Range Resources just made a $4.4 billion deal to enter Louisiana, which offers a lesson on Pennsylvania folly on infrastructure and regulations.
Something has happened that should be a wakeup call to Pennsylvania’s governor and every one of its legislators; Pennsylvania folly has led one very prominent gas driller in the Commonwealth, Range Resources, to make a major investment in Louisiana. While the decision doesn’t speak directly to Range’s commitment to Pennsylvania, the mere fact the company has decided to invest $4.4 billion in Louisiana speaks volumes about the Pennsylvania regulatory environment and the difficulty in developing pipeline infrastructure.
The story is told in a Dallas Morning News post from yesterday:
The multibillion-dollar buyout announced Monday between two Texas-based petro-companies may be a subtle lesson in the way regulatory battles can drive business decisions.
On the face of it, the deal for Fort Worth-based Range Resources to buy Houston-basedMemorial Resource Development is a standard mid-sized-business behemoth meal — one company eating another. The deal is said to be worth $3.3 billion and is an all-stock transaction, which is an indication the sellers are confident the new company will succeed. Range is also taking on $1.1 billion in Memorial’s debt.
The sale is set to close in the third or fourth quarter of this year. Both companies are primarily producers of natural gas and other liquids.
So what’s the benefit of the acquisition? Some analysts say geography offers a better clue to the timing than any predictions about the price of natural gas, which is likely to stay relatively low for the foreseeable future, though demand may rise.
Most of Range’s production is based in Pennsylvania. All of Memorial’s play is in northern Louisiana. Both look to be rich sources of natural gas and other petro products for years to come. Both were opened up through fracking, so Range’s experience in Pennsylvania could be useful in its new area.
But Pennsylvania is relatively short on pipelines needed to get product to refineries and market. Louisiana, by contrast, is pipeline-rich, with easy access to refineries and export opportunities along the Gulf Coast. The purchase gives Range an entry into those gulf markets…
Some analysts think the change of direction is smart — and at least influenced by regulatory hurdles that have been slowing or outright stalling the construction of pipelines in the Northeast…
At which point, maybe some of those pipelines will be built. But in the meantime, the Range purchase of Memorial means Range will have options. It can push development in Louisiana while waiting for more congenial conditions in Pennsylvania.
Range Resources will be in Pennsylvania a long time and as it says, “likes the Marcellus” but what we see here is the reality of how industries develop and respond to incentives and disincentives. It is very true that companies don’t just pick and leave, but over time they invest elsewhere where opportunities are better. Pennsylvania folly on the regulation of the oil and gas industry, various attempts to treat the industry like an ATM for state government and the inability to develop needed pipeline infrastructure within a reasonable time frame are slowly and surely making the Commonwealth a less desirable place in which to invest compared to places such as Louisiana.
There’s a lesson here. Anyone paying attention?