Worrying Disconnect

Here is a Bloomberg article on the record prices being paid for shale drilling acreage.  Here is a telling paragraph from the article:

Marubeni Corp. (8002), the Japanese commodity trader, last week agreed to pay as much as $25,000 an acre for a stake in Hunt Oil Co.’s Eagle Ford shale property in Texas. The price, which includes future drilling costs, exceeds the $21,000 an acre Marathon Oil Corp. (MRO) paid last year for nearby prospects owned by KKR & Co. (KKR)’s Hilcorp Resources Holdings LP. In the Utica shale of Ohio and Pennsylvania, deal prices jumped 10-fold in five weeks to almost $15,000 an acre, according to IHS figures.

The article details industry justification for the high prices and explains why prices may go higher.  Demand from foreign oil companies wanting access to US gas acreage is helping push up prices for shale gas acreage.

The record prices are against a backdrop of natural gas near $3.00 per mmbtu.  The price per mmbtu has been trending down for over a year, dropping more than 33% in value.  The chart below is one year's natural gas futures prices from WTRG.com:

The disconnect between the prices oil companies are paying for acreage and the current price for natural gas is alarming.  It's important to remember that shale gas plays involve hydraulic fracking, which is an expensive form of gas extraction.  I don't see how the disparity can continue, either natural gas is poised for a big run, or acreage is going to get much cheaper.