Investing in Boomtown!
Published on: Tuesday, May 5th, 2015
By Emily Goodman-Shortall
It’s an explosion of wealth that’s about to shake the very foundation of the North American energy landscape. Investors who know about it early on stand to make a killing, while those who don’t will be left wishing they had gotten in sooner — before the big gains were already made.
Located in a remote region in Southeastern Ohio, these small counties are is benefiting from a huge resource of natural gas.
The Ohio Department of Natural Resources granted 79 permits between Nov. 1 and Nov. 30. Monroe and Belmont counties led the pack with 19 permits issued in each county.
In Belmont County, seven permits were issued in Somerset Township to Gulfport Energy. Five permits were issued in Richland Township to American Energy Utica. In Warren and Smith townships, the ODNR issued three permits to Rice Drilling and Gulfport Energy.
In Belmont County, there are 42 wells in some sort of drilling phase and 54 producing wells.
The ODNR issued 19 permits in Monroe County during November. In Washington Township, five permits were issued, four to American Energy Utica and one to HG Energy.
Six drilling permits were issued in Seneca Township to Antero Resources Corporation, and six permits were issued in Sunsbury Township to Gulfport Energy. Two were issued in Switzerland Township to the CNX Gas Co.
In Monroe County, there are 75 drilled wells waiting to go into production and 31 producing wells.
In Carroll County, 16 permits were issued for new Utica shale wells. Seven permits were issued in Fox Township to Chesapeake exploration, five were issued in Washington Township to RE Gas Development, and four were issued in Union Township to Chesapeake Exploration.
Carroll County leads Ohio with the number of producing wells at 334. There are an additional 74 wells either being drilled or already drilled waiting to go online.
Seven permits were issued in both Guernsey and Harrison counties during November.
Seven permits were issued by the ODNR in Guernsey, including four in Millwood Township to Chesapeake Exploration and three in Londonderry Township to American Energy Utica.
The county has 71 drilled unconventional wells and 39 producing wells.
Oil and gas
Undoubtedly one of the key drivers of Ohio’s recovery has been the oil and gas industry. The state sits on top of two major formations, the Utica Shale and Marcellus Shale formations and these vast reserves of oil and gas have tremendous potential for development. In the Ohio Valley alone, deposits have been estimated in the billions of barrels. The Utica Shale reserves are mainly in Eastern Ohio while the Marcellus Shale formation is in Ohio, Pennsylvania and the northern panhandle of West Virginia. Although the oil and gas deposits has been known about for some time it is only now, with improvements in detection and extraction technology that exploration has become financially viable. Ohio looks set to reap a financial harvest from the black gold over the next twenty-five years.
Inward investment from energy companies has been flowing into Ohio in recent years. Ohio State geologist, Mike McCormac, estimates that drilling companies have already spent in the region of $6 billion just on drilling in the state, with an additional investment of $14-16 billion on processing plants, pipelines and leases. Chesapeake Energy, CONSOL Energy and EV Energy Partners are among the companies active in the region. In 2012 corporate investment in the construction of shale processing and pipeline infrastructure in the Wheeling Metropolitan Statistical Area equaled $60.3 million. By 2013 this had multiplied to $1.72 billion.
Estimates of job numbers directly resulting from oil and gas exploration in Ohio vary widely. While some estimates put the number in the hundreds of thousands, more conservative analysis from Ohio State University puts the number at around 20,000. Comparing the experience of other energy booms states is useful. In North Dakota employment increased by around 30 per cent between 2008 and 2014, while in Texas, oil and gas contributed to the State adding an extra 1.2 million jobs between 2007 and 2014. This was a major part of the 2.1 million jobs that were created in the whole of the United States during the same period showing the effect of a boom on a state’s economy.
In November 2014, the unemployment rate in Ohio was 4.8 per cent, down from 7.2 per cent the previous year. This is the lowest rate since 2001, and the improvement is forecast to continue into 2015.
