1. Cost: Benefit of fracking in Fermanagh: Is there really a net economic gain? Dr Brenna O’Roarty

2. Questioning potential of economic gain

3. Evaluate top and bottom line economic assumptions of the model BENEFITSCOSTS Economic Displacement RoadsTourism Agriculture and Agri-foods MultiplierEmploymentProductivity

4. Economics Benefits?

5. 1. High risk and uncertainty to productivity projection Tamboran forecast 1.3 to 2.6 tcf of recoverable gas, equivalent to one year’s gas supply for the UK Project a value to public realm of £6.6 bn in terms of expected royalties, VAT and tax revenues Evaluation of inputs to their business model against US experience suggest that projections may be grossly over-stated Recovery rates and absolute production are highly variable and unpredictable between, within and over the lifecycle of shale plays In the US, top 10% of all shale plays account for 65.6% of gas production and top 20% account for some 88%.

6. Long tail for productivity range across plays– size matters

7. A long tail is present within shale plays too- and size still matters In the US, analysis of all shale plays indicate that on average: - A mere 20% of wells are commercially viable - Well quality declines over the life-time of the play - More pronounced for smaller shale plays Exacerbated by sharp decline in IP (initial production) rates per well of between 75% to 95% within first three years of production.

8. In the Barnett, 94% of wells proved uneconomical as the field declined. Law of Diminishing Returns: 2% wells deliver in excess of 20 mmcf / day; 75% less than 10m mcf. Skew more marked for smaller plays.

9. Tamboran’s projections assume exceptional productivity rate Tamboran assume above average well lifespan. 7.5 yrs v median 5 yrs in US Tamboran’s IP decline rate is less steep, hyperbolic decay rate of 1.5 v less than 1.0 in US Tamboran project no decline in well quality over play; indeed productivity increases Tamboran adopt a controlled cost of well production, despite increase life-cycle costs per unit in US Achieved EURs in the US have fallen short of initial projections by approximately 50% due to shorter than expected life-span of wells and unforeseen decline in well quality In the US, by 2012 even the EIA had revised estimates of reserves down by some 42% Projections of recoverable resource likely to be grossly over-estimated - negligible energy supply for UK - low impact for public purse Source: Hughes, D.J. (2013) Post Carbon Institute, Feb; Tamboran (2012)

10. Especially given scale

11. 2. Direct Employment In April 2012, Tamboran halved job projections for Fermanagh from 600 to 300 FTEs by 2025. By 2014, projections revised down by a further 40% to 180 FTEs Jobs remain overstated given inflated productivity and lifecycle projections By nature the industry is labour intensive during the development phase and capital intensive during the production phase In practice, there is financial pressure to front-load drilling activity, resulting in boom & bust labour economics Approximately 98% of jobs are associated with well development, are short-term, low- skilled and predominantly filled by a transient work-force experienced in the industry. The production phase accounts for 2 to 5% of jobs which remain more local and predictable. Using Tamboran’s job projections, this accounts for 3.6 to 9 FTEs

12. 3. Multiplier Effect and Public Purse Investment DirectIndirectInduced = + + £1£0.20 Un-quantified less Displacement Costs £1 Wage income and corporate profit, plus non labour inputs. In contrast to construction industry significant proportion of investment and corporate profit is not retained within jurisdiction Direct supply chain impacts. Benefits to concrete and quarry suppliers. Other impacts directly related to manufact. (plant & machinery) and services (engineers, geologist etc) predominantly imported. Increase in household income and indirect demand for goods & services. Much lower, potentially negative impact compared to construction sector (0.75) due to leakage associated with more transitory work-force and local inflationary pressures Long-term erosion of GVA and employment in incompatible economic sectors, notably tourism, agriculture and agri-foods; Increased short-term demand for public services, health, education, housing etc. Environmental monitoring Roads Tamboran have suggested a Type 1 multiplier of 5.0, but provide no basis for the assertion. The Scottish Executive calculated a Type 1 multiplier of 1.2 for their oil & gas industry, while building construction is associated with a Type 1 multiplier of 2.09. The direct supply chain associated with the construction industry tends to be more local while beyond concrete, and gravel for road building, supplies of specialist equipment and plant & machinery to the oil & gas industry are imported. Associated jobs are not accretive. That is, the industry has significant displacement costs. Industries transient workforce leads to low tax recovery (direct & indirect) Exacerbated by low profitability of industry due to evidence of financial bubble as long ago as 2011/12 Falling price of gas since 2008 has resulted in full cycle costs of production exceeding gas price. Oil price has since collapsed As a result energy companies have been making significant write-downs and selling assets at a loss since end 2011.

13. Economic Costs

14. 1. Short-term cost outweighs short-term gain Fracking activity reduces the life-cycle of roads by 75% (from 20 to 5 years) in every state where drilling has occured 8 A Texas Dept of Transport (TxDOT) survey in 2012 revealed that: – 1,184 loaded lorries required to bring a well into production – 353 are required for annual maintenance – 997 are required to re-frack each well Equivalent to 8 mn car journeys to develop and 2 mn cars pa to maintain 8 Rogers, D (2013) Externalities of Shale: Road Damage, April, Road Damage Texas 2012: Road Damage $4 bn Revenues $3.6 bn Arkansas 2012: Road Damage $0.45 bn Revenues $0.182 bn Pennsylvania2012: Road Maint. $3.5 bn Impact Fee $0.204 bn

15. 2. Long-Term displacement of dominant economic sectors In short, shale gas exploration would replace existing economic activity. It is not accretive The destruction and contamination of the natural landscape by heavy industry is irreversible USP of Fermanagh is its environmental purity and underpins tourism, agriculture and agri-foods The economic value of the ‘environmental economy’ was identified as early as 2005 in a specially commissioned report and accounted for 32,749 jobs and £573 mn per annum of GVA. It is a cornerstone of the N Ireland economy and a growth sector Capitalisation of GVA in long-term greatly exceeds proposed investment Turnover of food production in N I alone is £3.7 bn pa (2010) Shale industry is incompatible with dominant sectors of economy

16. Summary: The net economic benefit is deeply negative Why? – Business model inputs to productivity estimates are wildly optimistic – Resource is likely to be much, much lower – Jobs growth over-stated, likely to be transient and short-term – Road damage costs significant – Crowding out of other industries – Not accretive. Displaces existing economic sectors and jobs The environmental degradation, whether real or perceived, will obliterate tourism in Fermanagh and reduce demand for agricultural products and agri-foods from the island of Ireland. Shale industry is incompatible with dominant sectors of economy

17. And economics are only one cost! EconomicSocial Public HealthEnvironmental Cost: Benefit