New technologies have allowed for new drilling in oil and gas deposits throughout the world. In the Northeast United States, the Marcellus Shale formation has been one of the most active regions for new wells. This new drilling activity has created a visible economic impact to communities in and around the drilling sites. The increase in hotel activity metrics such as occupancy percentage and average daily rate has been noted but there has been no research that determines the total revenue impact of the drilling activity. This research does not attempt to factor in the social and environmental costs that have been discussed with the new drilling activities.
This research studied the total revenue impact of the Marcellus Shale regions in the state of Pennsylvania. The state of Pennsylvania was chosen for this study as the state maintains detailed records on well development by county, while other states do not provide such data.
Based on determinations made by a leading Marcellus Outreach Center, five distinct drilling “regions” were identified. Smith Travel Research provided hotel performance data. The performance indicators (demand, average daily rate, total revenue) of the hotels in the five drilling regions were tracked against the U.S. hotel industry performance indicators for comparable time periods.
It was determined that approximately $685 million of hotel revenue has been generated by Marcellus Shale drilling activities. The incremental revenue was generated by both demand and average daily rate increases. This is a significant economic benefit to the drilling regions with increased tax collections for the taxing agencies and consumer spending by those visiting the region for drilling related activity.
Approximately 65 new hotels were added in the drilling regions beyond what could have been expected with no drilling based on U.S. hotel industry supply trends. These new hotels are, almost exclusively, select-service, branded hotels. The average room size was 82 rooms, with an average employee count of 25 employees, the drilling has accounted for approximately 1,600 new hotel jobs plus whatever new jobs were added based on the increased occupancy levels of existing hotels.
The cautionary note in the findings is that the 2012 data suggests that the demand may be stabilizing or decreasing. Demand in 2012 was flat at 0.0 but occupancy was down by 4.1% due to the increased supply. While the regions are still experiencing increased hotel revenues compared to a “non-Marcellus” scenario, the increase in hotel supply is making for a more challenging competitive environment for individual hotels.
The finding suggest that new hotel development should begin early in a drilling environment and that hotels should have a long-term viability strategy as the long-term demand may stabilize or decrease. Sixty-two of the 65 new hotels are branded, 60 of those are select- service. Existing older and non-branded hotels will face a tougher operating environment and should have an exit strategy. Of the 14 hotels that closed in the drilling regions between 2006- 2012, 9 were independents and the average age of all 14 hotels was over 38 years old.
Mount, Daniel J.; Kelsey, Timothy W.; and Brasier, Kathryn J.
"The Impact of Marcellus Shale Development on Hotel Revenues in Pennsylvania,"
ICHRIE Research Reports: Vol. 1:
1, Article 1.
Available at: https://via.library.depaul.edu/ichrie_rr/vol1/iss1/1