Atlas Energy..........Titan of the Marcellus

Atlas Energy Resources this morning announced the completion of yet another record breaking vertical in the Marcellus Shale. The well produced 5.0 mmcf in its first 24 hours inline and in the last 25 days has produced over 81 mmcf. Atlas utilized the same two stage frac that has proven so effective on its last six verticals. The first five wells where the technique had been used averaged initial production of 2.1 mmcfd. The average of the last seven now stands at 2.5 mmcfd.

Rich Weber, President and Chief Operating Officer, commented that the results are indicative "not only the effectiveness of our completion designs, but also the quality of our acreage."

Even though this last completion is showing greater recovery efficiency than any Marcellus horizontal on record, Weber is hopeful that the frac design will still yield outsized results when applied to horizontals. He noted, "The potential of horizontal wells having frac designs with up to eight stages is very exciting given the exceptional results from our two stage verticals."

Press Release

Permits Here....Get Your Permits Here...Get 'em While They're Cheap

PA DEP Gets Approval to Raise Marcellus Permit Application Fees

Pennsylvania's Environmental Quality Board today approved a Department of Environmental Protection request to impose new fees for Marcellus Shale drilling permits that will replace the $100 flat fee with a variable fee structure based on well depth. Though fees have not increased in the state since 1984, the new structure will result in a cost of $900 for a 1500' deep Marcellus Shale well plus $100.00 for each 500' of total depth. Applying for a typical Marcellus well permit with a total depth of 10,000' will cost $2,600 by the early Spring of 2009.

Full Story

Representative DeWeese Encourages DEP

Drop the Sledge and Hire More Staff

In a letter to acting Secretary of Environmental Protection John Hanger, Representative & Majority Whip, Bill DeWeese, Greene, Fayette & Washington counties, encouraged Hanger to rescind any blanket decree afflicting scientifically sound operators in the Marcellus Shale. He is, of course, referring to the DEP order banning the treatment of frac water in the Monongahela River Basin by municipal treatment plants. This decree, designed to reduce the TDS (total dissolved solids) in the river has resulted in a range of consequences from a total shut down of fraccing operations to the addition of significant costs to transport frac flowback to one of the few available treatment plants in the state. According to DeWeese, the decree makes no distinction between those operators and those of a lesser quality who might have inadequate or few pollution controls in place.

He also suggested that the agency expedite the permitting process so the natural gas industry doesn’t gravitate outside of the borders of the Commonwealth.

Press Release

SRBC Announces Streamlined Permitting Process for Consumptive Water Use

The Susquehanna River Basin Commission announced today that the permitting process for consumptive use of water from the basin has been streamlined. Among the streamlining provisions in the amended regulations, all requests for consumptive water use by the national gas industry will now be handled through SRBC’s simplified approval-by-rule process (commonly known as a general permit). To make this change possible, SRBC likewise expanded the sources of water that applicants can consider for their consumptive water use, including public water supplies, discharges from wastewater treatment facilities and other reclaimed waters, and withdrawals from other sources approved separately by SRBC.

Other key changes in SRBC’s regulations include:
- Regulating projects on a drilling-pad basis.
- Requiring project sponsors to certify compliance with state and/or federal laws for the treatment and disposal of flowback fluids or produced brines.
- Incorporating the August 14, 2008 determination by the SRBC Executive Director (which went into effect on October 15, 2008) that all quantities of water withdrawn or used for natural gas well development be reviewed.
- Limiting SRBC’s approval to five years versus the standard approval of 15 years for other types of projects.

The regulatory amendments will go into effect January 1, 2009, or when they have been published as final in appropriate federal and state registers, whichever comes later.

Press Release

Rex Energy Updates Marcellus Drilling

Rex Energy today announced the completion of two vertical Marcellus Shale wells in Westmoreland County, Pennsylvania. The wells were drilled in the deeper portion of the Marcellus play and had peak flow rates of 400 and 1,200 Mcf per day respectively before being turned in. Each well continues to stabilize at daily production rates of 300 - 500 Mcf per day. The 800 mcfd average IP is considerably lower than the 2,100 mcfd rates reported last week by Atlas Energy for its latest verticals, but Rex expects to be able to increase production with further optimzation. A third vertical in the county will be completed later this month.

Citing the need to maintain a balance between liquidity and exploration, the company also annouced a reduction in 2009 capex to US$49mm, 70% of which will be directed into the Marcellus Shale. Expectations are for completions of 6-8 horizontals in 2009.

Press Release

Atlas Energy Remarks on Remarkable Verticals

Atlas Energy Resources announced today the completion of five new vertical wells with a two stage frac process that is resulting in average 24 hour IP rates of 2.1 mmcfd. Previously, with the exception of a Fayette county vertical at 3.6 mmcfd, Atlas' most recent verticals were yielding an average IP of 1.3 mmcfd. The new technique also appears to be resulting in a shallower decline rate than prior efforts.

The company also announced that its second horizontal has been cased and is awaiting an eight stage frac, while its third and fourth horizontals have been spud.

Press Release

PA Senate Hears Drilling Complaints

A hearing last evening at Misericordia University was called by the Senate Majority Policy Committee to explore the economic and environmental impact of drilling in the Marcellus. The most common theme throughout the evening was the time-consuming and lengthy permitting process and cumbersome regulations making it difficult for them to operate in Pennsylvania.

"I have great hopes for what the Marcellus shale play might still hold for Pennsylvania. Unfortunately, my experience to date does not lead me to be very optimistic," Wendy Straatman, president of Exco-North Coast Energy Inc...........DEP permitting delays that are "unlike anything we have seen in any other state in which we operate."

Scott Rotruck of Oklahoma City-based Chesapeake Energy Corp., predicted "ominous" consequences for Marcellus development if Pennsylvania's regulatory environment doesn't become more welcoming.

The state needs to be "careful we are not killing the goose that's laying the golden egg," said Sen. Mary Jo White, R-Venango.

"There has to be a smart way to protect what we need to protect, and at the same time (prevent) a delay that really serves no purpose," said DEP Secretary, John Hanger. "I believe there's a learning curve here for everyone involved."

Industry executives also opposed a tax on natural gas that the administration of Gov. Ed Rendell has said it is considering. "New taxes will stymie Marcellus development," said Ray Walker Jr., vice president of Range Resources Corp

Full Story

Drillbits

How a Player Plays the Play

In recent days, after leasing in the Marcellus shale had stopped almost completely, the last in a long line of the major E&P companies have sent lease rescission letters out to landowners who had signed up in the past few months. Two months ago, at the head of that line was, of course, Chesapeake Energy. Within a matter of days, Range Resources followed Chesapeake's lead; then Chief followed suit, and more recently, Cabot, East Resources and XTO all did too. Along the way, most of the smaller outfits also dropped out, and finally, last week, even zero debt Rex hauled its box of letters down to the post office.

So, while all this was going on, who do you think had his landman building mailing lists for the next round of lease offers,...you know, of all of those irate property owners that were just dumped by the other companies? And, guess who just mailed a big box of those letters in Greene County, PA last week? .......yep, right again, Aubrey McClendon.

While there are legitimate concerns among some of these companies about expending cash and credit lines in the face of a credit crunch and impending recession, most, in the wake of Chesapeake's walking away, just decided to wait it out for lower lease prices. It will be interesting to see how that gambit works out. As for Chesapeake, it will be really interesting to see how the new offers stack up against its recent $5,800/acre effective flip of previously acquired leasehold to StatoilHydro.

Also last week, Chesapeake made over 25 permit applications in one of the NWPA counties...and why not? It is becoming increasingly clear that the economics of the Marcellus are the best of the shale plays. Natural gas futures are still in contango and with the Marcellus' Appalachian premium, will still bring $8.50-$9.50/mcf for the next two years while input costs: day rates, pipe, supplies and services are all coming down.

As so often happens in the O&G business.......the cycle begins anew.

Chesapeake Deals Norway's StatoilHydro into the Marcellus Shale

New Standard Set for Marcellus Shale Acreage

Well, Aubrey got 'er done. The long awaited joint venture in Chesapeake's Marcellus shale assets was announced this morning to my and most of the investment community's surprise. While the long term value of Chesapeake's acreage position was never really in question, its ability to do a deal under the current economic circumstances certainly was. Eventhough the proceeds are a little light of the last forecast, it's a good deal for Chesapeake. Fortunately, StatoilHydro took the long view and after a thorough analysis of the economics of the play, signed on for nearly $5,800 per acre at a time when Chesapeake and others are paying only $500-$2500.

Europe's #2 natural gas supplier, StatoilHydro, committed US$ 3.375 billion for 32.5% of Chesapeake's 1.8 million acre interest. $1.25B in cash will be paid at closing and $2.125B of drilling carry will be paid over the next four years to fund 75% of Chesapeake's drilling costs. The presentation from this morning's conference call shows that the company used mildly conservative economic assumptions in the decision: an average EUR per well of 3.1 bcf and drilling capex of $3.5 million per well. But, a rather aggressive drilling program over the next four years may prove an underestimated political risk. At $3,5 million per well, the drilling carry implies over 800 horizontal well completions during the next four years. Since the carry is a use it or lose it proposition, if Chesapeake is to use all of it, the number of wells would seemingly have to be even greater as drilling costs go down. The companies expect to ramp to an average of 40 operating rigs in 2012, so, at 10 wells per rig/yr, the plan is back end loaded. Also aggressive was the 87% net revenue interest assumption which seems to preclude the imposition of a severance tax in Pennsylvania.

Overall, StatoilHydro plans commit US$ 6.0B over the next four years including $ 2.63B to the joint venture for its 32.5% share of capex. This amount, as well as the drilling carry, will be somewhat variable as it is dependent on Chesapeake's completion performance, but it does imply that Chesapeake intends to spend US$ 8.0B of its own in project capex beyond its share of the drilling costs. Chesapeake plans to continue acquiring leasehold in the Marcellus Shale and StatoilHydro will have the right to a 32.5% participation in any such additional leasehold.

Press Release
StatoilHydro Presentation

California Chokes on Alternative Fuels Proposition

California rejected Proposition 10 by a wide margin in yesterday's voting as 60% of the state's 9.5 million voters said no. The Alternative Fuel Vehicles And Renewable Energy Bonds Initiative Statute was strongly supported by T. Boone Pickens and Aubrey McClendon to promote natural gas as an important alternative for transportation fuel in the state.

