Investment into Shale Development in Ohio Canton Utica Summit October 2017

Andrew R. Thomas

Cleveland State University

h"p://urban.csuohio.edu/epc/ a.r.thomas99@csuohio.edu

Professor Jeffrey C. Dick – Youngstown State

Mark Henning – Cleveland State

1

Estimating Shale Investmento  Funded by JobsOhioo  Goal: understand

amounts and locations of investments into shale development

o  Not an Economic Development Report.o  Not all the investment

stays in Ohio.o  Looked at:

o  Upstreamo  Drilling, land,

operations, royaltieso  Midstream

o  Pipelines, processing plants

o  Downstreamo  Refineries, electricity

generation, fuels

2

Cumulative Utica Production by County

3

TotalU(caProduc(oninBCFE(GasEquivalence)byCountythroughDecember2016.

855

704

100176

483

64

457

279

270

100

200

300

400

500

600

700

800

900

GasEqu

ivalen

ts(B

cfe)inBillions

Note:OTHERcounDesarethoseproducing<2BCF

Cumulative Utica Production By CountyQ3 and Q4 2016

Economic Potential for the Utica Shale Development in Ohio

4

Produc(onbyCountyforQ3andQ4of2016.

272

98

1640

107

30

127

534

0

50

100

150

200

250

300

GAS

EQUIVAL

ENTS(B

cfe)

Source: Ohio Department of Natural Resources

5

U(caDrillingTrends(CarrollandBelmontCoun(es)

Cumulative Utica Production

6

Distribu(onofGasEquivalentProduc(onfor2011through2016

Source: Ohio Department of Natural Resources

Number of Wells Drilled By County

7

0 50 100 150 200 250 300 350 400 450 500

STARK

PORTAGE

TUSCARAWAS

TRUMBULL

WASHINGTON

MAHONING

JEFFERSON

COLUMBIANA

NOBLE

GUERNSEY

MONROE

BELMONT

HARRISON

CARROLL

Drilled Drilling Producing

Cumula(veNumberofWellsbyCountythrough2016

Source: Ohio Department of Natural Resources

8

TotalU(caProduc(oninBCFEbyOperatorthroughDecember2016.

93

397

134

1027

80143

678

150 20 54 177 66125

0

200

400

600

800

1000

1200

GAS

EQUIVAL

ENTS(Bcfe)

Source:J.Dick(2017)

Utica Production by Operators

Source: Ohio Department of Natural Resources

County No.ofwells Drilling RoadsNearLeaseGathering TotalAmount($mm)

BELMONT 45 $450.00 $22.50 $67.50 $540.00

CARROLL 5 $35.00 $2.50 $7.50 $45.00

COLUMBIANA 2 $14.00 $1.00 $3.00 $18.00

GUERNSEY 9 $90.00 $4.50 $13.50 $108.00

JEFFERSON 23 $161.00 $11.50 $34.50 $207.00

MONROE 33 $330.00 $16.50 $49.50 $396.00

NOBLE 14 $140.00 $7.00 $21.00 $168.00

Total 131 $1,220.00 $65.50 $196.50 $1,482.00

9

Es(matedUpstreamShaleInvestmentbyCounty,July-December2016(Excludesroyal(es,bonusesforundevelopedacreageandleaseopera(ngexpenses)

Drilling Investment By CountyQ3 and Q4 2016 (in $mm)

Source: Ohio Department of Natural Resources

Total Utica Upstream Investment 2012-2016

Es(matedInvestments TotalAmount($mm)UndevelopedLand $16,153DevelopedLand $2,664LeaseRenewals $1,615

Drilling $16,031Roads $954

NearLeaseGatheringLines $2,861LeaseOperaDngExpenses $473

RoyalDes $2,045Total $42,796

10

Cumula(veU(ca-RelatedUpstreamInvestmentsinOhiothrough2016(inmillionsofdollars)

Ohio Midstream Shale Investment 2012-2016

Es(matedInvestments TotalAmount($mm)MidstreamGathering $3,363ProcessingPlants $1,250

FracDonaDonPlants $,1078StorageTankage $234

RailLoadingTerminals $117TransmissionPipelines $2,616

Total $8,658

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Cumula(veU(ca-RelatedMidstreamInvestmentsinOhiothrough2016 (inmillionsofdollars)

Midstream Investment Activities

12

Source:OhioDepartmentofNaturalResources(June25,2016);InvestorPresentaDons

Gathering Line Investments

Source: Investor Presentations 13

Company System TotalInvestment($mm)BlueRacer Wet $272MarkWest Wet $315Pennant Wet $68

UDcaEastOhio Wet $340RiceMidstream Dry $640

MarkWest&EnergyandMineralGrp. Dry $1,000SummitMidstream Dry $400

PVRPartners Dry $125

Total $3,160

TotalEs(matedMidstreamGatheringLineInvestmentinOhiobyCorpora(on(inmillionsofdollars)2011-2016

