Friday, May 15, 2009

Haynesville Shale Economic Impact Study Released

A long-awaited economic impact study on the Haynesville Shale was released yesterday by Loren C. Scott & Associates (link to report, Shreveport Times article). The report was prepared for the Louisiana Department of Natural Resources, so it only focuses on the impact to Louisiana.
The study assesses the impact of seven of the seventeen main companies (the seven represent 72% of the leased acreage), so it is somewhat incomplete, but the numbers it offers are pretty gaudy. Some of the figures regarding the impact of the Haynesville Shale:
  • $2.4 billion in new business sales
  • $3.9 billion in household earnings (including $3.2 billion in lease bonuses and royalties)
  • 32,724 new jobs (greater than the statewide employment at banks and credit unions)
  • $153.3 million of new state and local sales tax revenue
Perhaps the greatest impact of the play is that it has helped insulate the north Louisiana region from the national economic downturn.

This glowing report is all well and good, but I don't put a lot of stock in economic impact studies. I used to perform these studies, so I know exactly how squishy they can be. It's more art than science at times. The accuracy of the report depends entirely on the quality of the inputs. If your inputs are not all locally derived spending figures, the results will be skewed to the positive. I do, however, believe in the multiplier effect of spending. There can be no disagreement that putting hundreds of millions of dollars into a community, be it through royalties/lease bonuses, employment, and the sales of goods and services, will yield a significant multiplier effect. The recipients of the cash then spend money for food, housing, gas and a myriad of other services. All of this spending tax revenues for the local and state government. There is a fine line, however, between new dollars and those that might have been spent anyway.

These issues aside, the bottom line is that the Haynesville Shale is a huge economic driver for North Louisiana and ultimately the state of Louisiana. Gauging the economic impact of the play is still preliminary because many companies are still in the early stages of their drilling programs and very little of the royalty money has begun to flow. The ultimate impact of hiring, spending, paying royalties, etc. will take years to assess.

The release of the report has also stoked the discussion of the negative impacts of drilling (and leasing, for that matter). While companies like Chesapeake are loudly touting the report, the economic impact is but one factor in the overall impact of the Haynesville Shale.

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