The measure was strongly opposed by the Sierra Club, League of Women Voters, California Nurses Association, California Federation of Teachers, Consumer Federation of California, Consumer Watchdog, the Utility Reform Network, and California Labor Federation, AFL-CIO.

Description of Bill

Engelder-Appalachin Fracture Systems-Platts-Marcellus Shale Presentation

Terry Engelder has provided his Platts Marcellus Shale presentation for posting. It is available by clicking either the link below, or in the "Technical Papers" section on the sidebar. He also offered a few comments:

The hard variables lending to his estimate were provided, in the main, by Chesapeake.

Professor Engelder notes, "the more important number comes from the potentially accessible fraction of the GIP which I placed arbitrarily just under 400 Tcf recoverable (One-third of the play). Range has always told people that they think recovery will be patchy…….exactly what this percentage is has yet to be discovered. "

He also pointed out those key elements of his and Gary Lash's prior 50 tcf noting, "Gary Lash and I were conservative to a fault by assuming just a 50 foot thickness (we know the Marcellus is much thicker). This meant that were also conservative in our calculation for GIP/section. Finally, we only allowed for a recovery factor of 10%. "

Factoring 100' average thickness and 30% recovery(Chesapeake) to that original estimate gets you to 300 tcf, "which is not far from taking the 1100 Tcf given by Chesapeake and allowing access to only 33% of the GIP."

Finally, he noted, that "we are all on the same page of the playbook in SIZING the resource."

Engelder- Platts Presentation

After Further Review, At Least 15 Years of Gas in the Marcellus Shale

After publishing the piece about Terry Engelder's update on the Marcellus reserve estimate, I made an inquiry to confirm my assumption about the new estimate of recoverable gas in the play. To clarify, Professor Engelder notes that the new analysis is derived from a convergence of the latest data provided by Chesapeake, Range and several other operators. He provided the following assumptions used in his analysis:

Total Acreage 31,000,000
# Sections (640 acre) = 48,437.5
GIP/Section = 75 bcf
Total Gas in Place = 3,632 tcf
Recovery Factor = 30%
Technically Recoverable Gas = 1,089 tcf

Professor Engelder cautioned that a practical assessment of the amount of gas which could be expected to be recovered would need to consider how much of the acreage is accessible. There are, of course properties that cannot be developed, existing storage fields, terrain challenged areas, etc., which must be discounted. In his present assumption, 33.33% of the total acreage in the play can be considered developable. This would leave the truly recoverable reserves at 363 tcf, a sevenfold increase of the prior 50 tcf estimate and much greater than the double I reported earlier.

Under these assumptions, the Marcellus could now provide all of the natural gas consumed in the US for 15 years.

Atlas Energy Resources Provides Update

Atlas provided an update on its Marcellus shale program with news of an accelerated horizontal drilling program and a remarkable IP rate from a vertcal well in Fayette County, PA, of 3.6 mmcf/day, The company also laid claim to the title of the largest producer in the Marcellus as it surpasses 4 bcf of cumulative production.
Full Story

Marcellus Potential Doubled

Yesterday, according to the attached report of his talk at the Platts Appalachian Gas conference in Pittsburgh, Terry Engelder, Professor of Geoscience at Penn State, doubled his estimate of Marcellus GIP to 1,100 tcf. Last January, the professor surprised the natural gas industry with his upside estimate of 516 tcf. I believe the article incorrectly states that his estimate of recoverable gas is now over 1 tcf. It should actually read over 100 tcf; also, a double from his earlier 50 tcf estimate.

Full Story

Drillbits

It Matters Hardly at All

As Chesapeake Energy seeks to shore up its cash position by taking on a JV partner for its Marcellus shale, a strange, but true back story may be hurting the company's chances. The consummate land man, Aubrey McClendon, might just have outdone himself.

The company’s latest investor presentation gives an implied value of $7,500/acre for its 1.8 mm acres of Marcellus leasehold (US $13.5B). So, a 25% share would be worth $3.4B. On the basis of the previous JV deals, a portion of this amount would be in cash with the balance delivered over time in the form of a drilling cost carry. According to the presentation’s tables, these JV proceeds combined with the proceeds from sales of some producing properties in Oklahoma and South Texas are projected to raise $2.5B to $3.0B. So, $1.7B from the Marcellus would seem reasonable and, thus, a critical piece of the 12/31/08 Ending Cash forecast of $3.5B.

But, there’s a problem. While advocating a lease acquisition and monetization strategy of buy low, sell high, Mr. McClendon noted:

“One of the great advantages of a time like this is we can drive down the cost of our business. That’s not only going to be true soon on the drilling side but it’s especially true today on the leasing side as we are continuing to be very, very aggressive in driving down prices in areas of shale plays so we can acquire leases we think at a lower price going forward.” …..“I can assure you that buying leases for X and selling them for 5X or 10X is a lot more profitable than trying to produce gas at $5 or $6/mcf.”

Now, that’s all well and good, if, as Chairman/CEO of the largest US gas producer, you can somehow profit by professing your abilities as a land man. Call me crazy, but I’d think the best way to profit by buying and selling leases is to keep lease prices in a play high until you sell them, not knock them down while you're still trying. Then, you could tout them by saying, as Mr. McClendon did:

“The neat thing is leasehold is always cheap in a play whether you pay $5,000 an acre or $10,000 or $20,000 or $30,000. In most of these shale plays it matters hardly at all as to what you pay for leasehold because you consume so much leasehold at 80 acres generally a well and these wells can cost $3 million to $6.5 million. So you put some leasehold on top of that, it’s just not much money at the end of the day.”

Instead, what Chesapeake has done in the Marcellus is to be “very, very aggressive in driving down prices”, by effectively pulling out of leasing completely. First in NEPA, then in SWPA, then Range followed suit….then a few smaller operators, then Chief and last week, Marathon. Prices have plummeted to $500 to $2,000/acre, and so have Chesapeake’s chances of doing a JV deal by year end.

More likely is another kind of deal; a deal following a Not Done or Failure to Deliver on the JV; a kind of Bear or Wachovia deal when someone deciding to commit $3.4B for a 25% share of the Marcellus realizes that the entire market cap of Chesapeake is only $10B. And that, if they hold up on the JV, they just might get the whole company for the same number.

Unfortunately, for Aubrey, since getting hit with those margin calls, his vote on the motion………why, it matters hardly at all.

October 15, Business Update Call Transcript

Drillbits

Reach Out I'll Be There

XTO updated it's hedge position today as having approximately 70% of 2009 projected production locked in at $11 mcfe. The NG component is in the $9 range. At that level, the company should be able to reduce debt by $1 billion next year.

With the financial markets still in disarray, NG knocking on the $6 door, and just about everybody reporting 70-80% of next years production as hedged in the $9-$10 range, how'd you like to be on the other side of those trades? As companies have been reporting earnings, you're now beginning to see the release of counterparty exposures. Good to see, but a bit concerning.

Let's just hope this happiness isn't just an illusion.

RIP Levi (Levi Stubbs - June 6, 1936-October 17, 2008)

PA DEP Shoots SWPA Drillers First, Asks Questions Later

The Pennsylvania Department of Environmental Protection is investigating the source of unusually high levels of total dissolved solids, or TDS, detected at points along approximately 70 stream miles on the Monongahela River beginning at the West Virginia border to the confluence with the Youghigheny River. Test results indicate levels of up to 852 milligrams per liter which exceed the allowable 500mg/l.

To immediately address elevated TDS levels, DEP is directing all sewage treatment plants accepting gas well drilling wastewater, and which discharge to the Monongahela River or its tributaries, to drastically reduce the volume of gas well drilling wastewater they accept to one percent of their daily flow. Currently gas well drilling wastewater constitutes up to 20 percent of those plants daily flow. The restrictions will reduce the volume of drilling wastewater treated by 90 to 95 percent. The restrictions will remain in place until the levels of TDS fall below the 500 milligram per liter standard.

Full Story

Honey, It Was Just a Mirage

Interesting that during the last two or three Chesapeake calls, very little, other than the announcement of a monetization plan, was said about the Marcellus. The Haynesville was all the rage. During last week's Investor & Analyst meeting, the company left no doubt that the development of the Marcellus is a major priority and one that will contribute more than any other to the bottom line. The company plans to ramp production from 20 mmcfd to 60 mmcfd by the end of '09 and to 130 mmcfd through '10 with the rig count going from 4 to 10 to 20 during the period. With the lowest finding costs and highest net selling price, the Marcellus will provide, by far, the highest IRR of any of the shales; at $7 gas about 200% BFIT as compared to 25% in the Fayetteville and Barnett and 50% in the Haynesville.

Some of Aubrey McClendon's more interesting comments:

"We did everything that we said we were going to do during the quarter and ended up with a stock price at $38 on September 30. Today we wake up 15 days later and the stock price is $16. So what’s happened at the company? We’re still going to earn almost $10 a share of cash flow in 2009. We’re still going to earn over $3 a share of earnings, and nothing’s changed.

...I can’t do anything to convince anybody here or anybody listening that we have enough money. We've told you that we have enough money, $1.1 billion. I think we’ll end the year at $3.5 billion. I just read that at September 30 British Petroleum had $3.6 billion. I’m sure they have more resources than us, but the point is that we have plenty of cash today, we’ll continue to build cash through the quarter and into ’09 and ’10.

...I guess another thing that’s been a little surprising to me is I’ve seen some analyses where if gas prices go to $5, people go out and spend their cash resources. Why would we do that? Why are we not capable of decreasing our capital expenditures? We are not going to spend more cash than what we can generate.

...I can assure you that buying leases for X and selling them for 5X or 10X is a lot more profitable than trying to produce gas at $5 or $6 mcf.

...The neat thing is that leasehold is always cheap in a play whether you pay $5,000 an acre or $10,000 or $20,000 or $30,000. In most of these shale plays it matters hardly at all as to what you pay for leasehold because you consume so much leasehold, 80 acres generally a well and these wells can cost $3 million to $6.5 million. So you put some leasehold on top of that it’s just not much money at the end of the day.

