Marcellus and Utica Shales and Ohio Schools: A Possible Model for Economic Growth and Opportunity
It’s a tale of two numbers: $2.9 billion and $9.6 billion.
The first number, $2.9 billion, represents the reduction in education funding in the state budget for fiscal 2012-2013.
The second number, $9.6 billion, represents the projected value of the annual oil and gas production in the State of Ohio by 2014 as a result of the drilling and related activities in the Marcellus and Utica Shales in Ohio.
For school leaders who see the state budget as “passing the buck” to local school districts to raise taxes to maintain funding for basic educational services, the economic development model for growth that the Marcellus and Utica Shale plays represent for at least one third of the eastern portion of Ohio public schools is unprecedented and it presents many Ohio public schools with the opportunity for a new economic model for long-term financial growth and stability.
The Economic Growth Model For Ohio: Marcellus and Utica Shale Development
Already several national and regional oil and gas companies have begun to lease and acquire more than four million acres of land in a handful of counties along the eastern border of Ohio for shale drilling. Utica Shale deposits will likely prove to be unusually rich in natural gas, oil and natural gas liquids, according to industry experts. The Ohio Department of Natural Resources estimates the Utica Shale deposits in Eastern Ohio to hold a potential of 5.5 billion barrels of oil and 15.7 trillion cubic feet of natural gas. In practice, these oil and gas resources can be used to produce fuels, heat homes and manufacture products ranging from plastic toys to cosmetics to medicines to tennis shoes.
Development and drilling of the Ohio shale resources may bring up to 200,000 jobs to Ohio with accompanying annual salaries and personal income possibly totaling $12 billion by 2015, according to an independent analysis commissioned by the Ohio Oil & Gas Energy Education Program. Total tax revenues of $478.8 million could result from Utica Shale activity between 2011 and 2015, the same analysis reports. In addition, the report estimates producer royalty payments during the same period of more than $1.6 billion – money paid directly to local landowners, schools, businesses and communities.
These estimates comport with national estimates of $188 billion added to the US GDP and industry support of 870,000 jobs by 2015, according to a report sponsored by America’s Natural Gas Alliance.
Ohio can expect economic benefits beyond the direct investments, local returns and increased employment that has already begun along its far eastern borders. Additional indirect and induced benefits created by the increased demand that this boom in production will place on local industry suppliers, supply chains and local service suppliers will translate into direct dollar for dollar spending which will in turn boost local economies throughout the state.
Ohio schools must play a critical part in this economic growth model, as they will be providing the actual work force that will meet these increased demands.
Shale Play Opportunities for Ohio’s Schools
Ohio’s school districts can reap various benefits from the shale economic growth model.
For schools struggling to fill budget gaps caused by reduced state funding, a near-term analysis of the potential to lease mineral rights to school-owned land may provide much-needed solutions. Advances in drilling technology mean that schools may be able to lease mineral rights to their land without the need to house an actual well. Instead, wells located on nearby land may provide access sufficient for horizontal drilling to extract oil and gas deposits. Even wells located on school district property may require no more than five acres of land.
With energy producers paying lease bonuses of $5,000 per acre and royalties in the 20% range, schools may find the economic potential of leasing mineral rights to their land difficult to ignore.
Schools situated in and near areas with active wells have the potential to reap additional budgetary benefits. The value of real property affected by shale development will adjust upward, though a maze of Ohio Department of Taxation regulations apply to the county auditor’s determination of affected property’s “fair market value.”
Schools should also position themselves as indirect beneficiaries of shale-related economic development in their communities. By becoming informed and active self-advocates in the negotiation of joint economic development agreements and cooperative economic development districts, schools can ensure a fair deal with respect to tax revenues derived from luring industry businesses to locate operations nearby.
When new jobs are located in a school district’s territory and industry employees relocate to participate in operations, schools stand to increase their student rolls. This results in an increase in state per-student funding to the affected school district.
