Tools for Estimating Marcellus & Utica Shale Property Value

Edward Camp, II

ShaleNavigator Team Lead at Geospatial Corporation

Mapping software, EUR calculator, and auction data are combined to estimate property value

Recent well results from Pennsylvania counties along the New York border are demonstrating remarkable results. Shell’s prolific Gee and Neal discovery wells are located approximately 8 miles south of New York’s Steuben County border as highlighted in the ShaleNavigator map below.

Shell’s Gee and Neal discovery wells have extended the sweet spot of the Utica formation into an area where Shell holds a major leasehold position of approximately 430,000 acres in northeastern Pennsylvania. Perhaps the most amazing characteristic of this discovery is it demonstrates that both the Marcellus and Utica shale layers are both present and accessible in northeast Pa. Now considered a “stacked” play, where until recently the Marcellus was the only attainable shale formation, how might these wells affect the area’s property values?

Herein lies one of the most challenging issues faced by landowners, appraisers, realtors, and investors – achieving an accurate valuation of property and associated mineral rights in the midst of the fast-paced shale energy revolution. With information often held privately by competing energy companies regarding well test results, geologic data, and restrictions on lease specifics, those who have a vested interest in property are seeking information to answer questions like:

• What’s the going rate for an oil and gas minerals (OGM) lease in my area?
• What are the mineral rights worth on my property?
• I’ve started receiving royalty checks. What are my future royalty payments worth today?

Further complicating the issue is the multiple layers of shale accessed from the same well pads that exist today, such as the previously mentioned Gee and Neal wells. The advent of 8-10 wells on a single pad site and longer, deeper, horizontal lengths that we are starting to now see affects property and mineral rights value.

For these reasons there is a substantial paradigm shift occurring in the way we think about mineral rights valuation. In an area as large as the Marcellus and Utica, tens of thousands of affected landowners are asking the same questions for small lots under an acre all the way to landowner coalitions with hundreds of thousands of acres. Here we’ll explore tools available to anyone willing to put the pieces of the puzzle together to adequately estimate property and mineral rights in today’s fast-paced shale energy development environment.

Tool #1 – Sales Comparison Approach

Even where hydraulic fracturing is not yet taking place, a landowner can assess the potential mineral rights of their property for estate planning. Gathering sales data, specifically auction data is recommended. This Sales Comparison Approach is the most commonly used method to appraise property before any royalty payments are received. The best example of this are auctions of OGM (with and without the land or “Surface Estate”). The data developed to inform potential buyers are a major portion of the items needed in order to estimate OGM value. Properly done, an auction also serves to inform the seller. Those attending the auction typically bid on the property as a single purchase price. The market quickly determines the price paid per acre for comparison purposes.  A sampling of recent auction sale data for Bradford County, PA is shown below.

Tool #2 – Mapping Software Analysis

Once auction sales data has been assembled, the subject property and each comparable sale property should be examined for the attributes (positive and negative) that affect value. Mapping software ShaleNavigator contains the following data and can be used to assemble these data points when evaluating specific properties.

Some of those considerations are:

• What is the proximity to pipelines (gathering & distribution) (actual and planned)?
• Where are the nearby well permits?
• Where are the nearby wells?
• What is the production of nearby wells? (or are they plugged waiting for a gathering line?)
• Where are nearby compressor stations?
• Is the subject property located in or near a gas storage field?
• Is the sale parcel in a well spacing?

Mapping the auction properties will allow you to discover these attributes of each property. From there, mapping your subject property will allow an “apples-to-apples” comparison. Below is a ShaleNavigator property report run on a Bradford County auction sale. The report displays producing wells, recent well permits, recent lease offers, and pipelines in the area.

Tool #3 – Penn State Royalty Calculator and Decline Curve Web App

The Penn State Royalty Calculator and Decline Curve Web App utilizes nearly 5,000 producing horizontal unconventional wells in Pennsylvania to build high quality estimates for royalties and total estimated production from a well. This tool produces an estimation of total production and corresponding royalties as a graph. We chose Bradford and Susquehanna Counties as examples, and ran the analysis using a 100 acre property in a 650 acre well spacing unit; natural gas price at $3.25, royalty at 12.5%, deductions at 15%, 3 wells anticipated in unit.

Bradford County Results $1,032,496 over 25 years Mineral Owner Net Income

Susquehanna County Results – $2,097,216 over 25 years Mineral Owner Net Income (3 wells anticipated)

Additional Considerations

According to the Marcellus & Utica Databook , a staggering 109 major multi-million dollar projects are planned for the Marcellus & Utica region alone. As these infrastructure projects become active, they will also affect property value.

Conclusion

Understanding the value of your property is important to those in active shale development areas, as well as for those who are in shale areas where drilling has not yet commenced, but will in the future. For landowners, state governments (Pennsylvania, West Virginia, and Ohio state governments are leasing state lands, gathering significant signing bonuses and in some cases royalty payments), and corporations alike, assessing the value of your mineral rights is a worthwhile process. These tools are a resource that anyone willing to put in the work can use from a desktop computer.

About

Ed Camp is Geospatial Corporation’s ShaleNavigator Team Lead. In addition to ShaleNavigator, Geospatial Corporation’s Geounderground Mapping software provides midstream operators with an industry-leading geospatial solution for planning and managing assets as they continue their growth in meeting demand.

Additional Sources:

Mike Coles State Certified General Appraiser Coles & Associates, Inc.

www.colesandassociates.com

United Country – Jelliff Auction Group