...Natural gas is simply the fuel that is going to continue to make an enormous impact in our country and in our world. My own view is that we’re near a point of peak oil production whether it’s today or two years ago or five years from now or 10 years from now. It doesn’t really matter to me if it’s geological or if it’s geopolitical or a little bit of both."

Full Transcript

Industry Update

Yesterday's article in Investor's Business Daily pretty much sums up what's going on in the gas patch. The title I think is a little dated. It should have been Credit Crunch Hits Natural Gas Drilling.

IBD Article

Drillbits

Up From the Ground Come a Bubble

In what must be one of the greatest sector collapses in market history, participants in the nation's shale plays have had to move quickly to pare back risk. In an industry where the taking and management of risk are at the core of a company's success, it's not surprising that dramatic steps had to be taken. Most dramatic of all, beyond the deals falling through, capex being cut, leasing being stopped, wells being shut in and rigs being let go, was the quickness of some companies and individuals to cut debt exposure. Some, voluntarily and some not, and some more quickly than others.

This writer has long praised Aubrey McClendon for his bullishness and quickness in exploiting the shale plays and putting Chesapeake at the top of the producer list. The most remarkable part this ascent was his willingness to put his personal wealth on the line. Nobody did that better than Aubrey. Had I known that he'd also bought the last several million shares on margin, my remarks might not have been so laudatory. It's hard to say what his net equity was at the top when his holdings were worth $1.9 billion, but by the day of the first call, it had dropped to $750 million and after three days of selling, at Friday's close, it was worth $31.9 million. Nonetheless, I'll still root for him as long as he's capable of learning THE LESSON OF A LIFETIME and managing the company with the knowledge that there's so much more to lose if he's not.

Bob Simpson of XTO also did some heavy selling. Apparently, not by force as in McClendon's case, but Simpson cited cleaning up some debt as one of his reasons for disposing of 2.777 million shares or about 30% of his holdings.

Stories:
McClendon
Simpson

Petrohawk Follows Chesapeake's Lead

Petrohawk Energy decided to cut 2009 capex by one-third or $500 million. Production forecasts remain unchanged at levels 25% above 2007. The company views its projects in the Haynesville and Fayetteville as having the highest IRR and reserve growth potential, so it will focus its efforts there.

Full Story

Epsilon Energy, Ltd. Completes Horizontals and Acquires More Acreage

Epsilon Energy provided an operational update this morning. The company reported having drilled two horizontal wells in the Marcellus shale and has begun drilling a third. Two of the wells are awaiting stimulation in Pennsylvania. The company also announced an agreement with Cabot Oil and Gas for a leasehold swap of approximately 2,000 acres in Susquehanna County.

Full Story

Antero-Dominion Redux

Dominion and Antero have agreed to amend the deal they reached on June 30 by reducing the acreage involved. Originally, Antero was to acquire 205,000 acres of leasehold for $552 million. Dominion retained a 7.5% overide in the deal. Under the new arrangement, Dominion will maintain the overide but will reduce the overall acreage. The deal now will include only 114,259 acres for $347 million. As before, the rights are for the Marcellus Shale only, but the cost has increased from $2,693 to about $3,037 per acre. The parties are citing Antero's inablity to secure adequate follow on financing under current conditions in the credit market.

Full Story

Chesapeake Provides Operations Update

After the close today, Chesapeake released an operations update. The highlights:

-Company Reduces Drilling Capital Expenditure Budget through 2010 by Approximately $3 Billion and Expects Approximately $2 Billion of Excess Cash Generation in 2009 and 2010 to Be Directed Primarily to Debt Reduction

-Lower Capex and Asset and VPP Sales Lead to Lower Production Growth Forecasts for 2008 of 18% from 21% and for 2009 and 2010 of 16% from 19%

-Company Closes Fayetteville Shale Joint Venture Transaction with BP America; Discussions Progress on Marcellus Shale Joint Venture; Company Resumes Plans to Sell a $1 Billion Minority Interest in its Midstream Business Company Provides Hedging Update;

-Substantial Decline in Natural Gas and Oil Prices Has Led to an Approximate $6 Billion Favorable Mark-to-Market Change in the Company's Hedging Positions Since June 30, 2008

-Company Completes Three New Haynesville Shale Wells in September with Average per Well Initial Production Rates Exceeding 10 MMcfe per Day

A conference call to discuss this release has been scheduled for Tuesday morning, September 23, 2008, at 9:00 a.m. EDT

Full Story

Marcellus Permits in PA Increase by 73 to 257 This Year

The PA DEP announced last week that 73 drilling permits for the Marcellus Shale were approved from August 15th to September 15th. They also released this very nice graphic of the county by county count of permits issued and wells drilled in the play.

View the full image

Read the press release

SRBC Proposing New Permitting Rules

The Susquehanna River Basin Commission (SRBC) today announced it is conducting public hearings on October 21 and 22 on proposed regulatory revisions that will further protect the basin’s water resources and streamline the review of consumptive water uses by the natural gas industry. SRBC’s proposed revisions are open for public comment through October 31.

Included among the proposed revisions affecting the natural gas industry, SRBC would:

- Require all requests for consumptive water use approval to go through SRBC’s approval by rule process – an administrative procedure – rather than SRBC’s standard consumptive water use application process.

- Expand the approval by rule process to allow project sponsors to utilize a broader range of water sources as part of their consumptive use approval, including public water supplies, discharges from wastewater treatment facilities and other lesser quality water sources, and withdrawals from other sources approved separately by SRBC. (The current approval by rule process applies only to water from public water suppliers, thus making project sponsors undergo the standard consumptive use application process for all other water sources.)

- Regulate projects on a drilling pad basis, versus the current process that addresses consumptive use requests on a company-lease area basis.

- Require projects to demonstrate compliance with state and/or federal law for the treatment and disposal of flowback or produced fluids, including brines.

- Incorporate the August 14, 2008 determination by the SRBC Executive Director that all quantities of water withdrawn or used for natural gas well development be reviewed effective October 15, 2008.

- Limit SRBC approval to five years.


Press Release at http://www.srbc.net/pubinfo/press/docs/ProjectReviewNaturalGasRulemaking_Sept2008_3_.pdf

Penn's Woods' Marcellus Shale Draws Attention

The Pennsylvania Department of Conservation & Natural Resources announced the winners of its September 3, Oil & Gas Lease offering. Ten year leases at a 16% royalty were offered for eighteen tracts totaling 74,023 acres in Tioga County. The highest bids, $5,838/acre for a 5741 acre tract and $4,369 for a 3598 acre tract, came from Fortuna Energy. ExxonMobil, which low balled the process by bidding $1,151/acre for everything, picked up six tracts totaling 19,439 acres as the only bidder.

Bid Info Here

Rex Energy Diverting New Albany Assets to the Marcellus Shale

Rex Energy announced the divestiture of approximately 79,000 net undeveloped acres in Indiana and certain related non-producing wells for approximately $8.4 million. The proceeds will be used for development of the Marcellus as well as it's Alkali-Surfactant-Polymer (ASP) projects in the Illinois Basin. The buyer was not disclosed.

Full Story at http://www.marketwatch.com/news/story/rex-energy-corporation-announces-sale/story.aspx?guid=%7BF04B22D4-095B-4A7B-B949-276465A3F419%7D&dist=hppr

All in All It's Just A

nother Brick in the Wall

The Susquehanna River Basin Commission announced today that effective October 15, all natural gas well development projects in the basin will require its prior approval regardless of the amount of water used.

Full Story at http://www.srbc.net/whatsnew/newsletters/article_10.asp

Pennsylvania Landowner Group Signs Large Deal

Last evening, a Wyoming County, PA landowner group with 45,000 acres signed up for $2,850 per acre for a 5 year leases and a 17% royalty. The deal also includes two 1 year extensions at $1,000 per acre per year. The Lessee has yet to be named but, according to those who brokered the deal, a letter of intent from an E & P company is on the way.

Full Story at http://www.timesleader.com/news/Wyoming_County_landowners_sign_brokered_gas-drilling_lease_deals_08-13-2008.html

EXCO Resources to Begin Dallas-Harrisburg Nonstop Service Next Week

Never hoping to be entertained, I've listened to a lot of conference calls over many years but, yesterday afternoon, EXCO CEO, Doug Miller had me banging on my mouse pad during the Q & A. Now don't take the above headline too seriously but Doug did reply, "..I’d say this, permitting issues continue to be a problem. We’re working with them. I think we’re sending a whole crew of lawyers and Steve and everything up there" "I don’t know if that’s good or bad but they’re going up there to have some discussions." (Harrisburg, PA, to meet with various agencies to try to expedite the permitting process)

Or, I could have used a few other headlines like:

Aubrey Just Left the Building
Doug updated the leasing situation in the Marcellus and noted, "We've done some small acquisitions, mostly leasing. There’s quite a lot of acreage around up in Appalachia right now. I think Aubrey kind of left town and all of sudden, everything that was being held up just came flying in. I’d say we’re probably looking at pushing a million acres of potential up there. (Doug referring, of course, to Chesapeake CEO, Aubrey McClendon)

50 Texans Come a Knockin'
Describing the flood of applications being filed with the various permitting agencies in PA, Doug said, "They never had 50 Texans up there with 25 permits waiting in line. It’s a problem."

Slow and Slower
Doug, on the pace of development "Joe, I think slow is the underlying word.", "..we’re doing a lot of work and a lot of negotiatin' and a lot of schmoozing with both the EPA group and the water disposal people. It ain't an easy task. This is not East Texas/North Louisiana."
President, Steve Smith, "But it is doable, it’s just time consuming."
Doug, "It’s going to take some time and I’d say slow is the underlying theme."
Steve, "Drilling permits have been put on hold pretty much in Pennsylvania as I understand it. And again, it’s not anything sinister, it’s just – I think the body up there is just trying to get their arms around what’s going on. And so we’re – it's slow, they’re very slow coming through with the drilling and the water permits."

