1. Direct Economic Impact of a Marcellus Shale Well Bill Hefley, Ph.D. 33 rd USAEE/IAEE North American Conference 26 October 2015

2. Abstract This paper examines the direct economic impact of a Marcellus Shale well located in Southwestern Pennsylvania. This study seeks to fill a critical information gap on the impact of gas drilling and extraction from Marcellus Shale deposits deep underground: an assessment of the economic impacts – emphasizing the direct economic impact, rather than just focusing on the perceived benefits and impacts affecting the region or the induced or indirect impacts on the economy of the region. The induced effects are additional economic activity of all other unrelated firms and households caused by the economic activity of the direct impacts and the indirect impacts, while the indirect effects are additional economic activity of the value chain network caused by the economic activity of the direct industry. Our goal with this study was to provide a realistic picture of the direct costs of natural gas drilling in the Marcellus Shale of Southwestern Pennsylvania. This study examined the direct effects of a single Marcellus Shale well, developed using horizontal drilling and hydraulic fracturing, in Southwestern Pennsylvania. By using a single well as a standard unit of measure, this study can provide insights by understanding the direct spending in preparing, drilling, fracking and moving into production a single Marcellus Shale well site. 2

3. Induced effects Direct effects Indirect effects Value Chain Economic Impacts

4. Your Homework Assignment for this week Please give your Professor your shoe size. This research project began in student (graduate and undergraduate) project courses in supply chain management at the University of Pittsburgh.

5. Characteristics of our typical wellhead Located in Southwestern Pennsylvania, drilling into the Marcellus Shale deposit Vertical shaft drilled to kick-off point at approximately 6,000 feet Single horizontal lateral, of approximately 4,000 feet 11,000 foot total measured depth (TMD) A well site of 300 ft. by 500 ft. = 3.5 Acres

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7. Estimated total cost of a Marcellus Shale well ACQUISITION & LEASING$2,191,125 PERMITTING$10,075 SITE PREPARATION$400,000 VERTICAL DRILLING $663,275 $1,214,850 HORIZONTAL DRILLING FRACTURING$2,500,000 COMPLETION$200,000 PRODUCTION TO GATHERING$472,500 Total$7,651,825

8. CONCLUSIONS Addressed direct economic impact – Studied in comparison both vertically and horizontally integrated value chains Other topics for future consideration and analysis: – Developing a Marcellus ecosystem – Impact of changes on the economic model, such as drilling taxes or fees – Impacts of workforce development – Understanding the indirect and induced economic impacts

9. Final Report Report is available at: http://d-scholarship.pitt.edu/10484/ http://d-scholarship.pitt.edu/10484/ -AND IN - http://www.springer.com/us/book/9783319114989 http://www.springer.com/us/book/9783319114989

10. Contact Details Bill Hefley, Ph.D., CDP, COP Clinical Professor Naveen Jindal School of Management University of Texas at Dallas 800 W. Campbell Rd SM 33 Richardson, TX 75080 USA jindal.utdallas.edu/faculty/william-hefley +1-972-883-5006 William.Hefley@utdallas.edu

11. Questions?