Banks Bullish On Utica
Banks are becoming the newest industry forecasting the significant, positive impact that Utica Shale/Point Pleasant development has had – and will continue to have- in Ohio.
These impacts range from growing Ohio’s Gross Domestic Product over $100 billion in two years, to being responsible for dropping Ohio’s unemployment rate at a faster pace than the national average. Any way you look at it, oil and gas development is on pace to revitalize Ohio’s economy.
As many know, shale development is responsible for employing nearly 39,000 people since it’s inception. Not only has there been significant growth in the employment sector, with considerable growth on sales tax receipts in the shale-producing region, banks are starting to look at Ohio as the new hot prospect for investment.
Recently, at the Ohio Bankers League’s annual economic summit in Columbus, U.S. Bancorp Regional Investment Director Jim Russell told the audience that Utica Shale/ Point Pleasant development has the potential to be an economic home run for Ohio if legislators and the administration can remain rational in their regulatory and tax proposals to keep Ohio attractive for development.
I think we’re in a pretty good position here to move the ball forward just a little bit – U.S. Bancorp Regional Investment Director Jim Russell- 2/13/13, Columbus Business First
Sun Trust Bank reported that its confidence has grown in the Utica/ Point Pleasant after finding that wells in the region experienced high initial production rates, limited expected depletion, improved spacing, and declining wells costs. Although the well costs are declining, they are still costing operators around $10 million per a single lateral well. The report concluded that infrastructure is still a bottleneck in Ohio, but progress is noticeable.
While Sun Trust makes a good point that the development in the Utica/Point Pleasant remains bottle necked due to lack of infrastructure put into place, it remains a very promising play if the economics continue to work out.
As both of these banks make strong statements about the prolific potential of oil and gas development in Ohio, Seeking Alpha, a financial analysis website, echoes their sentiments and increases the excitement Ohioans should have about development.
In a recent article they credit Utica/Point Pleasant development from turning Ohio’s sluggish recovery to a bullish economic juggernaut. They have found that Ohio’s GDP is expected to grow from $418.9B GDP in 2011 to be about $531.2B in 2013, crediting Utica Shale development as a “big part” of the reinvigorated growth.
Seeking Alpha has also found that development is drawing a lot of development monies into Ohio. This growth means companies like Gulfport are continuing to buy leaseholds while also spending considerable amount of capital on goods and services for development. This continued purchase of goods in the field, as well as goods purchased by their employees, will create a multiplier effect that will create a positive ripple through out the local economy. This can already be seen in the increased sales tax growth in these counties.
In addition, Ohio Department of Jobs and Family Services have found a profound drop in unemployment in the shale-producing region of the state. Coupling this drop in unemployment and continues dropping in unemployment with the remarkable growth in GDP, loans banks make (and have previously made) will be more likely to be profitable.
This combination makes banks even more attracted to shale development in Ohio.
The praise by financial experts is in the “economic home run for the state”. It will continue to increase Ohio’s visibility as a state where people need to invest and bring business.
But these experts also see the flip side of the coin: If, as Mr. Russell stated, tax and regulatory measures make this development uneconomical, the positive momentum we’ve experienced will cease. Ohio is poised to be leader in the nation thanks to shale development; we need to remain a leader by encouraging this growth instead of hindering it.