Take Me Home,....Country Roads
Doug, on giving some kind of idea of the production ramp up in the Marcellus, "I think what we’re doing right now with these first two (horizontals), those will be completed hopefully in September, October." "Pennsylvania is going to be slightly slower as we talked about. I think we’re moving the deep rig that we have down into West Virginia maybe after these two wells are drilled. It’s slightly easier to get permits, both water and drilling permits, so underline slow. And, I’m not going to give you any production rates right now because we’d love to have four or five rigs running in Pennsylvania the whole year. We do have some coming, but let's delay that."
Steve, "The permitting is actually a bit of a problem right now and that’s why we are drilling two horizontal Marcellus wells in West Virginia, that’s our next two wells will be – our next two Marcellus horizontals will be in West Virginia."

Okay, okay, maybe it's not a mouse pad banger for you but, it's hard out here bein' a blogger, especially a Marcellus blogger trying to find a little humor in the play. Thanks Doug. Can't wait till Q3!

Definitely worth a listen @ http://ir.excoresources.com/phoenix.zhtml?c=195412&p=irol-eventDetails&EventId=1904622

Who Knows?........The Atlas Knows

Conference Call Highlights

Why Greene is Greener than Green.

Many in the play have been speculating about the rapid run up of leasing costs in SW PA from $2,000 for a 5 year lease to well over $3,000 in just the last few weeks. There is even a rumor of a $4,000 offer floating around. Prices in the area now exceed those in the once pricey NEPA-NY region.

Atlas Energy Resources reported a stellar quarter last evening. In this morning's conference call, there were some important comments about the company's Marcellus shale activities. Most informative were those following the discussion about a four to eight horizontal well program in Washington County: President, Dick Weber noted, "Also, later this year, we will drill two horizontal wells in the deeper, more highly pressured and highly fractured areas of Greene and Fayette counties...."

Of course, the water management impediments plaguing the NE part of the play are well documented and most recently, as noted in today's earlier story "NYC DEP....", are becoming more pronounced. So, it would follow that the E&P companies would, at least for the time being, concentrate their efforts elsewhere. It seems Greene County is coming into focus.

Or, perhaps it's because of Range Resources' success. Range reported on July 14 that its last 10 wells had averaged 4.2 mmcfd. Then, ten days later, on July 24, the company reported having completed its last seven horizontal wells in the area with IP rates averaging 4.9 mmcfd (34.3 mmcfd total). Is it just a coincidence that they had just finished flaring off a well in Greene county? Rumors again, but the word is that the Greene well's initial production was around 8 mmcfd. Now, do a little math. If you have 6 wells with an average IP of 4.2 mmcfd what would the seventh one have to be doing for all seven to average 4.9 mmcfd? You're right, around 9 mmcfd. This is not out of the question as Atlas also just reported verticals with peak rates of 3 mmcfd. Of course, it could be that the last two Range wells averaged only 6.6 mmcfd. Just speculating but it seems so are more than a few other interested parties.

Other Marcellus highlights reported by the company:

-Atlas has completed 78 vertical and 1 horizontal Marcellus wells with 69 turned in and producing 20 mmcfd.
-Marcellus gas in the area is dry and pipeline ready.
-Planning 80 more verticals over the next twelve months and reaching 24 total horizontal completions by '09
-Added 37,000 Marcellus acres, now at 552,000, including an 11% increase (27,000) in the focus area, now at 269,000 acres. Expects acquisitions to slow as leasing costs are on the increase in the company's focus area.
-Received approval from the DEP for a 1 mmgpd water treatment plant now in the public comment period. Two more applications are in process. Each of the three plants will be able to process 5-6 vertical or 2-4 horizontal fracs per week.
-Formed a industry consortium with several other companies to drill the two horizontals in Greene and Fayette in order to spread some of the risk and speed up the learning curve. All of the companies are now sharing well info. Atlas will have a 25% interest in and operate the first well.
-Horizontal applications at the DEP were halted after the NE water issues arose but are now again flowing through the process.



Full Story at http://phx.corporate-ir.net/phoenix.zhtml?c=202140&p=irol-newsArticle&ID=1184004&highlight=

NYC DEP Wants Ban on Marcellus Drilling in Certain Areas

If New York City's Department of Environmental Protection gets its way, 500,000 acres in the city's watershed would be off limits to Marcellus development. The request includes banning drilling in a one mile perimeter around the city's Catskill reservoirs and all infrastructure. Other requests that will impede development throughout the watershed are:

-Development of a new working group to develop permit conditions comprised of members from the DEP, DEC, NYS Dept of Health, US EPA,and watershed and environmental groups.

-That the DEC consult the DEP when reviewing permit applications and incorporate DEP concerns into an enforceable DEC permit.

-Add another level of review allowing public review and comment to the DEC's well permitting environmental assessment form (EAF).

-Assurance that permits from the NYS Municipal Separate Storm Sewer System SPDES are required.

-Affirmation that natural gas exploration and extraction are subject to NYC Watershed Rules and Regulations.

Full Story at http://www.nysun.com/new-york/citys-drinking-water-feared-endangered-10b-cost/83288/
NYC DEP Letter at http://s3.amazonaws.com/propublica/assets/natural_gas/emily_lloyd_letter_080718.pdf
Watershed Map http://www.nyc.gov/html/dep/html/drinking_water/wsmaps_wide.shtml

Marcellus Shale Activity Updated

Where You Stand Depends on How You Sit

So far, this earnings season has provided some interesting insights into the Marcellus play. Pardon my above mild rework of Miles' Law but the frontrunner views of the Marcellus are generally gung-ho while those looking at the hind teat are considerably less so. We'll see if the trend continues this week with coming reports from Atlas, Exco, Carrizo and Rex. Highlights from the latest conference calls and presentations are below.

Anadarko and its partners commenced drilling operations on two wells in the Marcellus Shale play in the Appalachian Basin with encouraging results. The wells have been cored and further evaluation is under way. Anadarko has access to approximately 625,000 gross acres in the fairway of the Marcellus Shale play. This is an increase of 25,000 acres in the quarter. Responding to an analyst's question about the impact of increased drilling in the Marcellus, the company echoed the sentiments expressed in Chesapeake's call that the time required to develop the play will mitigate any over supply concerns now being bandied about.

Chesapeake has completed two horizontals in West Virgina with a combined current production of 7 mmcfd. These wells were announced one month ago with initial production of 9 mcfd. CEO McClendon viewed as "reasonable" Range Resource's announcement that it has boosted its EUR per well to the 3.5-4 bcfe range. Interesting that Chesapeake's EUR for the recently completed pair is 5.5 bcfe. In response to questions about the impact of Marcellus development on natural gas prices, McClendon noted that there "are way too many regulatory, topographic, water, and infrastructure issues that will keep the Marcellus from making a meaningful contribution to our country’s gas production until at the least 2013 to 2015 time frame." Acreage in the play increased by 400,000 acres during the quarter to 1.6 million. The company also restated its intent to monetize 25% of its Marcellus assets by taking on a partner in the same manner as in the Haynesville transaction with Plains Energy. During that conference call, CEO McClendon had placed a $12,500/acre on its Marcellus rights.

EOG Chairman & CEO Mark Papa reports having 220,000 net acres in the Marcellus and is operating one rig and will have some results by year-end. He said this will be a very slowly developing play in the macro sense because of the major infrastructure issues. He also estimates that the Marcellus, if it works, would not contribute meaningfully to the macro domestic gas supply picture until 2012 plus. He also noted that the thickness is an issue, in some cases pressure is an issue but probably the most unknown risk factor that we and others are dealing with right now is frac efficacy; frac barrier containment in the Marcellus itself. "The kind of results that we are hearing about in parts of Pennsylvania that are showing 3 Bcf to 4 Bcf really does not comport well with the kind of IPs that we are seeing in rest of the play and really, with the way we model the plays north of 1.5 Bcf to a 2 Bcf kind of play, particularly if you're looking at big program averages. It's really, really difficult to average 3 Bcf to 4 Bcf over the whole play." To another question he replied, "I think there are differences in the frac barriers throughout the play, from one geographic area to the next, and I think that's the biggest unknown in the play right now for most of the operators." Comparing it to the Barnett he noted that when you are "dealing with Marcellus, which is less geo-pressured and much thinner, it just doesn't make good reservoir engineering sense that you're going to get recoveries of 4 Bcf per well when that hadn't been average in Johnson County. So, we just think that that number is probably a number that's we believe is unrealistic. And then, you clearly do have a problem with containing the fracs within that relatively thin zone. You have more of a problem in the Marcellus than you do in the Barnett."

Equitable Resources reported having completed four Marcellus wells including three verticals in Northern WV and one horizontal in Greene County, PA. The verticals have been on line for less than 30 days but are expected to average 600 mcfd while the horizontal has averaged 1.9 mcfd for its first 30 days. The horizontal cost $6 million to complete. Expectations are for an average of $3-4 million to complete the remaining eight horizontals planned for this year and though still experimenting, the company plans to adapt its considerable experience with air drilling to the Marcellus and further reduce cost to $3-$3.25 million. Equitable raised capex from $1.2b to $1.6b with 55% of it going to the Marcellus and now plans to drill 75 wells by the end of 2009. Acreage stands at 400,000 acres, unchanged during the quarter. On infrastructure issues, the company announced plans to support other producers by building two 20 mmcfd stripper plants in the play and noted that "there are a bunch of other mid-stream players entering the area which will also resolve those concerns." Regarding water resource and disposal issues, it was noted that the SWPA-NWV is not regulated by a regional commission as is the case in the northeastern part of the play so that the issues facing development in the area are just "growing pains."

Penn Virginia continues its leasing effort in the Marcellus Shale, primarily in Pennsylvania, having acquired approximately 21,000 net acres to date at an average cost of approximately $400 per acre. Additional increases are expected during the balance of 2008 and beyond. One vertical Marcellus exploratory well was completed in southern WV and is currently being tested. Initial exploratory drilling is expected to continue during 2009, subject to rig availability, takeaway capacity and other potential constraints.

Transcripts available at http://seekingalpha.com/tag/natural-gas

XTO to Raise over US $3.5 Billion

Through an equity offering of 26 million shares priced yesterday at $48 each plus over allotments coupled with senior note offerings of US$2.25 billion, XTO will receive proceeds of around $3.5 billion. The company intends to use the net proceeds from the offerings to fund its pending acquisitions, to pay down commercial paper and for general corporate purposes, including future acquisitions.

