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  • US Shale Development Challenges

    The Shale ExchangeOctober 29, 2014

    Dave SpigelmyerPresident

    Marcellus Shale Coalition

  • Shale Gas Global Opportunity

    NorthAmerica1,931trillioncubicfeet

  • Shale Gas Revolution Across the U.S.

    Source: Energy Information Administration

  • Marcellus Shale Coalition

    About Us Approximately 300 members

    strong Producers, midstream, suppliers

    Our Focus Long-term development Maintain high standards Addressing landowner,

    government and public issues Benefits to our regions future

  • Our Legacy

    We recognize that to succeed in business, we not only embrace these principles, we live by them each and every day. This will be our legacy. We provide the safest possible workplace for our employees, with our

    contractors, and in the communities in which we operate;

    We implement state-of-the-art environmental protection across our operations;

    We continuously improve our practices and seek transparency in our operations;

    We strive to attract and retain a talented and engaged local workforce;

    We are committed to being responsible members of the communities in which we work;

    We encourage spirited public dialogue and fact-based education about responsible shale gas development; and

    We conduct our business in a manner that will provide sustainable and broad-based economic and energy-security benefits for all.

  • JobsRevenue

    Opportunity

    Economic Benefits

  • PA Jobs, PA Workers

    PA Department of Labor and Industry

    237,741 employees in Marcellus and related industries as of 2013 Q4*

    Core industries were up 15,825 (+129.8%).

    Core Industry occupations Crude Petroleum & Natural Gas Extraction ($110K) Natural Gas Liquefied Extraction ($101K) Drilling Oil and Gas Wells ($86K) Support Activities of O&G Operations ($75K) O&G Pipeline & Related Structures ($83K) Pipeline Transportation of Natural Gas ($85K)

    $90,000 average core industry wage ($40,900 higher than PA avg.)*

    *Source: Marcellus Shale Fast Facts, PA Department of Labor and Industry

  • PA Jobs, PA Workers

    PA Department of Labor and Industry Despite a recession and sluggish national economy,

    ancillary industries have grown by 8% since 2009

    Ancillary Industries Non-residential site preparation contractors ($53K) Trucking (general freight, specialized freight) ($44-$51K) Commercial & industrial machine and equipment repair ($54K) Water Supply, Sewage treatment facilities, and infrastructure

    construction ($58-$70K) Environmental Consulting, Engineering Services ($68-$79K)

    $64,910 average ancillary industry wage ($15,840 higher than PA avg.)*

    *Source: Marcellus Shale Fast Facts, PA Department of Labor and Industry

  • Revenue for Pennsylvania

    Paid by Natural Gas Industry

    Overall taxes since 20061 > $2.1 billion

    Road construction investments since 20082 > $1 billion

    Royalty payments to state in 20113 $177 million

    Permitting and enforcement fees to increase DEP personnel since 2009 4 $40.5 million

    Impact Fee in first two years 5 $630 million

    1 Fox News, July 23, 20132 On-going Survey of Marcellus Shale Coalition Members3 Pennsylvania Department of Conservation and Natural Resources, 20134 Pennsylvania Department of Environmental Protection, 20135 Pennsylvania Public Utility Commission (2007-2011 grandfathered wells plus 2012 assessment)

  • LegendMarcellus Shale Formation

    Wet Gas Region

    Wet Gas Region

    Sources: Pace Global; Equitable Resources, MarkWest, Atlas Energy, Range Resources, and Caiman Energy.

  • Composition in Wet Gas Region

    Methane, 74.2%Ethane, 15.6%

    Propane, 5.5%Iso Butane,

    0.7%Normal

    Butane, 1.4%Iso Pentane,

    0.5%Normal

    Pentane, 0.5%

    Hexanes+, 1.1%

    Liquids, 25.3%

    Source: Pace Global; NiSource Gas Transmission and Storage Presentation to WVONGA Spring Meeting May 6, 2010 p.5

  • The Ethane Factor

  • The Road Ahead

    ChallengeMaintain a competitive regulatory and

    economic playing field

    OpportunityBuild infrastructure, develop new markets

  • Consumer Opportunities

    Winter of 2008: $13.71 at the wellheadToday: ~$6.00

  • The Marcellus Shale produces over 16 billion cubic feet of natural gas per day.

