Natural gas drilling in West Virginia's Marcellus Shale already has enriched the state through new jobs and more revenue and is on track to create up to 20,000 jobs by 2015, according to a study by West Virginia University's Bureau of Business and Economic Research (BBER).

The 56-page report, released on Tuesday, examines the economic impact of the shale play from 2001 to 2009 and looks ahead to its future impact to 2015. It was written by BBER's Amy Higginbotham, Adam Pelliollo, Tami Gurley-Calvez and Tom S. Witt with funding provided by the West Virginia Oil and Natural Gas Association (WVONGA).

"West Virginia's natural gas industry accounted for over $12 billion in business volume and created over 24,400 jobs in 2009," said Witt, who also directs BBER. "Out of this total, our study estimates that the Marcellus Shale play accounted for the creation of 7,600 jobs and $2.35 billion in business volume, making it a significant contributor to the economic health of our state. The potential exists for upwards of nearly 20,000 jobs by 2015 if drilling grows at a 20% rate each year."

The researchers reviewed the growth of the state's natural gas industry from 2001 through 2009 and then estimated the total economic impact of the industry in 2009. The bulk of new jobs were found in the mining sector, but industry growth led to "significant job creation" in other sectors of the economy.

Because of advanced drilling techniques, West Virginia and other states are benefiting from the Marcellus Shale, the report said. While Pennsylvania is now considered the hotbed of activity, "in fact, West Virginia Marcellus Shale permits issued through 2008 exceeded those of other Marcellus Shale states," researchers said.

More than 2,800 permits total already have been issued in West Virginia for Marcellus Shale wells, and drilling is under way in 45 of the 55 counties, said the report.

Whether increased activity continues over the next four years is an open question, said WVONGA Executive Director Corky DeMarco. The report cited the shale play's economic potential, which doesn't necessarily translate into what will happen.

The Marcellus Shale's "potential contributions to our state will only be possible with well informed public policy related to the taxation, regulation and environmental impact affecting the industry in our state," DeMarco said.

To estimate the economic impact of Marcellus Shale development in 2009, BBER researchers used information provided by operators, as well as other data sources.

According to the data, Marcellus Shale drilling costs in 2009 averaged $1.5 million/well; completion costs averaged $2 million/well. Costs of leasing in 2009 averaged $914/acre in 2009. The total (direct, indirect and induced) economic impact of the development in the state in 2009 resulted in these additions:

The future economic impacts of the shale play were determined using different growth rates in drilling activity each year.

Also reviewed were the state's tax policy issues that may face the gas industry through its development of the play -- including property and severance taxes.

"At the present time Maryland, New York and Pennsylvania do not have severance taxes on the value of natural gas drilling or production while West Virginia's severance tax rate is 5% of the gross value of natural gas production," the researchers said. "Ohio imposes a severance tax on natural gas drilling and production at a rate of 2.5 cents/Mcf with some exemptions.

"These taxes, as well as the overall regulatory environment, are continuing to evolve as states face increasing fiscal pressures as well as a recognition that continued development of this resource is important for economic development, particularly as it relates to downstream value added opportunities."

Other policy issues addressed include regulation and environmental policy at the federal and state level, permits and the permitting process, split estates, road utilization and workforce development.

Various challenges to the industry beyond the price of natural gas also are examined, including West Virginia's lack of skilled labor and uncertainty about future federal environmental rules.

"Although the results of this study are encouraging, the general consensus throughout the industry is that the Marcellus only represents the tip of proverbial iceberg," said WVONGA President Jim Crews, who is managing director of Appalachian supply for Columbia Gas Transmission LLC. "Horizontal drilling and hydraulic fracturing technology will be exported to other shale and unconventional hydrocarbon sources in the basin, including previously abandoned formations and the economic results will be exponential."