Full Equity Story at http://phx.corporate-ir.net/phoenix.zhtml?c=97780&p=irol-newsArticle&ID=1182908&highlight=
Full Debt Story at http://phx.corporate-ir.net/phoenix.zhtml?c=97780&p=irol-newsArticle&ID=1183238&highlight=

CNX Gas Provides Data on Marcellus Vertical with Earnings Call

CNX Gas brought its first Marcellus well online last Friday. The vertical well was drilled to a depth of about 8,000 feet at an estimated cost of $1.3 million. Shale thickness is 80 feet. The well was stimulated with a single-stage water frac resulting in a flow rate of 1.3 MMcf per day on a 56/64" choke and 50 pounds of back pressure. Because of the strong initial reading, a 24-hour open flow test was not necessary. Instead, the well was immediately placed online where it is currently equilibrating and generating a choke-back pressure of 2,300 pounds. During this morning's conference call it was noted that in the few days since the press release was drafted, flow data to the meter has improved from 480 mcfd to 850 mcfd.

Randy Albert, senior vice president-emerging business units noted, "CNX Gas brought its first Marcellus well online two weeks after it was fraced, with no rig, well service, water treatment, or gas transmission issues. Just simple and efficient execution. This continues to be the hallmark of CNX Gas as we manage and drill our portfolio across the Appalachian and Illinois basins."

Full Story at http://money.cnn.com/news/newsfeeds/articles/prnewswire/200807300730PR_NEWS_USPR_____NEW011.htm

Mr. McClendon Goes to Washington

Aubrey McClendon, Chairman & CEO of Chesapeake Energy, is making the rounds on Capitol Hill today armed with a new study showing that US natural gas reserves are 50% higher than recently thought and equate to 118 years (2,247 tcf) of supply. He follows T. Boone Pickens in a quest to make natural gas the primary fuel to lead us away from foreign sources of energy. He also appeared on CNBC this morning to discuss the findings.

According to McClendon, whose company helps funds the foundation, the new study is a real time analysis that includes current assessments of the major shale plays in the US. The study was done by Navigant Consulting.

Full Story at http://www.accountability-central.com/single-view-default/single-view-lexis-nexis/article/study-raises-estimates-of-us-natural-gas-reserves-could-be-50-bigger/?tx_ttnews%5BbackPid%5D=1&cHash=fd08742dd4
Video at http://www.cnbc.com/id/15840232?video=807915389

Talisman Increasing North American Unconventional Exploration

Talisman Energy announced that it has increased it's capital budget and drilling program for North America from $1B to $1.5B and from 130 wells to 160. Allocation to the Marcellus was not disclosed but the company reported having mobilized its first dedicated rig to the play. Through its partner (presumably Fortuna),one horizontal and two verticals were completed in the Marcellus with very favorable results and are in the cleanup phase.

Full Story at http://cnrp.ccnmatthews.com/client/talisman_energy/release.jsp?actionFor=883544&year=2008&releaseSeq=0&disclaimer=1

It's Not Easy Being Green

Scrambling for a seat at the Marcellus table, several environmental groups have asked New York Governor David Paterson for a moratorium on natural gas drilling until the environmental review that he promised has been completed. The signatories are the Catskill Mountainkeeper, Sierra Club Atlanta Chapter, Riverkeeper, Delaware Riverkeeper Network, Natural Resources Defense Council, Catskill Center for Conservation and Development, The Wilderness Society, and Catskill Citizens for Safe Energy.

Full Story at http://www.nytimes.com/2008/07/27/nyregion/27towns.html?ref=nyregion

Cabot Releases Earnings and Updates Marcellus Activity

First to Market Marcellus Shale Gas in Northeast PA

Cabot currently has three rigs drilling (two vertical, one horizontal) on its approximately 120,000-acre block in Susquehanna County, northeast Pennsylvania. To date, the Company has drilled eight vertical wells with four wells completed. Three additional wells have been drilled to a horizontal kick-off point currently ahead of a larger rig. Pipeline construction is ongoing with first production occurring today. This production will represent the first Marcellus production ever in northeast Pennsylvania. "It is Cabot's plan to continue to expand its pipeline infrastructure, test our first horizontal Marcellus well and expand our operation from a current three-rig program to an eight-rig program in 2009," commented Dinges. "The first phase of our infrastructure investment has been to build ten miles of pipeline, set compression and tap the interstate line. With the next phase that will be added in 2009, Cabot will add another 57 miles of pipeline."

Operations Update at http://phx.corporate-ir.net/phoenix.zhtml?c=116492&p=irol-newsArticle&ID=1179212&highlight=

Earnings Report at http://phx.corporate-ir.net/phoenix.zhtml?c=116492&p=irol-newsArticle&ID=1179213&highlight=

Range Revelations

On the Range Resources Q2 earnings conference call today, management revealed some additional information regarding development of the Marcellus.

In an update given earlier this month it was stated that the last 10 wells came in at 4.2 mmcf/d but today it was noted that the subsequent 7 wells averaged 4.9 mmcf/d.

The company has secured takeaway capacity with multiple transmission companies for a total of 150 mmcf/d and is seeking to double that amount. Pinkerton noted that 6 of the 8 largest US transmission lines run right through Range's acreage in the play. He also said that a lot of people with a lot of money are getting involved in developing gathering and midstream assets so he doesn't view that a constraint.

As well, Range now has four separate agreements in place which will satisfy their water source and disposal needs for the next few years.

Rig count in the play will increase to around 8 by the end of 2009 including 2 fit for purpose rigs now being built. Expected completions by then should ramp to 80-100. "Where can it go? Can it get to 20, 30, 40 rigs? Yes, certainly, over time"

No decline data was released but it was noted that several vertical wells have been on line for two years or more and a number of horizontals for 1 year now. With the other 100 wells drilled including 22 horizontals, and other wells drilled by Atlas and Chesapeake, CEO John Pinkerton feels that there is a very strong geologic model which they will reveal probably around March once the bulk of the acreage has been acquired.

Shareholders will be pleasantly surprised when more technical data is released at that time.

Earnings release at http://www.b2i.us/profiles/investor/ResLibraryView.asp?BzID=790&ResLibraryID=25428&Category=1261

New York Streamlines Process for Marcellus Development

As anticipated, New York Gov. David Paterson this afternoon signed a bill that fast-tracks horizontal drilling in the state's Marcellus Shale, despite the opposition of environmental groups that claim the drilling technique could contaminate groundwater. Permit processing to take as little as twelve weeks.

Full Story at http://www.djnewsplus.com/article/DN-CO-20080723-017557.html?mod=J1&a=T+Wire&h=UPDATE%3A+NY+Gov+Signs+Bill+Updating+Oil%2C+Gas+Drilling+Law+

XTO Quietly Expanding in Marcellus

During yesterday's Q2 earnings conference call, XTO revealed having 280,000 acres in the Marcellus play. This is 128,000 acres higher than the previously reported 152,000 acres acquired from Linn in April. A good portion of the increase is probably attributable to the Deposit NY landowners group which at last count was negotiating with 37,000 acres though no final acreage amounts have been released.

In response to a question about water resource and infrastructure issues impacting development, President Keith Hutton noted that "Yes, there are going to be some issues with water handling and disposal and so forth" but that given the huge potential of the play, the industry would figure it out. He also said that because of the sheer size of the play the hotter areas will be more spread out and thus require a longer time for delivery infrastructure build out. "The Marcellus is a five year type game before it gets running real hard."

Full Transcript at http://seekingalpha.com/article/86362-xto-energy-inc-q2-2008-earnings-call-transcript?page=-1&find=marcellus

XTO Announces $1.68 Billion Stock Offering

At the close of trading today, XTO announced plans to sell 26 million shares of common stock to fund recent acquisitions in the nation's shale plays. The issuance would be 29.9 million shares with over allotments. Estimated proceeds assume yesterday's closing price of $57.98. In after hours trading, the stock is trading down $6.23 to $51.75. At this price, the anticipated proceeds would be over $185 million less.

Full Story at http://phx.corporate-ir.net/phoenix.zhtml?c=97780&p=irol-news

XTO Earnings - The Season Opener for E&P

XTO announced Q2 earnings this morning with a $.04 upside surprise. Expectations were $1.05/share on average with a range of $.95-$1.18. During the June quarter last year, XTO earned $.91. Revenues were up 45.7% over last year and gas production year over year were up 35%.

XTO also announced today that it has entered into definitive agreements with multiple parties to purchase producing properties located in its Eastern and San Juan Regions and acreage positions in the Marcellus, Fayetteville, Barnett, and Haynesville shales, for a total of about $1.3 billion, of which $1 billion closed during the second quarter.

In a separate release, XTO announced the acquisition of 12,900 acres in the Barnett for $800 million. The acreage is currently producing 35 mmcf/day. The seller was not disclosed.

Full Stories at http://phx.corporate-ir.net/phoenix.zhtml?c=97780&p=irol-news

Leasing Update

$3,000/acre Bonus Barrier Broken

Since the last report in late May, prices have risen throughout the play with the greatest percentage increases seen in southwestern PA. Prices for 5 year leases have cracked the $3,000 level in the northeast with reports up to $3,400 an acre while a few deals in the $2,700-$3,000 range have been made in PA's southwestern most Greene County. This is remarkable considering that two months ago, the highest reports in the area were in the $1,500 range with the average lease being under $1,000. It seems that the water issues in the Susquehanna basin and Range Resources' recent successes in Greene county are creating more interest there.

Between those hot spots, prices trend lower in more central PA as you head west and south. From $2,500 in Tioga to $1500 in Clearfield to $800 in Somerset counties.

West Virgina has seen increases in the northern part of the state in Preston and Tucker counties where bonuses have moved from the $350 to $450/acre area.

Royalties are following the bonus trends and have stayed fairly flat in the 12.5% to 18% range.

Drillbits

There's a Thin Line.....Between Love and Hate

Or, is it between Genius and Madness. No matter, you gotta love this guy.

Rebalancing his portfolio? Diversifying his holdings? Estate planning?

