by Randy Shannon
4th CD Chapter PDA Treasurer
The article below shows that two savvy investors who bought up land in Pennsylvania will now sell it to gas drillers for up to $14,000 per acre. If they sell at $6,300 per acre they will net between $5 billion to $6 billion in profits. Of course they will pay a capital gains tax on their fleecing of Pennsylvania landowners.
Let’s focus on the tremendous price that the gas drillers are willing to pay for drilling rights – no less than $6,000 and up to $13,000 per acre. And that is before the land is cleared, the pads are constructed, the well is drilled, the local water supply is sucked dry, the poisonous fumes are released, and the toxic mud is dumped in our rivers.
Billionaires To Sell Marcellus Gas Stakes
The news came out Thursday that billionaires Trevor Rees-Jones and Phillip Anschutz had put their natural gas fields in the Marcellus Shale up for sale. We confirmed yesterday with a source close to the Anschutz Company that the acreage, thought to be roughly 500,000 acres is indeed on the block. Rees-Jones too has some 500,000 acres for sale.
It’s incontrovertible that these two men own more of the Marcellus than anyone other individuals. That they’re both looking to sell at the same time is fascinating. So why now?
Taxes, for one. The capital gains tax rate is set to rise from 15% to 20% next year. Ready buyers, for another. We’ve been watching the wave of consolidation in the Marcellus, including big buys by Shell and Indian billionaire Mukesh Ambani, and anticipate even bigger deals to come for land-long, cash-short independents like Range Resources. When the ducks quack, feed them.
For Rees-Jones, the payday could very well equal or even surpass the $2.6 billion he grossed in 2006 selling his Barnett Shale acreage to Devon Energy. A source with some knowledge of Rees-Jones’s Marcellus investments says that he acquired some 650,000 acres on the order of $100 an acre, long before the land grab heated up.
Late last year he and JV partner Tug Hill did a deal with Enerplus, which farmed in on 165,000 acres for $400 million, including $160mm in cash up front and the rest to pay drilling costs. That implied a value of $2,500 per acre. That’s a lot less than deals since then, which have gone as high as $14,000 an acre. Ambani’s last deal was for $6,300 an acre.
If Rees-Jones can fetch $6,000 per acre for his remaining 500,000 acres, that’ll be $3 billion. Even if his costs were $1,000 per acre ($500 million), Rees-Jones’s hypothetical gain would be on the order of $2.5 billion.
That’s a lot of reasons to sell now. Considering that the federal capital gains tax is set to increase from 15% to 20% in 2011, by selling before the end of the year he could presumably hold on to something on the order of $125 million that would otherwise go to Uncle Sam. Now that’s a motivated seller.