Marcellus gas boom a mixed blessing for PA banks

"Engineering firms are busy, hotels are full, commercial vacancies are low, the wholesale electrical supply business is doing tremendous, law firms are adding staffing," writes Bob Ramsey, bank analyst at FBR Capital Markets in Virginia, after touring upstate Pennsylvania's Marcellus Shale natural gas drilling regions.

Good for local banks and business? Not always: "Often, the first thing a landowner does with a bonus payment is pay off his or her mortgage, debt against farm equipment, etc.," Ramsey told clients in a report today. All the new "economic activity should be good for lending," but instead business owners are still "putting a high priority on de-leveraging." Conservative Pennsylvanians!

Still, plenty of good-news stories: At First Commonwealth Bank in Indiana, Pa., "three of the nine largest loans" earlier this year "were Marcellus-related." One financed a gas pipeline; one a hotel that houses gas workers; one for a driller who has expanded into wastewater removal for larger drillers, whose "business is rapidly expanding."

At FNB Corp. (Hermitage, PA), the growing roster of gas-fed clients include a sand trucker who's been buying new trucks to service shale wells; a big energy company opening a "multi-milliion dollar account out of which to make bonus payments"; and high-rate 6-month CDs targeted to "landowners who sign a mineral/gas-rights lease," who FNB hopes will later invest their money long-term in FNB funds.

Northwest Savings Bank, Warren, Pa., has hired a lawyer to advise newly-rich landowners, and deposits are up $60 million thanks to "shale activity." in fact, with more businesses funding operations from profits instead of loans, Northwest has collected cash faster than it's found local borrowers worth backing. So it's been sending its loan officers south to the prosperous Washington DC area, "hoping to deploy Pennsylvania shale deposits into Maryland loans."

S&T Bancorp, Indiana, Pa., has struck a deal with Heritage Trust, an Oklahoma company that advises landowners on how to sign lucrative gas leases, pipeline deals, production verification and royalty management. One problem: All that shale profit has drawn competition as "Merrill Lynch and US Trust are making a push into shale markets." 

What else could go wrong, in this boom, for PA firms that have suffered for decades on the downstroke of upstate PA's natural-resources cycle? Big firms (like ExxonMobil and Chevron) are buying out "local energy and energy-lrelated companies," and the majors are "taking their clients out of the market" using big out-of-town companies to supply credit and other services once offered by locals. Will Pennsylvania be a mere energy colony?

What could make the difference: Construction of one or more $2 billion "cracking plants" could be used to turn gas into petrochemicals and "stimulate manufacturing expansion in the region." That could happen -- if US industry decides Pennsylvania is good for more than digging deep holes.