You heard it all before but you won't from balls to the wall Aubrey. In an F4 this afternoon, Chairman & CEO McClendon reported having plopped down another $43 million on July 15 to acquire 750,000 more shares of Chesapeake Energy. This bring his direct holdings to 33,452,911 shares. Recapping this years open market buys, he has individually invested around $185 million in CHK common stock to purchase 3.85 million shares in the open market.

I'm going with genius.

Getting Any Sleep Aubrey?

Chesapeake announced another asset sale this afternoon. In a deal with BP, Chesapeake will receive US $1.75 billion for all of their interests in approximately 90,000 net acres of leasehold and producing natural gas properties in the Arkoma Basin Woodford Shale. Chesapeake plans to redeploy the proceeds to the Haynesville, Barnett and Marcellus Shale plays and to further improve the company's capital structure.

Full Story at http://phx.corporate-ir.net/phoenix.zhtml?c=104617&p=irol-newsArticle&ID=1176295&highlight=

Marcellus Developers Form Committee to Manage Water Resources

Most of the major players in the Marcellus have formed a consortium and organized the Appalachian Shale Water Conservation and Management Committee (ASWCMC). The mission of the group is to develop best water management practices and technical solutions for shale developments in the Appalachian Basin.

Full Story at http://www.businesswire.com/news/home/20080716006345/en

PA DEP's McGinty Clears Things Up for Cramer

In an interview on Jim Cramer's Mad Money last Friday, Kathleen McGinty, Secretary of the Pennsylvania Department of Environmental Protection discussed the stance of her department toward drilling activities in the Marcellus. I'd have to say it is level headed and upbeat.

Sorry I missed this one from last week but I've been away a bit lately.

Full Video at http://www.cnbc.com/id/25639023

The Steak and the Sizzle

How'd you like to be sitting on 161,000 acres of Marcellus and not have to call it the "steak" in your story. It's just a little "sizzle". That's the way CNX Gas looks at things. The company's success in drilling coal bed methane horizontals is leading up to 100 bcf of production in 2010.....without even a sizzle of Marcellus.

Full News Story at http://www.observer-reporter.com/OR/Story/07-14-CNX-GAS-DRILLING-PRGRAM-w-PIX---MON-BIZ

Investor Presentation at http://library.corporate-ir.net/library/19/193/193034/items/299248/CXG2008July.pdf

Range Resources Update - Sunny in SW PA

Range Resources provided an update this morning on their Marcellus shale activities. During the second quarter they increased their acreage position by over 20% (250,000 acres) and completed an additional five horizontal wells. They also raised the EUR for the horizontals to 3-4 bcf. The last 10 horizontals came in at an average of 4.2 mcf/d.

Of Range's 850,000 acres deemed high-grade, roughly 60% is located in the SW and 40% in the NE. The SW has the largest concentration of historically developed Appalachian oil and gas fields and existing pipeline infrastructure that is better developed than in the NE. As a result, Range anticipates that the ramp up of Marcellus production will begin primarily in the SW and then move to the NE.

Full Story at http://www.rangeresources.com/PressReleases.asp

It Took Me by Surprise I Must Say

Things are a little different in the gas patch these days; Leasing forums,GoogleMaps,Addenda on the web are helping Lessors become informed. Imagine approaching a farmer to sign an oil & gas lease and they know more about it than you do? Hell, they didn't teach me that in Landman school!

Full Story at http://www.time.com/time/business/article/0,8599,1820884,00.html

Drillbits

Truckin, Like the Do-Dah Man

Chesapeake Energy announced after the close today that they will offer 25 million common shares with the customary 15% over allotment. Net proceeds from the offering will be used to temporarily repay outstanding indebtedness under its revolving bank credit facility which it anticipates re-borrowing from time to time to fund its recently announced drilling and leasehold acquisition initiatives and for general corporate purposes.

Take a look at the capital flows since the end of last quarter:

April 2 - Sold 23 million shares of Common netting $1.011B
May 1 - Sold Tex-Okla-Kan assets for $623 million
May 1 - Sold Woodford Shale holdings for $1.5B
May 20 - Sold $1.38B of Contingent Convertible Senior Notes netting $1.173B
May 20 - Sold $800 million of Senior Notes netting $487 million after retiring notes.
July 1 - Sold 20% interest in the Haynesville shale to Plains (PXP) for $1.65B
July 8 - Selling 28.75 shares Common to net $1.7B (estimated @$60/sh. net)

Net Cash from Equity Sales $2.71B
Net Cash from Debt Sales $1.66B
Net Cash from Asset Sales$3.77B

Total $8.14B


The $1.65B Haynesville sale to Plains Energy also includes an additional $1.65B commitment from Plains for future cost sharing to develop the play. This transaction effectively raised the value of Chesapeake's remaining 80% interest in the Haynesville by $9.5B to $13.2B. At the end of Q1, CHK's market cap was about $24B. Including the latest offering shares, as of today's close, the market cap would be $35B; up 42% (diluted) while net assets, thanks to the Haynesville alone are up 81%. The Woodford sale and Q2 net income will probably further add to net assets.

The only acquisitions announced during the period were for 18,000 acres in the Haynesville from Goodrich Petroleum and a third party for about $300 million (est.), and the Pier One building. So, going into Q3, any concerns about CHK's debt levels should be laid to rest; that is, unless Aubrey finds another Hunt Petroleum.

Sometimes the lights all shinin' on me......

Full Story at http://phx.corporate-ir.net/phoenix.zhtml?c=104617&p=irol-newsArticle&ID=1172815&highlight=

The Price of Poker Just Went Up

Dominion has agreed to assign its Marcellus rights on 205,000 acres to privately held Antero Resources of Denver, Co. for $552,000 million. Considering the accompanying 7.5% royalty override to Dominion, this transaction represents the highest amount paid to any rights holder for access to the play. The previous high price for substantial acreage was XTO's $600 million deal for Linn Energy's 152,000 acres in the same Southwest PA/Northern WV region but that deal was an outright purchase of all rights and existing production, and included $50 million of infrastructure. During XTO's Q1 conference call, Chairman Bob Simpson estimated that net-net, they had paid about $1000/acre for the Marcellus. My estimate was $1500. In this one, Dominion retains all rights to existing production and all other formations and will still receive about $2700/acre in cash. Dominion played this hand beautifully.

In addition, Dominion is announcing the proposed development of Dominion Keystone, a pipeline project that would transport new natural gas supplies from the Appalachian Basin to markets throughout the eastern United States

Full Story at http://www.dom.com/news/gas2008/pr0630_print.jsp

Trans Energy & Republic Energy JV Completes First Marcellus Well

Trans Energy, Inc. of St. Mary's, WV, announced today the completion of its first Marcellus well in Wetzel County, West Virginia. The vertical was a joint venture with Dallas, TX based Republic Energy, Inc. Republic is a privately held operator with considerable experience in the Barnett shale.

Full Story at http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/06-20-2008/0004836240&EDATE=

Drillbits

Bob Away My Blues

I'm goin' down to the river...I got my cane pole in my hand
Got me some red worms...in a Maxwell House coffee can
I'm gonna sit under a shade tree...on the riverbank where it's cool
I'm gonna close my eyes and dream and let the cork bob away my blues

Toy Caldwell, Doug Gray and The Marshall Tucker Band created such a beautiful, peaceful scene with that tune but from there does it go...

Hey! What the hell happened to my river?

On June 6, in the wake of the May 30th DEP orders to Range Resources and Chief Oil & Gas to suspend a portion of their operations at separate sites in Lycoming County for violating Pennsylvania's Clean Streams Law, the Susquehanna River Basin Commission notified 23 natural gas operators currently using or planning to use the river's water to develop Marcellus wells that they now must have approval from the commission and follow water consumption guidelines. And, last Friday, the Pennsylvania Department of Environmental Protection held a Marcellus Shale Summit for Gas Operators in Harrisburg. This first of its kind meeting in Pennsylvania was certainly a novel and excellent idea but having to have that meeting at this stage of the game is really quite extraordinary.

Here we are with the majors having spent over $5 billion so far this year to gain a foothold in the play and they needed to go to a meeting with the DEP to get informed about water use! Is it really possible that the largest natural gas E&P companies in the US, after making billion dollar commitments didn't know that they had to get permits to pump frac water from the streams? Does this change the dynamics of the Marcellus' development? I think the answers are yes and yes.

From now on when you hear the word infrastructure you need to be thinking WATER. As evidenced by 5 year paid-up lease bonuses approaching $3,000 per acre and 20% royalties, the greatest drilling interest so far has been in the southern tier of New York and the northeastern part of Pennsylvania. This region, graced by the thickest deposits, shallowest depths and proximity to the northeast's large pipelines and gas markets, is by some accounts, also graced with something more precious; the northeast's finest, most pristine, wild trout streams. Now, we'll let you build a pipeline or two but, son, you foul up one of those trout streams and you in a heap o' trouble.

No doubt there were some interesting decisions made by many of the companies in the days following the May 30th orders to Range and Chief. Landowners have reported that Range immediately stopped acquiring leases in Luzerne, Lackawanna and Wyoming counties and Cabot Oil & Gas also stopped leasing in Lackawanna. It's not yet clear whether those moves had anything to do with the water situation. Maybe they've just gone fishin'.

Full Story at http://www.ahs.dep.state.pa.us/newsreleases/default.asp?ID=5107&varQueryType=Detail

Rex Energy Updates Progress in the Marcellus

Rex Energy announced positive results for its second vertical test well in the Marcellus shale. In addition, the State College, PA based company continued to expand its acreage in the play.

Full Story at http://ir.rexenergycorp.com/phoenix.zhtml?c=211917&p=NewsArticle&id=1166462

Let's Get Those Hogs to Market

Range Resources and MarkWest Energy Partners today announced an agreement whereby MarkWest will invest $175 million over the next two years to build gathering and processing facilities for Range's development of the Marcellus shale. As a result, Range expects to deliver substantial quantities of natural gas from the play by Q1 2009.

Full Story at http://www.rangeresources.com/PressReleases.asp

Lord Stanley, No.........Lord Marcellus, Yes

The last time a Canadian hockey team won the cup (Canadiens '92-'93) was the year that Talisman Energy was formed. While US hockey teams have been sliding into the back door and snatching ole Lord Stanley for those fifteen years, the $US 24 billion Canadian gas producer has been sliding into the US and snatching up a very nice chunk of the Marcellus shale.

