Fracking a New Regional Investment

“Ohio is a national leader in transporting goods and commodities due to its centralized location in the nation,” the Ohio District 11 Deputy Director Lloyd MacAdam said during a recent conference at Fraley & Schilling Trucking’s Brilliant Ohio operation. “We have strong distribution and logistics industries, a concentration of high value manufacturers and a world-class transportation system. And as part of that, Eastern Ohio is poised to become the epicenter of shale development.” The aerial of the  natural gas fractionation plant at Scio, Ohio,  a $500 million private investment, illustrates the importance of transportation excellence.

A Following for ‘Fracking’

Updated Dec. 18, 2012 9:39 p.m. ET

A Los Angeles real-estate company that specializes in distressed industrial property has joined forces with a West Virginia not-for-profit economic-development agency to try to cash in on the natural-gas boom in that region by buying a shuttered steel plant.

Hackman Capital Partners LLC paid $4.4 million for an RG Steel Corp. plant that once finished metal coils. Last month, Hackman quickly resold the property, which includes a 480,000-square-foot building on 600 acres in Beech Bottom, W.V., to the Business Development Corp. of the Northern Panhandle.

Hackman was paid $200,000 and also receives a cut of the profit as its venture with the economic-development agency leases or sells pieces of the property to energy companies that are descending on the region. The boom is one of many in the country resulting from a relatively new mining technology for extracting natural gas known as hydraulic fracturing, or “fracking.”

“It’s almost like the wildcat days of Texas when they were discovering oil,” says Patrick Ford, executive director of the Business Development Corp. “If you drive along the Ohio River…you’d see a field of white or red pickup trucks outside motels at night and you’d see restaurants and gas stations filled up in the morning. It doesn’t stop.”

RG Steel, which sought Chapter 11 bankruptcy protection in May, didn’t return calls for comment.

The Business Development Corp. only owns the surface rights to the land, about 40 miles southwest of Pittsburgh, but Mr. Ford says money can be made from those rights. About one-third of the acreage is flat enough to park vehicles and store other equipment, a scarce commodity in the hilly region. Mr. Ford estimates that energy companies would pay anywhere from $2,000 to $8,000 a month per acre to use the property.

It isn’t clear if the mineral rights to the property will be sold, but Hackman said it would be interested in buying them if they are put up for auction. Even if the venture doesn’t get the mineral rights, “We’ve got enough to work with,” Mr. Ford says.

Energy companies first began using horizontal drilling and newer fracking techniques in West Virginia in late 2008, according to Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association. Since then, about 10,000 new natural-gas-related jobs have been added in the state, raising the total natural-gas employment level to about 30,000, he says.

But the pace of the industry’s growth will depend in part on the price of natural gas, he says. Warm weather in many important markets has cut prices this year.

The sale of the Beech Bottom plant was a coup for the region, which has struggled with the declining steel industry amid a global capacity glut.

Hackman has had its eye on numerous RG Steel properties. Earlier this year, it made an unsuccessful bid for a portfolio of more than a half-dozen properties owned by the company.

Later, Hackman bid about $2.1 million for the Beech Bottom site. That price was bid up by other potential buyers, resulting in Hackman’s final closing price of $4.4 million.

“We didn’t have a feel for how dynamic the situation had become,” says Michael Hackman, the firm’s founder. “There’s a lot of money being made and it’s all finding its way into places like Beech Bottom.”

The economic development agency got title to the property and agreed to clean up any environmental issues that could potentially arise. The agreement gives Hackman a “substantial” cut of the profits that result from the property, according to Mr. Hackman.

The Business Development Corp., funded by local, state and federal governments as well as private businesses, can access funds to clean up the site that private companies cannot.

Hackman was founded in 1986 by Mr. Hackman, a Columbus, Ohio, native who has bought and repositioned a variety of distressed industrial properties over several decades.

Hackman has redeveloped a former Michigan auto plant and this year was part of a venture that purchased the former Evergreen Solar plant in Massachusetts. The company’s portfolio contains more than 100 properties containing about 18 million square feet of building and 1,300 acres of land.