As well as the direct impact, ancillary industries servicing the energy business should also benefit. Across Ohio we have seen evidence of increasing development. In Youngstown, international steelmaker, Vallourec & Mannesmann, constructed a steel mill to produce steel tubes for the oil and gas market, creating up to 1,200 jobs during plant construction with an additional 350 permanent jobs during day-to-day operations. The project cost $1.05 billion and will add around $1 billion to the regional economy. In Yorkville, Esmark Inc. is in the process of converting the former Ohio Cold Rolling Co. steel mill into a transportation and logistics hub to coordinate activity in the Utica and Marcellus shale plays.
Additional manufacturing projects will mean the creation of 11,000 local construction jobs in building manufacturing plants, pipelines, roads and bridges. Other in-demand staff will include truck drivers, engineers, architects, environmental compliance staff, office workers, attorneys and technical consultants. County seats, like St. Clairsville, Belmont County, stand to benefit through the provision of ancillary like hotels, housing, law and medical offices, and government services.
“Over the past two years the oil and gas industry is beginning to transform the county economically. St. Clairsville and the county are going to see an economy that they haven’t seen before. … It will be a dramatic and permanent change in our lifestyles.”
– Mark Thomas, Belmont County Commissioner
While the energy sector understandably takes many of the headlines, manufacturing is also an important driver of the State’s economy. Manufacturing jobs across the country are starting to return from overseas, according to US Bank economist, Jim Russell. In large part this is due to the substantial rise of Chinese manufacturing costs, particularly wages, which have doubled over the last five years. Whirlpool Corporation and Master Lock have both returned operations to the US and even Chinese manufacturers are now establishing or expanding operations in this country – auto glass maker Fuyao has invested $360 million in a former GM factory in Dayton, Ohio.
Russell believes that Ohio will benefit from the relocation trend ahead of other states. Jobs in manufacturing grew by 8.3 per cent between 2010 and 2013, greater than both Indiana and Kentucky, and far higher than the national average (3.8 per cent). Last year 65,200 extra jobs were created in Ohio with manufacturing leading the way (18,400), followed by the leisure industry (18,300) and the business and professional services sector (15,100). Manufacturing makes up around 17 per cent of the State’s GDP (13 per cent nationally) and the impact has been felt in people’s pockets. Median household incomes have risen to $47,500 – topping the pre-recession peak.
“Ohio’s going to be an epicenter of something very good,”
– Jim Russell, US Bank economist
As well as traditional manufacturing, Ohio has also seen the growth of new industries. The National Additive Manufacturing Innovation Institute (NAMII), based in Youngstown, Ohio, was created in 2013 with the support of the Obama Administration. More commonly known as 3D printing, additive manufacturing is a breakthrough technology with tremendous potential for both commercial and consumer manufacturing. The NAMII is a consortium of members, including 40 companies, nine research universities, five community colleges and 11 nonprofit organizations. This sharing of knowledge should produce some exciting developments in the years ahead.
While the oil and gas boom is relatively recent, the healthcare sector has long been a key driver of the Ohioan economy. Eighteen per cent of the workforce, or 240,000 employees, is employed in the sector in the northeast of the State (national average of 13 per cent). 10 of the largest 25 employers in Ohio are hospitals or health care systems and it is estimated that not-for-profit hospitals in the Columbus metropolitan area alone contribute more than $5.6 billion annually to the region’s economy. The wider economic impact is estimated at more than $10 billion per year and across the state as a whole, healthcare generates $24.1 billion in economic activity.
In 2014 Ohio expanded Medicaid, producing significant benefits. An additional 451,000 residents were covered last year and research by the Health Policy Institute of Ohio estimates that this expansion will translate into additional economic activity worth $19 billion between 2014 and 2022. On top of this, around 31,872 new jobs will be created State-wide as a result of the increased member base. Ultimately, these additional jobs will create an extra $17.5 billion in the Ohio economy.