Ohio Interstate Pipeline Investment

14

Project Status TotalMiles

OhioMiles

PipeDiameter

OhioCompressor

HP

Es(matedOhioInvestment($mm)

ReportedOhioInvestment($mm)

LeachXpress(LX)

UnderConstrucDon 161 160.5 36 62400 $1,435 $1,518

SpectraOhioPipelineEnergy

Network(OPEN)

Completed 76 76 30 9400 $648 $432

EquitransOhioValley

Connector(OVC)

Completed 50 50 16-30 21000 $445 $416

Totals $2,528 $2,366

Es(matedInvestmentintoInterstateNaturalGasPipelinesandNaturalGasLiquidorCondensatePipelines(inmillionsofdollars)

Source: Investor Reports

Additional Near-Term Interstate Pipeline Investment

Source: Investor Reports 15

Es(matedFutureInvestmentintoInterstateNaturalGasPipelinesandNaturalGasLiquidorCondensatePipelines(inmillionsofdollars)

Project Status OhioMiles

PipeDiameter

Es(matedOhioInvestment($mm)

UtopiaEast UnderConstrucDon 215 12 $540

Nexus Approved 255 36 $2,100

Rover UnderConstrucDon 400 42 $4,200

Totals $6,840

Ohio Downstream Shale Investment

Es(matedInvestments TotalAmount($mm)PetrochemicalPlants(includingrefineries) $315

NaturalGasPowerPlants $3,040CombinedHeatandPower(CHP)Plants $41

CNGStaDons $38Total $3,434

Source: Investor Reports 16

Cumula(veU(ca-RelatedDownstreamInvestmentsinOhiothrough2016(inmillionsofdollars)

17

Exis(ng&ProjectedNaturalGasPowerPlantInvestmentinOhioThrough

2016

Name Corp. Loca(on County Status MWInvestment($mm)

OregonCleanEnergyCenter

OregonCleanEnergy,LLC Oregon,OH Lucas OperaDonal 960 $800

LordstownEnergyCenter

CleanEnergyFuture-

Lordstown,LLCLordstown,OH Trumbull Under

ConstrucDon 940 $890

CarrollCountyEnergy

AdvancedPower

WashingtonTWP,OH Carroll Under

ConstrucDon 700 $800MiddletownEnergyCenter NTEEnergy Middletown,OH Butler Under

ConstrucDon 475 $550Total $3,040

Source: Ohio Power Siting Board and Media Reports

18

Ohio Natural Gas Power Plant Investment 2012-2016 ($mm)

Natural Gas Fired CHP Plants (2012-2016)

Source: Department of Energy 19

City FacilityName Applica(on Year Capacity(KW)

Es(matedInvestment(thousandsof

dollars)Cleveland OfficeBuilding OfficeBuilding 2016 200 $450Belpre KratonPolymers Chemicals 2015 8,000 $18,000

Marie"a SolvaySpecialtyPolymers Chemicals 2015 8,000 $18,000

Dublin DublinCommunityRecreaDonCenter

CommunityServices 2015 248 $558

CincinnaD BrightonTru-EdgeHeads FabricatedMetals 2014 200 $450

Medina MedinaHighSchool Schools 2014 125 $281

Fresno PearlValleyCheese Agriculture 2013 65 $146

Toledo ProMedicaWildwoodOrthopedicHospital

Hospitals/Healthcare 2013 130 $293

Cleveland DominionEastOhioGasCompanyheadquarters OfficeBuilding 2012 1,000 $2,250

Toledo UniversityofToledoDataCenter

BusinessServices 2012 260 $585

Downstream Trends for Natural Gaso  Electricity Generationo  Thermal Generationo  Chemicalso  Transportation

o  Fuel cell vehicleso  CNGo  EV

20

SARTA hydrogen refueling station – Canton, Ohio

Disrup(veChangeNaturalGasandDistributedGenera(on

“Allthenaturalgasindustryneedsisagizmointhebasementofyourhousethatconvertsnaturalgasintoelectricity.Youdon'tneedthegridatall.” DavidCrane,CEONRGEnergy,March

22,2013.

Stationary Fuel Cell System

“ConDnuingimprovementsinnaturalgasplantflexibilityandfuelefficiencyhaveexacerbatedgasplants’compeDDveadvantageovercoalandnuclearresources,parDcularlygiventhefasterpaceofgridoperaDonsdrivenbyvariablegeneraDon…”

AlisonSilverstein,DOEStaffauthorofSeptember2017StudyonU.S.Grid

CSU Energy Policy Center a.r.thomas99@csuohio.edu

Thank you!

