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Experts optimistic about oil, natural gas industry’s future


The State Journal

CHARLESTON, W.Va. — With the rapidly changing political landscape, many are hopeful for the return of a robust energy industry in West Virginia. Experts say the current state of the industry has improved slightly over the last year and that the outlook is optimistic.

Al Schopp, chief administrative officer and regional senior vice president of Antero Resources, said the source of this optimism has much to do with pipelines being developed throughout the state.

“I think we’re seeing fairly consistent to growing drilling budgets, and we’re seeing a slight uptick in the number of drilling rigs in the Marcellus,” Schopp said. “We also are optimistic that there are three or four pipeline projects that have been slated for the boards in 2017 and 2018. We think that will significantly improve pricing in the Marcellus shale.”

Schopp said because of the continued growth of production, more gas is available in the state, and there is a supply-and-demand issue that affects the pricing of the gas.

“If you have those pipelines out of the basin to get the gas to other places, that would improve the pricing,” Schopp said. “So I think people are optimistic about the new governor and the new president. I think both want to remove basically artificial limitations and artificial delays. I think that both are committed to doing right by the environment. To continue to do many of the same things, but in a more expedient fashion, is really all this industry is asking. In general, I think things are fairly optimistic and that I think we’ll see continued growth and production in West Virginia in 2017.”

Schopp said for the energy industry to see another boom like in 2008 and 2009, the pricing of natural resources will have to improve, which he hopes will come with upcoming pipeline projects.

“I think it will be good for West Virginia,” Schopp said. “Over the past seven or eight years, we have trained a good local workforce in West Virginia so that if there is a boom, we have trained people in local workforces so that we don’t have to go out of state like we did in the past. We have a trained workforce here locally, and it would be great to be able to put those people to work.”

Anne Blankenship, executive director of the West Virginia Oil and Natural Gas Association, said producers in the state are continuing operations, despite being in a low-price environment.

“This is largely because of efficiencies in new drilling and completion technologies, enabling operators to continue to deploy capital in the state while staying within cash flow,” Blankenship said. “We still have a glut of natural gas, and producers need pipeline capacity and new utilization markets. We know the industry continues to be vital for our state, as counties have seen significant increases in property tax collections, and that revenue benefits local schools and communities. Oil and gas companies continue to make large investments in the state — like Antero’s Clearwater Facility, representing a $275 million investment in state-of-the-art water treatment and reuse technology, which will provide jobs and generate significant state and local tax revenues.”

Charlie Burd, executive director of the Independent Oil and Gas Association, said the number of rigs running in the state has started to rise, though it is still low compared to a few years ago.

“Probably a year and a half or two years ago, we would have been at the 25 to 30 rig count,” Burd said. “I think the latest count is at nine. So we’re at about a third of the rig count that we were a year and a half or two years ago, but that’s an improvement over the three or four rigs running a few months ago. You can say the rig count has doubled over the past four or five months, but it’s still way down.”

Burd said one of the reasons the number of rigs is down is because the wells being drilled are extremely prolific, producing tremendous volumes of natural gas.

“There’s no other basin in the U.S. that supplies more natural gas than the Appalachian Basin,” Burd said. “That’s why these pipeline projects are so crucial to West Virginia. Projects like Dominion‘s Atlantic Coast Pipeline are designed to take natural gas from West Virginia to other parts of the country.

“They’re vitally important to the state and to producers. West Virginia, on its own, only uses a fraction of the natural gas produced in the state, which is why markets outside West Virginia are so important to us,” Burd added. “The gas being produced here will be taken to places where they need it, into the major markets in the Northeast.”

Burd said markets outside the state are crucial to the success of oil and gas producers, and ultimately that success would equate to investments, jobs, severance taxes, payroll taxes, property taxes and royalty payments, all of which could help the state with its budget crisis.

“These are not small numbers,” Burd said. “We’re talking about a phenomenal amount of money.”

Burd said West Virginia had a negative basis differential on gas being produced, meaning the commodity price is below what the New York Mercantile Exchange lists as the spot value for gas. This reduced pricing, caused by an abundance of gas and a diminished demand, has caused a lot of problems for both the industry and the state.

“In Fiscal Year 2014, the state collected almost $187 million in severance taxes,” Burd said. “And production of natural gas was around 832 billion cubic feet. In 2015, severance taxes collected decreased to $147 million, even though production rose to 1.1 trillion cubic feet. Then in 2016, severance taxes plummeted to $72 million, while production continued to rise to 1.3 trillion cubic feet. So while production is high, the decrease in the price of gas has caused severance tax collections to be more than halved. This has tremendously impacted the budget for West Virginia.”

Burd said with access to new markets, the price of gas could increase, and severance taxes could help the state.

“As the nation crawls out of its recession, the natural gas prices will rebound to some degree,” Burd said. “We’re not going to see the numbers that we saw in 2014 for several years. These prices are not going to increase that dramatically or that quickly, so the state will need to be patient with these types of severance tax collections. It’s not something that rebounds overnight.”

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