Perhaps one of the prime benefits Ohio schools can reap from the shale play is the opportunity to partner with industry for career-track curricular changes to ensure jobs and long-term employment for its graduates. The oil and gas companies behind the development of shale resources in Ohio are hungry consumers of human capital and many are intrigued by the positive relationship-building created by hiring local. Where will the industry find the thousands of specially-trained new workers it needs to plan and carry out acquisitions, drilling operations, construction, regulatory compliance, mapping, maintenance, and engineering tasks? The answer may be Ohio’s schools.
Ohio’s four-year and community colleges offer programs for in-demand degrees such as petroleum engineering, oil and gas production technology, geology, geoscience, and maintenance technology. But Ohio’s secondary schools and vocational education programs are also getting in on the act.
In Alliance, Ohio, Marlington High School offers a two-year oil and gas technology program that helps students earn six credits while gaining real-world industry experience. Students learn the fundamentals of oil and gas field exploration, workplace safety, and communication. Marlington’s Oil and Gas Technology program graduates students prepared to launch lifelong careers. These students begin by filling positions with gas and oil drilling rigs and in pipeline construction, heavy equipment operation, and gas processing operations. Graduates can also extend their skills by enrolling in full associate and bachelor’s degree programs.
Industry-sponsored scholarships, such as those funded by the Ohio Oil and Gas Energy Education Program and the Ohio Oil and Gas Energy Education Foundation, can help students afford specialized training. These scholarships include awards renewable for four years for students with career goals in the industry, applicable toward tuition at four-year colleges, community colleges and vocational schools.
And oil and gas-specific related training and curriculum are not the only areas where Ohio schools, especially vocational education programs, can get in the game. Hospitality programs, transportation and logistics programs, culinary programs, will all be important service-related industry education programs for students to be able to take advantage of to leverage opportunities in these industries that will also experience growth as an off-shoot of the shale economic development model.
Utica Shale Challenges for Ohio Schools
Extensive economic development and industry activity will also present challenges for Ohio school leaders.
School districts located in areas with active wells must craft logistics for increased student enrollment, strain on facilities and changing human resources needs. Just keeping track of students may present challenges, as new and relocated employees and their families typically first land in short-term rental housing and eventually transition to longer-term rentals or home ownership.
School leaders must also initiate active participation in discussions with community leaders and industry businesses to coordinate regarding implications of noise and traffic resulting from facility construction, resource transportation, and employee commuting.
And schools must also assess the impact of drilling operations on community relations. Though Utica Shale well operations are subject to detailed regulation and oversight by state authorities, some advocacy groups oppose the use of hydraulic fracturing technology.
One such group, Ohio Citizen Action, terms “fracking,” the common term for high-pressure fluid injection horizontal drilling, a dangerous practice due to chemicals in the fluid the group claims are air pollutants. Ohio Citizen Action also points to lead in fracking fluids as a potential human health hazard.
In contrast, the Ohio Department of Natural Resources has published a flyer titled “The Facts About Hydraulic Fracturing” that claims that more than 15,000 Ohio wells have safely used fracking technology since 1990. Despite investigations by the Division of Mineral Resources Management into a number of well water complaints, no fracking-related problems were uncovered, according to the flyer. The flyer also points to a positive endorsement for Ohio’s hydraulic fracturing program by a major multi-stakeholder non-profit organization.
As scientific and partisan information regarding Utica Shale operations evolves, school leaders must be prepared to deal even-handedly with controversy among constituents over related economic, operational and curricular decisions.
Next Steps for Ohio Schools
The first step for school leaders interested in a coordinated approach to shale development issues is to move quickly to develop basic proficiency. Industry expos, community seminars, governmental reports, and schools’ legal counsel can provide a wealth of informational materials.
School leaders seeking to prepare their students – and their budgets – to benefit from Ohio’s shale boom should then seek to partner with knowledgeable legal counsel, local governmental officials and businesses, and industry development executives to explore and act on possibilities.
For many Ohio schools, the result of proactive work may be a new avenue for long-term economic stability.
Benesch is a full-service business law firm with offices in Cleveland, Columbus, Indianapolis, Philadelphia, Shanghai, White Plains and Wilmington.