Drilling Investment Assumptionso  Drilling

o  $7 mm/well northern countieso  $10 mm/well southern counties

o  Near Lease Gathering -- $1.5 mm/wello  4 mi per 3 wells, 8 in. line, $140,000 inch-mile

o  Lease Operating Expense -- $1200/per month/per well

o  Roads - $500,000 per wello  $ 1mm/mile for road improvement

o  Four miles per pado  3 wells per pad

o  $250,000/bridge, $200,000/culverto  One bridge, one culvert per pad

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Land and Royalty Investment Assumptionso  Land Bonuses

o  $7500/acre, $192 acres/wello  Undeveloped land: $5000/acre for reported

net-acres of top six publicly traded companieso  Royalty Payments

o  Used per well volumes reported to ODNRo  Royalty rate of 20% gross production o  Average shrinkage of 12% (residue recovery of

88%)o  Residue sale price: Henry Hub - $0.65/mmbtu,

1100 mmbtu/mcfo  Transportation cost: $0.65/mcfo  44 bbls/mmcf liquid recoveredo  NGL sale price: 30% of WTIo  Condensate/oil sale price: WTI - $10

24

Lease Operating Expenses

Year PeriodProduc(on

WellsLeaseOpera(ngExpenses

forPeriod($mm)

2016 Q3andQ4 1406 101.2

2016 Q1andQ2 1355 97.62015 Annual 1034 148.92014 Annual 612 88.12013 Annual 237 34.12012 Annual 82 302011 Annual 9 3 Totals 502.9

25

TotalLeaseOpera(ngExpensesthroughDecember2016

Undeveloped Acreage

26

Operator UndevelopedAcreage Es(mateBonusInvestment($mm)Gulfport 171,919 860

Chesapeake 2,514,000 12,570Antero 126,798 634Rice 52,049 260

Ascent 300,000 1,500Eclipse 65,908 330Total 16,153

TotalEs(matedInvestmentsintoUndevelopedAcreageinMillionsofDollars

ThroughJune2016

Operator UndevelopedAcreage Es(matedBonusInvestment($mm)Gulfport 171,919 86

Chesapeake 2,514,000 1,257Antero 126,798 63.4Rice 52,049 26

Ascent 300,000 150Eclipse 65,908 33Total 1,615.4

TotalEs(matedInvestmentsintoUndevelopedAcreageinMillionsofDollarsJuly-December2016

Midstream Assumptions

27

•  Gathering(Trunk)Lines.

o  12inchpipelines§  $1.4MM/mile§  170milesper1Bcf/dthroughput

o  20inchpipelines§  $2.4MM/mile§  30milesper1Bcf/dthroughput

o  Compressors§  3compressorstaDonsper1BCFDthroughput§  $10mm/staDon

•  ProcessingPlants.o  $400,000perMMcf/dthroughputo  $80MMper200MMcf/dplant(typicalskidsize)

•  FracDonaDonPlants.o  $2800perbbl/do  $100mmper36000bbl/dunit(typicalsizeofplant)

•  StorageTankage:$80MMfor1Bcf/dthroughput•  RailLoadingTerminals:$40MMfor1Bcf/dthroughputBecause only one company reported new processing faciliDes during the study period, the study team used actual reportedgatheringlinemileagetoesDmatethegatheringlineinvestmentratherthanrelyingonaveragemileageperunitofthroughput.However,wedidincludethecompressorinvestmentesDmatebasedupontherulesofthumb.SeeTable14.

Economic Potential for the Utica Shale Development in Ohio

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Produc(onbyOperatorforQ3andQ4of2016.

19

9770

173

2141

166

383 10

68

22 190

40

80

120

160

200GAS

EQUIVAL

ENTS(B

cfe)

County Drilled Drilling Producing TotalCARROLL 28 5 430 463HARRISON 41 9 278 328BELMONT 40 38 240 318MONROE 56 38 138 232GUERNSEY 26 12 127 165NOBLE 19 19 119 157

COLUMBIANA 17 1 60 78JEFFERSON 27 10 33 70MAHONING 1 0 13 14WASHINGTON 1 0 11 12TRUMBULL 3 1 7 11PORTAGE 5 1 3 9

TUSCARAWAS 1 1 7 9STARK 5 0 2 7

OTHER7COUNTIES 5 0 4 9Total 275 135 1472 1882

29

WellStatusbyCounty(January2017)

30

Assumes: 47% load factor for Secondary, 67% load factor for Primary

Mercantile Load Profile

31

State/Census Division Residential Commercial Industrial All Sectors

Ohio 12.67 9.88 6.76 9.8

Indiana 12.05 10.37 7.35 9.65

Kentucky 10.68 9.67 5.55 8.44

Michigan 15.86 11.09 7.41 11.62

Pennsylvania 14.52 8.9 6.65 10.05

West Virginia 11.69 9.37 6.55 8.82

New England 19.37 15.31 12.37 16.4

Middle Atlantic 16.49 13.39 6.98 13.21

West North Central 13.36 10.73 7.88 10.79

South Atlantic 12.2 9.39 6.57 10.17

East South Central 11.47 10.69 6.13 9.5

West South Central 10.93 8.47 5.62 8.55

Mountain 12.34 10.26 7.09 10.15

Pacific-Contiguous 16.45 14.98 10.93 14.54

Economic Potential for the Utica Shale Development in Ohio

32