EVALUATING
HYDRO-FRACTURING
ECONOMIC PERSPECTIVES

• What is the structure of the industry
• Questions that need unemotional
“Positive Economic” analysis
• Issues with Proper Evaluation
• How does this business opportunity fair using triple bottom line accounting analysis

• Few large players
• Chesapeake Energy is second largest producer and largest current new “play” driller
• Exxon Mobile becoming more active
• Haliburton, Schlumberger largest engineering providers
• Significant Foreign Investment
• Industry Revenues measured in tens to hundreds of billions
• Marcellus Shale “Play”
• Not a new discovery, new technology enabled
• Tens of thousands of gas wells potential
• Most wells productive fro 20 to 40 years

• Wellhead to Home Simplified Diagram

• What type of jobs are going to be created
• How long do these jobs last
• How does enormous nature of economic wealth generation spread itself through the community
• What are the proper levels of regulation
• What is the real cost of regulation
• What is the real cost of hydro-fracturing activities when considering the consumption of public infrastructure
• If a disaster of the magnitude or nature of the gulf coast
BP explosion were to occur, who would be responsible

GENESEE COMMUNITY COLLEGE
AND DANSVILLE COMMUNITY
• Recently hosted one of two upstate
DEC Public Hearings on the proposal to lift the drilling moratorium this year
• Carnival Atmosphere
• Local Residents, Musicians, Activist
• Politicians
• American Petroleum Institute
• “Friends of Natural Gas”

ISSUES IMPEDING PROPER ECONOMIC
ANALYSIS
• Pop-Economics
• We’re gonna be rich
• Its gonna create jobs
• Its gonna make my well water catch fire
• Fracking is Patriotic
• We will be energy independent

ISSUES IMPEDING PROPER ECONOMIC
ANALYSIS
• Markets and Transparency
• "I want the right to export natural gas, but I am really hopeful that we never do," said Chesapeake chief executive Aubrey McClendon during a panel discussion on natural gas vehicles in New York on Wednesday.
• "If for some reason this country refuses to use this wonderful fuel...I have to put my gas up for sale to somebody," he said.
• Reuters News – Nov 11, 2011

ISSUES IMPEDING PROPER ECONOMIC
ANALYSIS
• Information Asymmetry
• What are the contents of, methods of transporting, and modes of storing Hydro Fracturing by-product materials
• How much economic gain remains local
• Failure to deal with Externalities
• Risks imposed on Health\Welfare
• Risks imposed on neighboring land\home owners
• Risks imposed on existing businesses

ISSUES IMPEDING PROPER ECONOMIC
ANALYSIS
• Opportunity Costs
• Artificially low costs of production and industry subsidies will continue to delay commercialization of renewable sources
• Resources used to construct gas line infrastructure not being used for long term infrastructure projects with widely dispersed benefits such as high speed rail

• "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs".

• Are we destroying resources at the expense of future generations?
• Clearly natural gas, although abundant, is finite
• Process issues are unclear
• Science is not definitive because we do not understand geological issues of this nature with certainty.
• Human error is extraordinarily difficult to predict
• Empirical evidence indicates that it is unavoidable
• Gulf Coast response to spill may be as bad as the spill itself

INDEPENDENCE, Pa. -- An explosion and fire at a gas well injured three workers Wednesday night, authorities said.
The blast, at the Chesapeake Appalachia LLC Powers site in
Avella, was reported at about 6:20 p.m., Washington County emergency officials said.
Workers were transferring water used in a gas-extraction process called hydraulic fracturing, and several of the natural gas liquids storage tanks caught fire, said Katy Gresh, a spokeswoman for the Department of Environmental Protection's southwest region.
• Read more: http://www.foxnews.com/us/2011/02/24/pennsylvania-gasblast-injures-3-workers/#ixzz1frG6Pj5D

Gas Well Spews Polluted Water
By THE ASSOCIATED PRESS
Published: April 20, 2011
ALLENTOWN, Pa. (AP) — A blowout at a natural gas well in rural northern Pennsylvania spilled thousands of gallons of chemical-laced water on Wednesday, contaminating a stream and forcing the evacuation of seven families who live nearby as crews struggled to stop the gusher.

• Economic Sustainability
• Clearly finite in nature
• Wealth generation will be extreme
• Mr. McClendon was the most highly compensated CEO in the
US over the last 5 years by a huge margin
(http://www.forbes.com/lists/2011/12/ceo-compensation-11_rank.html)
• $307 million in cash compensation
• more than $100 million than second place
• Jobs will be created
• Well hands, transportation, pipe fitters, construction
• Landowners will receive royalties
• DEC Floor of 1/8 of the wholesale value of the gas
• Municipalities may receive tax revenue

• The Resource (Natural Gas) cannot be used to generate more local economic growth thereby developing a local, sustainable, economic comparative advantage.
• “…which said amount of 300,000 cubic feet of free gas per year Lessor shall be entitled to receive free of cost for heat and light in one dwelling house on the lease premises provided said gas is used with economical appliances…”
• Ardent Resources Boiler Plate Lease May 2010

• Environmental Impact
• Carbon Footprint measurement of whole process
• Permanent infrastructure issues
• Ability to clearly identify and mitigate risks to large and fragile ecosystems in Western and Central New York

• Human Equity Issues
• How does this industry effect local communities
• How does this industry effect extended communities
• How will municipalities equitably distribute tax revenue to residents