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Quebec's Utica Development Leads to Big Payoff, Study Finds

Quebec's shale gas could generate as many as 19,000 jobs and more than C$1 billion in annual royalties for the province, according to an economic benefits study issued on Friday.

The Quebec Oil and Gas Association asked Quebec-based advisory firm Secor to estimate the economic impact of exploration and exploitation of shale gas, and more specifically, how developing the Utica Shale would impact the province in terms of jobs and revenue. The analysis was based primarily on the input-output model of l'Institut de statistique du Quebec.

Secor prepared two scenarios. The base scenario is based on drilling 150 wells per year beginning in 2015; the second scenario assumes that drilling activity will stabilize at 600 wells/year in 2016.

"In both cases, it has been decided that there will be six wells drilled per drill site," the study noted. "The creation of 5,000 to 19,000 jobs is then foreseeable."

According to Secor's analysis, in full operation one well would generate C$1.85 million in value added to Quebec and 33 jobs annually. Under the base scenario, 150 producing wells by 2015 would create C$278 million in value added -- gross domestic product -- and close to 5,000 jobs. The production phase of a well, which stretches over 50 years, would create "relatively few jobs; 28 jobs per 100 wells in production," Secor found.

"It is royalties that become important during the production phase," noted Secor. "To identify its importance, the Secor study was based on gas prices in the fall of 2009, C$6/Mcf and a royalty rate of 10%. The average royalty per well under these assumptions would be around C$150,000 per year."

The study noted that "at this stage we cannot predict the level of industry development, as the potential in Quebec is not sufficiently characterized. If a thousand wells are in production on 150 sites, the government of Quebec could receive C$150 million in royalties annually. Under the second scenario, the exploitation of 7,000 wells, following the assumed hypothesis, would translate into annual royalties slightly above C$1 billion."

Provincial leaders now are considering whether to allow gas drillers to expand exploration and development of the Utica Shale. A report by the province concerning hydraulic fracturing practices in shale is scheduled to be issued in February (see Shale Daily, Oct. 6).

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