Lower cost of living
It is a fact of life that salaries in Ohio are lower than in places like New York, Connecticut, or California. However, salaries only tell part of the story. To really understand what income means we also have to take the cost of living into account. In the Buckeye State the cost of living is nearly 23 per cent lower than in Massachusetts, and 35 per cent lower than California. This gives Ohioans much greater purchasing power, or in everyday terms, more bang for their buck. If we adjust average salaries Ohio is second only to Rhode Island in real earnings power. As an example, a high school teacher earns an adjusted annual salary of $67,500 in Ohio, much higher than in New York ($62,868) or California ($59,814).
When the energy boom struck North Dakota it saw a huge increase in monthly rentals and leases, to such an extent that in some parts these even surpassed those of New York City. At one point Williston became the most expensive place to live in the country with an 800-square-foot, unfurnished one-bedroom apartment costing $2,100 per month to rent. Joint research from Cleveland State University, Ohio State University and Marietta College has investigated the likely economic activity arising out of development of the Utica Shale formation. Their expectations are that energy will directly lead to the employment of 2,100 in the real estate sector to satisfy demand. Anecdotally, we have seen Ohioan realtor, Harvey Goodman being selected by one energy company to find housing for 100 to 300 employees in the Wheeling area.
However, expectations are that the housing market in Ohio will be robust but should avoid bubble inflation. The property market in Northeast Ohio has been categorized as strong by PNC Bank, a Pittsburgh-based bank with branches in northwest Ohio, with good affordability, low mortgage rates and better access to credit than in the past. Home sales, permit approvals and prices are all rising. Property prices have risen by 3-4 per cent in 2013 and 2014, and this trend is expected to continue over the next few years. In addition, single-family permit approvals in Northeast Ohio are predicted to rise by more than 10 per cent in 2015, while multifamily permit approvals have increased by an average of 26 per cent per year over the last three years.
Spotlight on St. Clairsville
One of those towns enjoying a resurgence is St. Clairsville, and in many ways it is a typical example of what living in Ohio can offer. With a population of 5,184, it is located in Belmont County, in the northern part of the State, between Columbus and Pittsburgh. Recently Ohio magazine named it as one of the top five towns in the state, describing it as a place where “Small-town living intersects with new industry in the Appalachian foothills”. A number of factors make it an attractive place to live.
Residents in St. Clairsville tend to have more money in their pocket than those in other areas. Annual incomes are slightly above the national average ($53,223 v. $53,046) but the cost of living is almost 7 per cent lower. Employment levels in St. Clairsville are also high with an unemployment rate of just 4.8 per cent (versus the national average of 7.9 per cent). Annual incomes for younger workers (aged 25-44) are around $66,771; higher than both the State ($52,988) and the national averages ($57,132). Unsurprisingly, the town’s poverty level is very low – 78.7 per cent lower than the national average. There is a broad mix of occupations in the town – sales and office occupations are particularly common – but there are also teachers, lawyers, management, business and finance professionals.
Safety is one of St. Clarsville’s most noteworthy features. Total crime is about one-third less than the State average and violent crimes are particularly rare – 62 per cent lower than State figures. Furthermore, St. Clairsville is safer than the vast majority (71.4 per cent) of US cities. Part of the reason for this safety is the settled nature of the community. Almost two-thirds (63.6 per cent) of homes are owner occupied with around one-quarter (26.1 per cent) rented. Another factor may be the quality of education. The high school graduation rate is 91 per cent, better than either the state (84.4 per cent) or national averages (81.8 per cent). This, in turn, may be a product of smaller class sizes, where the average student to teacher ratio is 15:1, compared to 17:1 in the State and 16:1 nationally.
“St. Clairsville is a great place. It has a small-town atmosphere, low crime rate and good schools.”
– Jack Kemo, local barber.
Ohio has been faced with many challenges in recent years, but with the economy growing and industries new and old picking up steam the future looks bright for current and future residents.