There is tremendous good financial news on multiple fronts in the Marcellus Shale region, at least those parts of it where the natural gas industry is allowed to thrive.
Pennsylvania, like neighboring Ohio and many other states, has viewed its oil and gas industry as a valuable resource to be developed for the common good and companies doing business there, companies such as Range Resources, Cabot Oil & Gas, Chief Oil & Gas and Southwest Energy, all have much to celebrate.
Unlike New York, where government, media, and special interest groups have mangled the free-market with regulation and politics, it’s been a completely different story in the Commonwealth, at least that part of it outside the Delaware River basin. Marcellus Shale exploration and production companies have been allowed to become emblems of free enterprise in Pennsylvania. Consumers, investors, landowners and workers (that takes in pretty much all of us) are reaping the rewards: cheap natural gas, plenty of supply and financial opportunities big and small. Several relatively recent pieces of good financial news help tell the much bigger story.
Range Resources Crosses 1 Bcf Daily Production Threshold
Range Resources (RRC) announced earlier this week that it had archived a production milestone in the Marcellus Shale, an average daily production of 1 billion cubic feet (Bcf) of natural gas. This puts Range Resources into a very select group of operators, elite exploration and production companies who have cracked (pun intended) the Marcellus Shale to release enormous amounts of gas from a rock layer previously thought, inaccessible. This is a big deal, just likes Range’s 540,000 acres of leased acreage in Southwestern Pennsylvania, depicted below (yellow represents townships where Range has at least 3,000 acres).
Chesapeake Energy Corporation was the first Marcellus operator to reach the 1 Bcf of production level. That company did it sometime in 2012.
EQT also reached the milestone recently, in the fall of 2013.
Now, Range Resources is there as well. Range also announced 17 super-rich wells it has developed are consistently producing above the type curve previously established for them. The production associated with all natural gas and oil wells follows a pattern whereby much more is produced initially followed by a sharp drop and eventual steady decline. The exact shape of this curve can never be known in advance but predictions are made for investment purposes based on past experience and these Range Resources wells have greatly exceeded those expectations. The company is reporting higher than average gas and liquid hydrocarbons without experiencing the sharp drop yet.
Cabot Oil & Gas Wells “Still Howling” A Year Later
Production figures and type-curves like this are becoming more common across the Marcellus Shale as Cabot Oil & Gas (COG) experience indicates.
“A year later, and that well is still howling,” Brendan Gibbons would write, quoting Cabot Oil & Gas Corporation spokesperson (and my former Energy In Depth colleague) Bill desRosiers in a recent article about the company’s now-legendary gusher wells known simply as the Flowers. Here’s more:
These two wells, Flower 2 and Flower 1, are the No. 1 and No. 3 wells in the state, according to a January through June production report filed with the state Department of Environmental Protection. Flower 2 produces about 30 million cubic feet a day, Flower 1 produces around 28 million. One day’s worth of gas from Flower 2 could fill more than 8,800 city buses.
Calculating for the most recent wellhead price reported by the U.S. Energy Information Administration, $3.35 per thousand cubic feet of gas, this means Cabot’s top well produces an average of $100,500 worth of gas per day.
The Flower wells will produce 14 billion cubic feet of gas over their lifetime, Cabot spokesman George Stark said. During its operations in West Virginia, the company would have been “ecstatic” to see a well produce 750 million cubic feet, three-quarters of a billion cubic feet, over its life, he said.
The even better news is how this production is putting people to work locally and the way the economic impacts ripple throughout the economy. This must watch video tells it all.
Chief Oil & Gas Expanding in the Marcellus Shale
Chief Oil & Gas is another company on the rise in the Marcellus Shale. It just re-upped its commitment to the region with this self-explanatory announcement:
Chief Oil & Gas and working interest partners Enerplus and Tug Hill have acquired MKR Holdings LLC from Chesapeake Appalachia LLC for approximately $500 million.
The acquired assets include current month production of approximately 130,000 MCFD and approximately 40 operated wells waiting on completion or pipeline as well as undeveloped acreage. The acquisition includes leasehold in Bradford, Lycoming, Sullivan, Susquehanna and Wyoming Counties in Pennsylvania.
“With this acquisition we have significantly expanded our operational footprint in the northeastern Pennsylvania region,” stated Sam Fragale, Senior Vice President of Operations for Chief Oil & Gas. “This acquisition comes with existing cash flow from current production, increases our working interest in wells we currently operate and provides additional development opportunities in a great area.”
Chief Oil & Gas had existing working interest in many of these wells and will be increasing its ownership percentage in these and future wells as a result of the acquisition. Chief Oil & Gas currently operates more than 100 wells in the Marcellus Shale and owns approximately 210,000 gross leasehold acres.
This asset purchase is another stage in the multi-phased growth plan for Chief Oil & Gas in the Marcellus Shale region.
Chief Oil & Gas is active in some of the same areas where Cabot has done so well and positioned to grow and put still more people to work. It, too, is using upwards of 85% local labor and, together with its partners, is investing in the Marcellus Shale region precisely because of its “superior economics.”
Southwestern Energy Expects to Grow Marcellus Shale Production 60% Using Less Capital
Southwestern Energy (SWN) picked up a lot of the Chesapeake Energy holdings in the Marcellus Shale not so long ago and is experiencing some of the same production miracles experienced by Range Resources and Cabot. It expects to grow its production by 60% in 2014 using less capital, which says something very positive about the progress of the industry and its evolving technology.
In the Marcellus Shale, the company expects total net production to grow by over 60% in 2014 to 244 to 249 Bcf, compared to 148 to 149 Bcf that is projected to be produced in 2013.
“2014 is going to be a good year for Southwestern Energy,” stated Steve Mueller, President and Chief Executive Officer of Southwestern Energy. “In the Marcellus Shale, our production growth will exceed 60% from 2013 levels even though we will invest less capital. This reflects the continued improvement in well performance in our Bradford, Lycoming and Susquehanna acreage. Our Susquehanna County properties continue to encourage us, as we recently placed a well on line that achieved a peak 24-hour production rate of over 32 MMcf per day. We also plan to begin delineation of the acreage we acquired in 2013 inWyoming, Sullivan, and Tioga counties…
In the Marcellus Shale, Southwestern plans to drill approximately 41 wells in Bradford County, 27 wells in Susquehanna County, 7 wells in Lycoming County and 8 horizontal delineation wells on the company’s acreage it acquired in 2013 inWyoming, Sullivan and Tioga Counties. The company expects that the average re-entry to re-entry time to drill its operated horizontal wells to total depth will be approximately 11.3 days in 2014, compared to approximately 11.9 days projected for 2013. Southwestern’s average 2014 completed well cost is estimated to be $6.8 million per well with a 4,950 average horizontal lateral with 18.0 completed stages, compared to an estimated $7.0 million well cost with an average horizontal lateral length of 4,900 feet and 17.5 completed stages in 2013.
Bright Future Ahead for the Marcellus Shale
There’s not much more that needs to be said, as these financial numbers tell a rather incredible story about an industry that’s brought jobs, opportunity and financial rewards to Pennsylvania while next door New York daily squanders its resource inheritance.
Moreover, this is only half the story because consumers with no direct connection to the industry are saving major money in lowered heating costs throughout the Northeast and getting cleaner air to boot. It’s opportunity at every level within the Marcellus Shale. No better investment has been made than Pennsylvania’s in this spectacular play. Now, if we could just get Gov. Cuomo to stop cowering in the corner and someone with guts to take on the DRBC…