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

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

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

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

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)

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

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

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

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

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=

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

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

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=