Boom in energy production increases land values at auction

christmas treeNew drilling technologies and demand for U.S. energy are fueling higher returns at land auctions, National Auctioneers Association members say.

In some parts of the country, horizontal, or directional, drilling and hydraulic fracturing technologies used in shale formations are contributing to a significant increase in fuel production — specifically natural gas. There are shale basins in more than 20 U.S. states.

Investors are keeping land auction prices strong in northeastern Ohio and northwestern Pennsylvania, where there is high potential for energy production from shale, says Dick Kiko Jr., of Russ Kiko Associates Inc., Louisville, Ohio.

“This has rejuvenated our economy beyond our wildest imagination,” Kiko says. “The craziness hasn’t even begun here because the production has not started — the real production has not started. We’re just in the drilling phase.”

Kiko says land values in his area have been up 5 percent to 20 percent in the past couple of years; however, it’s difficult to attribute that completely to the demand for underground minerals, as tillable farmland values are increasing, as well.

Another Ohio-based auction professional, Curt Yoder, of Kaufman Realty & Auctions, Sugarcreek, Ohio, says depending on whether or not it has oil and gas rights, land in southern Ohio that used to go for $1,200 to $1,500 an acre can now hit $5,000 an acre at auction.

Shawn Terrel, CAI, AARE, of MineralMarketing.com, Alva, Okla., says “bonus” prices — a per-acre price an oil company might agree to pay a landowner for rights to explore or drill on a deed — are up 50 percent to 60 percent because of new drilling technologies developed over the past five years.

Some deed holders receive production royalties of up to 15 percent to 20 percent.

“Where demand is strong, there’s not a set value on minerals,” he says. “This business — the oil and gas business — is the most speculative industry that you’ll ever operate in.”

The U.S. Energy Information Administration predicts U.S. natural gas production to increase 29 percent by 2035, with almost all of the increase coming from shale gas. While a traditional, vertical well can capture about 50 feet of oil and natural gas, a horizontal well can go about a mile into reservoir rock, according to the Ohio Oil and Gas Association.

Scott Shuman, CAI, of Hall & Hall Auctions, Eaton, Colo., says auction opportunities abound in the U.S. energy sector.

“There are millionaires being made every day, whether they are directly involved with (the oil and gas industry) or they run a sideline company that supports that industry,” he says.

Read the full report in Auctioneer magazine.

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Filed under Auction Industry, Auction marketing, Auctioneer magazine, NAA Members, Technology

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