    According to Morningstar Inc, the Marcellus is expected to account for nearly one-fourth of all U.S. production by 2015.

    Despite fewer rigs, natural gas production continues to rise due to drilling efficiencies, technology and innovation.

    MARCELLUS SHALE: PRODUCTION

  • INFRASTRUCTURE IS CRITICAL

  • THANK YOU

    Analysis of Pa. unconventional well impact fee and comparison with severance tax models from other states

    2011 2012 2013 est. 2014 Comment

    Gas prod - mcf 1,066,013,143 2,041,584,982 3,107,330,706 4,291,600,000 Pa. gas production only

    PUC price $4.042 $2.789 $3.652 $4.401 This is NYMEX price, representing a delivered price at a market hub--not a wellhead priceSale price basis to NYMEX $ - $(0.129) $(0.644) $(2.000)

    Avg. basis for Leidy Hub & TGP 300 Z4 - Avg. for June, July, August 2014 is ($2.30)/dth

    Est. gathering fee/mcfe $(0.75) $(0.75) $(0.75) $(0.75)

    Gathering cost from wellhead to first interstate pipeline delivery point

    Net price/mcf $3.292 $1.910 $2.258 $1.651 This is an est. wellhead price, which is the basis for severance tax in most statesWellhead revenue $millions 3,509 3,899 7,017 $7,085

    Pa. impact fee revenue - $millions $204.210 $202.472 $225.752 $221.250 2014 est. assumes spudding of 1,200 horizontal wells

    Impact fee - % of revenue 5.82% 5.19% 3.22% 3.12%

    Equivalent flat severance tax rate to generate same revenue as impact fee

  • Estimated revenues from Pa. shale gas using models from other states

    Ohio HB 375 - no tax 1st 2 years; 2.5% thereafter 2011 2012 2013 est. 2014

    Impact fee revenue - $millions $- $12.125 $36.232 $51.751 Impact fee - % of revenue 0.00% 0.31% 0.52% 0.73%

    Arkansas - 1.5% 1st 3 years; 5% thereafter

    Impact fee revenue - $millions $48.802 $57.304 $121.122 $137.767 Impact fee - % of revenue 1.39% 1.47% 1.73% 1.94%

    Louisiana - no tax 1st 2 years; 5% thereafter

    Impact fee revenue - $millions $- $24.250 $72.463 $103.502 Impact fee - % of revenue 0.00% 0.62% 1.03% 1.46%

    W.Va. - 5% + $0.047/mcf

    Impact fee revenue - $millions $209.122 $285.022 $497.519 $555.974 Impact fee - % of revenue 5.96% 7.31% 7.09% 7.85%

    Texas - 3.75% 1st 10 years; 7.5% thereafter

    Impact fee revenue - $millions $131.599 $146.229 $263.152 $265.704

    Impact fee - % of revenue 3.75% 3.75% 3.75% 3.75%

    Notes:- Assumes all dry gas production at 1,000 btu (1 mcf = 1 dth)- Assumes that all tax structues were imposed effective 1/1/2011 on Pa. unconventional well gas production

  • CompetitiveChallenges Lackofpredictability&certainty

    Act13 LegislativeClimate

    Direneedforinfrastructurebuildout NEPATakeaway SWPAEthaneSolutions

    Minimalavailabilityofundergroundinjectionwellshighwastewatertreatmentcosts

    Severancetaxationv.ImpactFee

    Marketopportunity

  • Site Construction

    Drilling Phase Midstream

    Hydraulic Fracturing

    Reclaimed/Completed Site

    Regulatory Framework

    12 PA Regulations 10 PA Regulations

    11 PA Regulations

    18 PA Regulations

    18 PA Regulations

  • Preparing our WorkforceDistribution of New Hires 2013

  • Market Opportunities

    Electricity generation, heating

    Combined heat and power applications

    Light and heavy duty transportation applications

    Feedstock for industries and other liquids use

    Rebirth of manufacturing

    Exports

  • Focus: Heightened Communicationsand Grassroots Engagement

    MSC members and their partners

    Local governments

    Legislators

    Downstream markets

    Chambers, conservation community, landowners

    The Public

    Building a grassroots network.

  • THANK YOU!

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