Once pricey U.S. gasland now looks like a bargain
By Christopher Swann
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The gas-rich land of the Marcellus shale has been some of America’s hottest wildcat real estate in recent years. But if Exxon Mobil’s $1.7 billion purchase 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 oilier 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 parts of West Virginia. This may not seem like such a steal when compared to 2006 prices of around $100 an acre. Even so, it does suggest that energy land values are finally coming off the boil. The property boom reached its apogee when Chesapeake Energy doled out $17,000 an acre in early 2010, according to IHS. Mitsui 8031.T and India’s Reliance Industries both forked up $14,000 an acre in the spring of 2010 and 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 for over two years. One million British thermal units fetch about a third the 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 stumped up $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 large glut of gas that depressed prices is finally starting to clear. And because of its proximity to the giant 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.
The Marcellus may be yesterday’s story in terms of land values. But Exxon’s purchase is a vote of confidence that the region’s gas will eventually flow and offer rich profits.