Outside Insight: Mixed Messages on Utica Shale– April 29, 2014

by Guest Blogger Vince Bevacqua, E.V.P. Shale Comm

Ohio’s Utica Shale play has been in development since 2011 — just long enough to breed thorough confusion in the minds of many about its economic potential.

Over the last two and a half years in northeast Ohio, we’ve experienced the following: a series of small earthquakes with probable links to oil field waste disposal, intentional dumping of this same waste into the Mahoning River by an unscrupulous company, public protests — large and small — over all aspects of oil and gas development, a significant operator temporarily halting drilling operations here in preference for other parts of the country, and myriad newspaper headlines alternately celebrating and condemning the industry.

Those are some of the challenges. Personally, I file them under the category of “nothing worth doing is ever easy.” (not to make light of the environmental issues, which are serious but are being managed appropriately by the proper state authorities.)

Now here are the rewards.

According to Columbus-based law firm Bricker & Eckler LLP, the Utica Shale play has attracted close to $19 billion in outside investment to date. Their analysis noted positive growth trends, including a $6 billion increase in Ohio shale-related investments from fall of last year to now.

Current data reports on the overall economic benefits of this investment for the state are hard to come by. Many of the high-profile studies on the topic were done a few years ago and focus on predictions versus actual monies received. It is, however, encouraging to note what is happening in North Dakota. That state’s Bakken Shale industry has been in development longer than the Utica, so it serves as a reasonable model of what we may expect. Earlier this month on a visit to Ohio, North Dakota’s Treasurer Kelly Schmidt reported her state had $2 billion dollars in what it calls the “legacy fund.” From the news reports on the visit, it would appear this is a non-earmarked “rainy day” fund of monies derived from taxing the oil and gas industry. This would be significant and available funding that ostensibly benefits all of North Dakota, not just oil field communities.

Ohio’s governor and legislature are currently wrangling over tax issues for the industry – primarily the severance tax. The governor wants an increase (though, it is noted in press reports that this increase would still result in a lower overall tax burden on the industry versus that in North Dakota). The General Assembly wants a lower rate. In either scenario, if investment and production continue to increase over time, Ohio will experience a windfall we never anticipated just four years ago. (Read Lisa Loychik’s article on the tax ramifications of another hot industry issue — leasing land for drilling rights.)

And that’s just direct benefits as paid by the industry. A larger study will be done (someday) detailing the Utica Shale boom impact on manufacturing. There is already tremendous growth in plastics and chemicals, with both sectors finding easier access to petroleum-based stock for their products. Meanwhile, heavy manufacturing is getting a break on less expensive utilities thanks to cheap natural gas and gas-powered electricity.

Will investment and production in the Utica continue despite the challenges that still exist? Yes. Experts have noted Ohio’s single largest obstacle in the Utica boom is infrastructure. We simply lack the pipelines and processing plants to turn harvested oil and gas into portable, saleable products. This wave of development, though, is underway in earnest. Much of the recent investment noted in the Bricker & Eckler study is targeted on infrastructure. And then there is a recent press report about Houston-based Magnum Hunter Resources Corp., which called our local shale play “potentially the best shale play in the U.S.”

Confusion with something as new and complex as Utica Shale development is expected. But there is no reason we can’t temper that uncertainty with clear-eyed optimism.

Press reports from the Youngstown Vindicator, Crain’s Cleveland Business, the Columbus Dispatch and Columbus Business First, as well as the author’s daily work in the oil and gas industry, were used as background for this blog.

We want to hear from you! We encourage you to share this blog post on social media or contact Vince Bevacqua at vbevacqua@prodigalmedia.com for further discussion. You can also visit www.shalecomm.net.

The views and opinions expressed in this article do not necessarily reflect those of Cohen & Company.

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