While doing some background work for the recent Talisman Energy/Hallwood announcement, I found that the company holds a substantial 640,000 acres in the Marcellus play. This makes them the #3 player behind Chesapeake and Range in terms of acreage.

According to Talisman's June presentation, the position is mainly on the NY-PA border with some acreage in southwestern PA very near Range Resources' highly successful horizontal completions. Furthermore, Talisman's Fortuna Energy unit (FEI) is heralded as the #1 producer of natural gas in the state of New York.

The Pennsylvania DEP website shows that Talisman's Fortuna Energy (FEI) unit has only 17 active well sites in Pennsylvania's Marcellus fairway. With 20 vertical test wells drilled since '06 and plans to drill 4 more as well as 20 horizontals by the end of next year, it won't be long that you'll see TLM on the list to the right: The Players..........

Talisman Tweaks North American Shale Plans

Calgary, Alberta, Canada based Talisman Energy, Inc. announced late yesterday that its Fortuna Energy unit (FEI) had reached an agreement with Hallwood Energy L.P to earn up to a one-third working interest in Hallwood's US properties. Talisman and its affiliates will have access to Hallwood's technical staff for assistance on its developing plays in the Montney, the Bakken, the Utica and Lorraine shales in Quebec and Marcellus shales in New York and Pennsylvania.

Full Story at http://money.cnn.com/news/newsfeeds/articles/marketwire/0405691.htm

Drillbits

Fire on the Mountain - Lightnin' in the Air

In what must be the most irresponsible writing (I'll refrain from calling it journalism) that I've ever seen, Tom Wilbur, of Binghamton, NY's Press and Sun Bulletin shows an absolute disregard for his professional reputation and that of his paper in last Sunday's article, Drilling carries a hefty environmental price.

His preference for an apocalyptic rather than informational account of the development of the Marcellus shale will leave some landowners shaking in their boots at the prospect of leasing their property to Beelzebub. Others, having surpassed Mr. Wilbur by attaining the intelligence level of a ten year old, will take some time to learn about the subject from neighbors, internet pages and forums; go to a landowner meeting or two; visit a few completed sites and steer clear of the following propaganda:

"For local property owners giddy about the prospects of their own lucrative land deals, it has been a sobering vision to see heavy equipment diverting stream beds and bright red diesel fuel flowing through ditches."

"Spectacular explosions at gas-drilling sites, shooting churning orange and black fireballs into the air and leaving columns of soot visible for miles, are not unheard of. "

"The noise of heavy equipment pounding the earth, clouds of dust settling over their house and swimming pool, and loss of control of their property are too much, Bonnie said. Town officials seem to be helpless in controlling booming noises coming from the site day and night. After a string of sleepless nights, Beagel complained to the operators, she said, and was told this: 'I know your neighbors aren't happy with us, ma'am. One came out of the woods at 2 o'clock last night swearing. But my orders are to keep this operation going'."

Full Story at http://www.pressconnects.com/apps/pbcs.dll/article?AID=/20080608/NEWS01/806080359/1001/ARCHIVE

Quest Resource Corp. Acquires PetroEdge

Quest picks up 67,000 acres inside the Marcellus fairway and 11,000 outside with the purchase of privately held PetroEdge of West Virginia. Quest also completed a previously announced farm-out agreement with a private company for 30,000 Marcellus acres in Potter Co., PA. The $140mm price tag includes the following PetroEdge assets:

• Estimated proved reserves of 99.6 Bcfe and PV-10 value of $258 million as of May 1, 2008 based off of May 1, 2008 pricing of $10.14 per MMBtu for natural gas and $105.89 per barrel (bbl) for oil.


• Estimated proved, probable and possible (3P) reserves of 650 to 675 Bcfe


• 100% operated with an average net revenue interest of 81%


• Current net production of approximately 3.3 Mmcfed, including 46 bbls per day of crude oil


• Approximately 95% of total reserves are natural gas


• Natural gas BTU content ranging from 1,160 to 1,406


• Average basis premium in Appalachia of approximately $0.30 per Mcfe over the past three years.
  
  Full Story at http://biz.yahoo.com/iw/080610/0405197.html
  

Get Ready.....Get Ready, 'Cause Here I Come

Steckman Ridge, LLC, a 50/50 joint venture of Spectra Energy and NJ Resources announces FERC approval for a 12 bcf working storage field in Bedford County, PA. The field will have access to Spectra's Texas Eastern as well as Dominion Transmission's interstate facilities.

Full Story at http://investors.spectraenergy.com/phoenix.zhtml?c=204494&p=irol-newsArticle&ID=1163563&highlight=

Drillbits

Hey Boys, We Got Laws in These Parts

Following last weeks order to Range Resources and Chief Oil & Gas to suspend a portion of their operations at separate sites in Lycoming County for violating Pennsylvania's Clean Streams Law, the Department of Environmental Protection Secretary Kathleen A. McGinty thought it appropriate today to advise oil and gas industry officials that developing the natural gas resources found in the Marcellus Shale formation must be done in accordance with the state's environmental laws and regulations.

Full Story at http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/06-06-2008/0004827961&EDATE=

Drillbits

Just How Big Is That Truck Aubrey?

Aubrey McClendon, Chairman and Chief Executive Officer of Chesapeake Energy purchased 400,000 more shares of CHK last Friday to increase his personal holdings to 32.2 million shares. The average price per share for this $21.97 million investment was $54.96. This is $2.12 more per share than the 600,000 shares he purchased the previous Friday. So far, in 2008, Aubrey has individually invested nearly $142 million in CHK common stock to purchase 3.1 million shares in the open market.

Whoa There Marcellus!

The Pennsylvania Department of Environmental Protection today ordered Range Resources and Chief Oil & Gas to suspend a portion of their operations at separate sites in Lycoming County for violating Pennsylvania's Clean Streams Law.

Full Story at http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/05-30-2008/0004823484&EDATE=

Drillbits

Still, No No Brainer

Last evening, I took an opportunity to attend a joint meeting of the Pittsburgh Association of Petroleum Geologists and the Society of Petroleum Engineers to listen to a talk by Dan Steward, author of The Barnett Shale Play - Phoenix of the Fort Worth Basin-A History (2007-Fort Worth Geological Society & The North Texas Geological Society).

I had hoped Dan's talk would further illuminate the path to the Marcellus. I'm sure it did for those who had not read his book but for my thinking, as blogged in this Tuesday's Drillbits, little was changed. Responding to audience questions, he did convey that due to the shale's characteristics, the Marcellus, notwithstanding the acreage difference, should be a much better play than the Barnett. Among the many transferrable lessons from the Barnett, however, are those urging caution.

There are already some early successes, notably Range and Atlas, but a few good holes don't make a bonanza. Relatively speaking, the biggest winners in the play for a while may well be the thousands of landowners getting $2,000-$3,000/acre for the rights to drill.

Drillbits

Hey Aubrey, Backup the Truck Will Ya?

According the Dow Jones Newswire, Aubrey McClendon, Chairman and Chief Executive Officer of Chesapeake Energy purchased another 600,000 shares of CHK last Friday to increase his personal holdings to 31.8 million shares. Prices per share for this $31.7 million investment ranged from $52.64 to $53.44. Updating our Drillbits missive of May 9th; so far, in 2008, Aubrey has individually invested over $120 million in CHK common stock to purchase 2.7mm shares.

Drillbits

Shale We Dance?

In what appears to be the first positive government/industry collaboration in the Marcellus, the Lycoming County Board of Commissioners and the Williamsport/Lycoming Chamber of Commerce have formed the Community Gas Exploration Task Force. Unlike the PA state legislature which, so far, only views the profound impact of the shale play from a "let's tax the bastards!" perspective, Lycoming County's thoughtful, intelligent approach should be applauded.

Full Story at http://www.muncyluminary.com/News/articles.asp?articleID=7667

There Might be Blood

or Please Re-Lease Me.....Let Me Go

I've decided to add a new category but I can't decide on the title. Upton or Ray? In what promises to be a developing story, early lessors in the Marcellus that received $5-$10 an acre and the standard 1/8 royalty sure have the hair up on the back of their necks.

Upton Sinclair's There Will Be Blood is certainly appropriate but it might not come to that. Ray Price's famous breakup song, Please Release Me when re-spelled is equally on the mark and for some reason, when I think of WV, I think of Ray Price. We are talkin' real country here so, landmen,....watch your back.

Full Story at http://www.forbes.com/feeds/ap/2008/05/28/ap5052926.html

Drillbits

Who wrote the book on........

I just finished reading Dan Steward's The Barnett Shale Play - Phoenix of the Fort Worth Basin-A History (2007-Fort Worth Geological Society & The North Texas Geological Society)

The media and (dare I say?) corporate hype combined with the truth of our current technology has and continues to postulate the Marcellus play as no brainer prospect. While the technology is much further advanced than in the early days of the Barnett, I was struck by the amount of trials and errors, truly prospective wildcat nature of not only Mitchell's early Barnett discoveries, but of the play's development even into the early Devon years. Those guys, in 2001, a full 20 years after the first well, after Chevron and other "big boys" had taken their balls and left the Barnett, were still playing with frac types as they related to the geology of the upper and lower containments, the the turn radii, and the frac's pressures, staging, backflow pressures and timing, the drilling locations and orientations relating to various fault types....and the list goes on and on.

Surely, to some extent, those lessons are transferable to the Marcellus but the Marcellus is not the Barnett. There will be new challenges to face and lessons to be learned. Maybe, it's because I'm really a nimrod when it comes to this stuff but, maybe, I'm just a good enough engineer to know that it ain't gonna be no no brainer.

Leasing Update

Lease bonuses and royaties throughout the Marcellus play continued to move slightly higher over the past two weeks.

In the northeast, the XTO/Deposit,NY landowner deal and the NWPOA (Wayne County, PA) negotiations have fostered some higher offers in the region. It seems the original $2411/15/5 XTO deal has gained a lot of attention as the landowner's group has reportedly doubled in size since the offer. Chesapeake is trying to pick off some of the members with an offer of $2500/15% for 8 years. The XTO/Deposit deal is scheduled to be signed by this weekend.

