The Rising Influence of Rising Affluence

[DewDiligence]

Land Prices Fall for Some Gas Shales

http://www.nytimes.com/2011/06/10/business/10views.html

›June 9, 2011
By CHRISTOPHER SWANN and REYNOLDS HOLDING

The gas-rich land of the Marcellus shale has offered some of the hottest wildcat real estate in recent years. But if Exxon Mobil’s recent $1.7 billion acquisition is any indication, the days of eye-watering prices are over. The oil titan is paying barely half the price such acres were fetching last year, as the frenzy has shifted to Texas [i.e. the Eagle Ford]. Cheaper real estate may even make gas assets look appealing again.

Exxon is paying about $5,000 an acre by buying Phillips Resources and TWP, two private drillers in the Marcellus, which spans Pennsylvania, New York and West Virginia. This may not seem like such a steal when compared with 2006 prices of around $100 an acre. Even so, it does suggest that energy land values are coming off the boil.

The property boom reached its peak when Chesapeake Energy doled out $17,000 an acre in early 2010, according to research from IHS. Mitsui and India’s Reliance Industries both paid $14,000 an acre in the spring of 2010. As recently as December, Exco Resources was willing to pay $9,000.

There are good reasons the froth has come out of Marcellus. Gas prices have been in the doldrums and are running about a third their 2008 peak. Meanwhile, state regulators are taking a tougher line on hydraulic fracturing, supported by a skeptical public. This has sent energy firms flocking to the oilier Eagle Ford Shale, which is now experiencing a property boom of its own [#msg-63674156]. Marathon Oil paid $20,000 an acre for oil-rich land in Texas earlier this month [#msg-63783805].

But with less hype built into land values, the Marcellus is looking like a good bet again. The glut of gas that depressed prices is finally clearing. And because of its proximity to the New York market, gas from the Marcellus sells for a premium. Shell’s announcement that it is mulling a new petrochemical plant in the region suggests more demand may be on its way.

The Marcellus may be yesterday’s story in terms of land values. But Exxon’s purchase is a vote of confidence that gas from the region will flow, alongside rich profits.‹