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.

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.

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

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=

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