residents certainly welcome these developments. One classic example is that of Shell Oil’s long-term investments in a petrochemical facility in Pennsylvania.

According to Kathryn Klaber of the Marcellus Shale Coalition “Every single Pennsylvanian has more money in their pocket today — to save, invest and help make ends meet — as a result of plentiful natural gas development from the Marcellus Shale.”