There are more than oil/gas roughnecks benefiting from the growing boom in the Marcellus shale play; Pennsylvania banks are positioning themselves to share in the rewards, according to a report published in late June by an Arlington, VA-based investment bank, FBR Capital Markets.
Among the potential winners are four western Pennsylvania banks, FBR's June 27 industry update said, noting that its analysts remained "positive on the Marcellus Shale as a catalyst for banks" in the region. "All four banks are excited about the economic benefits and growth opportunities from the shale," FBR's report indicated.
The foursome highlighted is First Commonwealth, FNB Corp., Northwest Savings and S&T Bancorp. All are described by the FBR report as being "highly leveraged" to their local economies. The report based on what FBR called a "shale-centric" field trip does a county-by-county assessment of the drilling, which was considered insignificant before 2008.
By the end of 2010 more than 2,400 wells were drilled, FBR said, and it cited estimates that this year there will be another 2,200 wells drilled, a 58% jump over 2010 drilling activity. The number of wells is expected to grow each year in the Marcellus over the next 10 years, FBR's report said.
With the employment and economic benefits of the shale boom growing steadily, the four banks highlighted all see various forms of wealth management as being a growth market for them. One bank cited a Pennsylvania State University estimate that citizens in the state will collect $250 billion in royalties from Marcellus prospectors. The university estimated that drillers will spend $8-15 billion annually, assuming 2,000-3,000 new wells each year.
At a time when banking is struggling to grow as an industry in the ongoing recessionary economy, the Pennsylvania banks are finding a growth engine in the shale boom, FBR said, while cautioning that this is what it called "a long-term catalyst" for the banks.
"Wealth management seems to be one of the greatest opportunities for these banks given the significant, long-tailed annuity stream of payments that landowners receive," FBR analysts said. They said FNB and First Commonwealth are their favorites, both being rated to "outperform" expectations.
FBR said the emphasis among the banks is that the Marcellus play is still in its early stages. Competition from larger banks outside the area is coming as Merrill Lynch and US Trust units have been making a push into shale markets. S&T Bancorp indicated to FBR that it welcomes the competition.
"Northwest is very excited about the shale, and considers it a tremendous opportunity, but [it] noted that drilling has only just begun, and many landowners in its market have yet to sign leases on their mineral/gas rights," said FBR, noting that Northwest's footprint is farther north of the other three banks.