The real numbers on gas
To The Editor:
I wish to present the financial opportunities that gas and oil production offers to landowners. I have come up with the calculations after research using a number of sources found on the web, and correspondence with six companies exploring in New York. None of the companies wanted to lease here, due to the ban. But they answered my questions and corrected some errors in my assumptions about production volumes and income potential.
The income possible leads me to support the activity here, in opposition to NYSDEC’s proposed ban in the NYC Watershed. The DEC proposed regulations provide stringent enough operating requirements on exploration and production to protect areas being developed. The technology in use also mitigates disruption. Risks have been so minimized that they should apply to the watershed as well. An outright ban is an unreasonable burden.
In my calculations, I am using conservative estimates of gas produced and prices received. It seems safer to be cautious if readers want to use my figures when considering their own interests.
One acre of gas-producing land provides income of $4,106.25 per year, based on the following:
One horizontally drilled well taps 40 acres. There can be up to 32 wells per single drill pad, which taps about two square miles or1,280 acres.
One well (40 acres) yields one million cubic feet of gas per day. Gas is measured and priced in 1,000 cubic feet (mcf) so this is 1,000 mcf per day. Average reported yields have been 200 to 2,000 mcf per day, so I use a rate of 10 percent less then the midpoint.
The historical price has been about $4/mcf, so daily revenue equals $4,000 per well per day. Prices this year are at lower levels, but over the past several decades $4/mcf has been the average low price. A more typical winter will drive prices back up.
NY State will probably tax the production, if they don’t already. Most states tax at about 10 percent, so assume NY will do likewise. Hopefully, some of this will go back to the counties, towns and school districts where the wells are located. At this rate, the tax on $4,000 is $400;
Royalty gets calculated on the remainder. Standard royalty is 12.5 percent. The remainder is $3,600; 12.5 percent of 3,600 equals $450 per 40-acre well per day. $450 divided by 40 acres equals $11.25 per acre per day times 365 days per year equals $4,106.25 gross income per acre per year.
All this does not account for secondary economic effects like jobs created, ancillary business development, new spending and investment. It also doesn’t include the effect on localities from new tax revenue that results. But I hope this helps people assess the benefits vs. drawbacks of gas development in our communities.
Two last points: If there is no gas here, none of this matters. And since late last year, there has been talk about oil being extracted from the Marcellus and Utica shale. If oil is discovered, my calculations won’t matter. Revenue will be vastly greater.
Henry C. Blaufox,