2011 Year-End Real Estate Retrospective
January 15, 2012
Pennsylvania real estate continues to limp along well into the fourth year in a row. An overall stalled economy coupled with impossible bank lending criteria have resulted in the worst housing market since 1945. East coast markets are getting stronger, while most interior communities are struggling to get homes sold.
Historically low natural gas prices of around $3.50 per thousand cubic feet, combined with low demand and increasing supply from new producing wells, have resulted in a both a low demand for new gas leases and low lease bonus amounts paid to landowners. Many gas and oil leaseholds acquired in the hey-day of 2007 and 2008 are now terming out, with nothing to show for their high cost. Expect most natural gas lease bonus payments in the coming months to be well below the $3,500 per acre industry standard of just a few years ago. The bottom line is that there's a low incentive for gas companies to lease right now. And those who are leasing, are doing so at terms inferior to what were easily offered just a couple years ago.
The good news is that wet gas areas are increasingly being tapped, with dipper wells becoming a common sight alongside gas wells in southcentral and western Pennsylvania, as hydrocarbon fluids find their way to market. These fluids are the saving grace for most well projects.
For investors, patient money continues to be the byword. In this tough economy, there are many opportunities to acquire land with oil and gas rights, as well as the OGM rights alone. No, these investments just are not going to bear fruit right away, but they will, big-time. Just keep thinking "Texas 1912," and when the economy picks back up, and your natural gas investments begin to really pay off, you'll be wearing a ten gallon cowboy hat and hollering yee-ha. Pennsylvania is about to become the modern day Texas.
Timber prices are all over the map. Mature timber continues to command a premium, and even pulp has gone up in many markets, as landowners withhold material while waiting for the market to strengthen. That lower supply results in higher demand and higher prices paid.
Mining is extremely slow, with building and road construction at all but a stand-still. Again, investments in properties with mining potential will pay off, when the economy rebounds. The trick is to acquire or lease those properties now, while they are available.