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=