Natural gas profits may take awhile

Oct 14, 2008 (The Leader-Times - McClatchy-Tribune Information Services via COMTEX) -- COWANSHANNOCK -- The Armstrong School District was told it should consider using any money made from natural gas well drilling and production on capital improvements, rather than operating expenses, to achieve the best return on investment.
The suggestion came Monday night during a presentation by Penn State University professor Timothy Kelsey concerning the economic impacts of gas production from the Marcellus Shale Play, which runs through much of the state.

Shale gas is natural gas produced from shale. The gas trapped in the Marcellus Shale formation, which runs 600 miles through Ohio, West Virginia, Pennsylvania and New York, was once thought to be played out. Recent research estimates between 168 to 516 trillion cubic feet of natural gas in the shale field.

Marcellus shale is common and abundant across the state, including Armstrong County, but requires a more costly form of horizontal drilling than the standard vertical drilling.

Researchers at Penn State and the State University of New York, Fredonia, have estimated that the amount of gas available in the Marcellus Shale play could supply the entire U.S. with natural gas for two years at an estimated well head price of $1 trillion, according to the site.

Kelsey, an agricultural economics professor, told a crowd of about 30 people at a special nonvoting open caucus meeting of the school board held at West Shamokin High School, that any benefits of natural gas processing are speculative and should be thoroughly investigated before the district, a municipality or individual property owners agree to leasing their property.

"Right now there are still no guarantees of money from shale gas in Pennsylvania," he said. "We don't know what is going to happen or how soon any money could be realized."

Kelsey said that there are several gas wells being drilled in the eastern part of the state, but only a few have actually begun production of gas.

"If the boon happens, people need to be ready to deal with it, as well as deal with what will happen when it's gone," he said. "This is a natural resource that is not going to last forever, so you have to take into consideration what will occur when the gas is gone."

Kelsey said experts are encouraging those who enter into leases for gas production to use the money locally to boost and help maintain the local economy.

"The companies are trying to use local workers and to find ways to keep the money in the community," he said. "The money made could be used for improvements such as roads, water and other infrastructure, housing and schools."

When looking at the impacts on school districts, Kelsey noted that issues such as population increases, increased enrollment and workforce development need to be addressed.

"The hope is that local workers will be used and that workers from other areas will move to the area and live with their families," he said. "By bringing people into the communities, it allows for a more balanced and steady economy."

In Pennsylvania, a school district cannot tax natural gas under the property tax, leaving the district to make money from the lease agreements and royalties from the gas production, Kelsey said.

Along with the lease agreements, districts would see an increase in earned income tax based on the number of local workers hired by gas companies or from additional employees in supplemental businesses in the area where gas is being produced.

"Because there is little local revenue impact, we recommend that municipalities and school districts use the money from leases to be used for capital improvements," he said. "Using the money to pay teacher salaries for a year is not the best use of the money and only allows the district a one-time use of the money."

"Building a new school, or renovating schools would be a better way to use the money because you are making an overall improvement that will last several years," he said. "The money made from the leases could conceivably pay for the construction of a new school or major improvements to existing schools without having to raise taxes to do so."

Monday's meeting and a meeting tonight, sponsored by the Penn State Cooperative Extension, F&M Bank, the Armstrong County Commissioners and the Armstrong County Farm Bureau are meant to educate the public on the potential benefits of the Marcellus Shale Play, as well as providing assistance to those considering entering into lease agreements with companies wishing to drill on their property.

Tonight's meeting, also at the West Shamokin High School auditorium, will begin at 6 p.m. and feature presentations from government regulatory agencies, attorneys and geologists.

Patrick Shuster can be reached at pshuster@tribweb.com or 724-543-1303, ext. 237.



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Patrick Shuster