Sunday, June 12, 2011

Prices Fall for Some Gas-Rich Shale Land
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. 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. Marathon Oil paid $20,000 an acre for oil-rich land in Texas earlier this month.

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.
By Christopher Swann and Reynolds Holding
The New York Times
June 9, 2011

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