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