The NWPOA is still negotiating so details are sketchy but their latest communique to the members warned to be wary of the details in a new high outside offer of $2775/16.67% for an inital 5 year term. A few weeks ago a good flavor of the offers in the area would have been Chesapeake's (pick 'em) standard offer of: $2100/15/5 or $2300/15/7 or $2400/15%/5+5 but most recently it's up to $2500/15/5 or $2550/16/7 or $2750/15/7.

Moving down-range, offers in Centre and Somerset counties are in the $500/15/5 area. In southwestern Washington, Greene and Fayette counties, while the top bids are still at $1000/16.67/5, the lower tier buyers have moved up from $250 to the $450-$600/13/5/5+5. Ready to drill Range and Atlas 3 year leases are running around $400/13.5/3.

In West Virginia, northern Preston County is seeing slightly higher offers from Chesapeake and Marathon at $350/14/5 while the southern part of the state seems stuck at $100-$200/12.5/5.

Some info from http://www.pressconnects.com/apps/pbcs.dll/artikkel?NoCache=1&Dato=20080524&Kategori=NEWS01&Lopenr=805240337&Ref=AR

Oh My Sweet Atlas

At the Master Limited Partnership Investor Conference in NY this morning, Atlas President & COO, Richard Weber, discussed the "Sweet Spot" position his company has in the Marcellus shale in southwestern Pennsylvania. The fundamental reason is that the shale in the area is characterized by a very desirable .6 pressure gradient which is providing the verticals that they've completed with the strongest recovery numbers in the entire play. He also noted that coincident with that "overpressure" is a greater degree of natural fracturing. Atlas, a long time area producer with 242,000 acres in the four county area is also very much in the sweet spot by having acquired those leases well before anyone had even heard the name Marcellus (and even a few print jocks in the area still can't spell it). With 60 verticals under their belt, Weber said their experience gives them a very good understanding of the acreage and clearly delineates their position. Add it all up and you get 4-6 Tcfe of proven, recoverable reserves.

Tactically speaking, Weber reiterated from the last conference call that the 1600 miles of 8" & 12" gathering systems they have built over the last several years are exactly the type one would build for a Marcellus program. They are scalable and tied in to a 6.5 Bcfd Texas Eastern line which runs through the heart of the region.

Is Weber alone in his thinking? I hadn't heard this before but he also said that over the last few weeks, they've met with Tennessee, National Fuel, Dominion, and Equitable; all of whom want to build more high pressure transmission capacity in the area.

Full Audio at http://phx.corporate-ir.net/phoenix.zhtml?c=202140&p=irol-EventDetails&EventId=1857002

Drillbits

Up from the Ground Come A.....

Somerset County is the place to be...........farm livin' is the life for.....(uh oh..wrong show!) Well, somehow, I don't think either Jed or, certainly not, Lisa would mind much. Seems the landmen are crawling all over the courthouse and signed 1400 leases in the last 17 months. Not all of the activity is on the PA-NY border.

Full Story at http://www.dailyamerican.com/articles/2008/05/21/opinion/editorials/editorial664.txt

Carrizo Says Me Too

Carrizo Oil & Gas announced today the issuance of $275mm in convertible debt. Carrizo intends to use the estimated $268.8 million of net proceeds from the offering (net of underwriting discounts) to repay in full the outstanding borrowings under its second lien credit facility and to fund, in part, its capital expenditure program for 2008, including drilling and land acquisition programs in the Barnett Shale, the Marcellus Shale and elsewhere, and for other corporate purposes.

Full Story at http://biz.yahoo.com/ap/080521/carrizo_oil_gas_offering.html?.v=1

Drillbits

Says Chesapeake, "Yeah, And I'll Raise You $700 Million"

Just following up on Aubrey McClendon.......On Monday, May 19, Chesapeake Energy announced offerings of $1.2b in notes and convertibles. Yesterday, as announced, in addition to pricing the $800mm of 10 year notes, they also priced the $500mm of contingent convertible paper but then, presumably on the way to the bank, decided to change it to $1.2b. Aw shucks....what the heh...we'll find somethin' to do with it!

Carrizo, Chesapeake, Range, Atlas, Equitable, and a few smaller operators have raised over $3.5 billion, mostly debt, in just the past 3 weeks and they've all mentioned the Marcellus shale as one of the uses for the cash.

Has the street has found the new subprime? Anybody seen Mozillo?

Full Story at http://biz.yahoo.com/ap/080520/chesapeake_energy_financing.html?.v=1

Let the Good Times Roll

Considering today's Sarbanes-Oxley world of CEO tongue minding, recent shareholders' meetings for XTO and Range Resources produced some unusual prognostications.

“XTO simply rocks. If you work here, you better grab hold,” Chairman Bob Simpson said. “We’re going to spend a lot of capital. We’re going to be active, and we’re staking our claim”

“The world is into a period when oil is going to be rationed by price. India and China want their share,” Simpson said, addressing an audience of more than 200 at the Fort Worth Convention Center. “I’m not sure we can stop this train,” Simpson said, also noting, “I suspect prices will tend to go higher for natural gas” as well.

Range President, John Pinkerton, noted “I for one believe we are in a high-priced environment and are going to be there for a while,” he told a small group at the company’s headquarters in downtown Fort Worth. If in the past the United States and the Organization of Petroleum Exporting Countries dominated the market, Pinkerton said that today “there’s still one supplier, OPEC, and now there are three consumers: the United States, China and India.” Pinkerton said environmental concerns could also boost the standing of natural gas, which he said has a much smaller carbon footprint than crude oil or especially coal. “There is no such thing as clean coal,” he said.

Full Story at http://www.star-telegram.com/business/story/655207.html

Drillbits

Natural Gas Heading for a Double?

The general rule of thumb relationship between the price of one barrel of oil and one mcf of natural gas is 6 to 1. Based on the btu's available to power generation plants from each energy source, if oil is trading at $60/bbl, then the equivalent cost of using natural gas would be $10/mcf. Seasonal supply and demand factors always skew this price relationship somewhat but because U.S. power generators are the largest users of natural gas and signifcant users of heating oil, the relationship tends to revert to the 6:1 mean as the pricing disparities drive demand to one or the other.

This morning, crude oil futures have set another record by crossing above the $130/bbl mark yet, natural gas is trading at $11.50/mcf. The old "rule of thumb" says that either natural gas should be $21.66, or oil should be at $69. The difference this time around, however, is that oil demand is coming from outside of the old price dynamic; namely, the rest of the world, And, further, supplies cannot keep up.

It doesn't sound like oil is heading to $69 anytime soon. With peak power demand coming in the months ahead...........can you say $20 natural gas?

Early yesterday, investor T. Boone Pickens told CNBC he expected oil to hit $150 this year because supply isn’t keeping pace with demand. Very interesting interview at: http://www.cnbc.com/id/15840232?video=748353630&play=1

Marcellus Looking Better to Epsilon

Epsilon Energy Ltd.is pleased to announce that it has received approximately $6.26 million dollars from the sale of non-core and unproved leasehold covering its Swan Creek and Bootleg projects in Ohio. An additional amount of up to approximately $450,000 may be realized if certain title issues are cleared within the next 120 days.

Mr. Fred Zaziski, Epsilon's President and CEO stated "We have been afforded the opportunity to cash-out some of our non-core and unproved acreage at a substantial profit. We will now be able to re-deploy the proceeds of this transaction into our horizontal drilling program in Pennsylvania which is focused on the Marcellus shale, where we believe we will achieve a substantially higher internal rate of return, as compared to the Lower Huron and Rhinestreet shale gas formations

Full Story at http://biz.yahoo.com/iw/080520/0398991.html

Chesapeake Raises $1.3 Billion - More Marcellus?

Late yesterday Chesapeake Energy announced the placement of $500 million of contingent convertible senior notes due 2038 and $800 million in senior notes due 2018. Chesapeake intends to use the net proceeds from the offerings to fund the redemption of its 7.75% Senior Notes due 2015, to repay outstanding indebtedness under its revolving credit facility, and for general corporate purposes.

Interestingly, according to the 12/31/07 10-K filed in February, the indebtedness under the 7.75% notes being redeemed is $300 million. leaving $1 billion for general corporate purposes and/or reduction of the outstanding credit facility. As of 12/31/07, Chesapeake owed $1.95 billion under the $3.5 billion revolver. Considering what are very favorable interest rate terms on the revolver, it would seem that that these funds are destined for investment. More Marcellus perhaps?

Full Stories at http://phx.corporate-ir.net/phoenix.zhtml?c=104617&p=irol-newsArticle&ID=1147842&highlight= & http://phx.corporate-ir.net/phoenix.zhtml?c=104617&p=irol-newsArticle&ID=1147826&highlight=

Quest Expands Marcellus Acreage in SW PA

Quest Resouces announced the signing of a letter of intent between its New Ventures group and a private company that would expand its Marcellus shale position by 30,000 acres in Pennsylvania. New Ventures will now have rights to develop 52,000 acres in the southwestern part of the state.

Full Story at http://money.cnn.com/news/newsfeeds/articles/marketwire/0398327.htm

Atlas Raises Capital to Accelerate Marcellus Development

Atlas announces today that it has priced a public offering of 1.6 million common units representing Class B limited liability company interests. Atlas Energy intends to use the net proceeds from this offering to repay a portion of its outstanding balance under its revolving credit facility to create additional borrowing capacity to fund additional acreage acquisitions and accelerated development of the Marcellus Shale as well as further development of its other drilling programs and lease acquisition activities

Full Story at http://biz.yahoo.com/bw/080515/20080515006354.html?.v=1

Statewide TV call-in program looks at natural gas rush in Pennsylvania

With residents across the state asking questions about the Marcellus Shale formation, natural gas exploration, mineral rights leasing and a number of other associated issues, WPSU-TV is responding with a one-hour live call-in program. At 7 p.m. on Thursday, May 22, WPSU-TV in central Pennsylvania will present "Pennsylvania’s Gas Rush." This live call-in program will also be simulcast statewide on The Pennsylvania Cable Network (PCN) and Web cast via http://wpsu.org/gasrush/.

Full Story http://live.psu.edu/story/30836