Marcellus wells top expectations

gasproduction

BY LAURA LEGERE 

Times-Shamrock Writer

Marcellus Shale gas wells in Northeastern and Northcentral Pennsylvania led the state in natural gas production last year, exceeding even industry predictions about the promise of the gas-rich shale, according to well production data released for the first time by the state.

In the 12 months between July 1, 2009 and June 30, 2010, the state’s 632 producing Marcellus wells released 180 billion cubic feet of gas – an amount that more than doubles Pennsylvania’s annual natural gas production from the years before the shale exploration began.

The well-by-well data was released for the first time since the governor signed a law in March that required Marcellus operators to report their production totals every six months and eliminated a provision that would have kept the data confidential for five years.

The production data posted on the Department of Environmental Protection’s website appeared much earlier than the Nov. 1 date the department set for making the information available online. It provides the first public look at how much gas the booming industry is pulling from the shale that underlies three-fifths of the state.

Eight of the 10 wells that produced the largest volume of gas last year are in Susquehanna County, including the top well – Chesapeake Appalachia LLC’s Clapper 2H well in Auburn Township – which produced 2.8 billion cubic feet of gas over 270 days.

Of the top 20 producing wells, all but one are in Susquehanna, Bradford or Tioga counties.

Raymond Deacon, an analyst with Pritchard Capital Partners LLC, sorted the wells’ production depending on how long they were online in order to measure their performance.

“It seemed like in every case, all the counties in the northeast really stood out as being among the strongest in terms of production,” he said.

“It shows the northeast looks much more prolific in terms of how much you’re getting out of the wells.”

As far as the rate of gas production is concerned, 18 of the top 20 wells based on average daily production are in the Northern Tier counties. Of those, 13 are in Susquehanna County and one is in Wyoming County.

The top average producing well in the state is Cabot Oil and Gas’s R. Smth 3H well in Springville Township, with an average daily production of more than 11.06 million cubic feet of gas each day, with 128 days of production during the fiscal year.

In Wyoming County, Citrus Energy’s well number PG2-1H on the Procter & Gamble property in Washington Township ranks fifth in the state, with an average daily production  of more than 10.04 million cubic feet of gas each day. That well had production for 22 days during the fiscal year.

Terry Engelder, a geosciences professor at Penn State University who studies the Marcellus Shale, said the production reports show that the expected ultimate recovery for the wells – the cumulative amount of gas each well will produce – is going to exceed predictions made by the industry in the earliest days of the shale exploration.

Engelder compared the average cumulative production for Marcellus wells drilled horizontally in the shale in a five-county core area in the Northcentral and Northeastern part of the state last year to predictions about the average cumulative production of Marcellus wells released by Chesapeake Energy to investors in 2008.

The actual numbers last year surpassed the company’s expectations, even though “expectations were quite high,” Engelder said.

“Everybody is going to be happy with these numbers,” he said. “These numbers are huge.”

John Harper, chief of the mineral resources division of the Pennsylvania Geological Survey, noted that the Marcellus wells that produced gas in the last fiscal year averaged almost 2 million cubic feet per day – “a lot better” than the earliest dozen or so Marcellus wells in the state that produced an average of only 89,000 cubic feet per day.

“The amount of Marcellus natural gas reported is very encouraging,” he said.

The production numbers also help create a fuller picture of the economic potential of the shale.

The Marcellus gas produced in the state last year was worth about $720 million, Engelder said – a large number but much less than the cost of drilling and developing the wells.

Matt Pitzarella, a spokesman for Range Resources, which reported a total production of about 35 billion cubic feet of natural gas and 402,000 barrels of natural gas liquids last year, said the report indicates what the industry believed, “which is that it is a very large natural gas discovery and could be one of the largest anywhere when it’s all said and done. It’s just going to take time.”

Pitzarella added that the “very promising” production numbers in the report represent the earliest stages of the shale development, and it will still take several years for each well to break even.

“It’s very much a long-term investment,” he said.

Harper pointed out the production data’s implications for a state severance tax on the shale gas, which the legislature plans to adopt by Oct. 1.

If a 5 percent tax had been levied on the value of all Marcellus gas produced last fiscal year, it would have earned the state around $40.5 million, he said.

Encana Oil & Gas USA Inc. is working on Luzerne County’s first two exploratory natural gas wells. One well, in Fairmount Township, is still being drilled and the second well, in Lake Township, has not been started. Since neither well is completed, data will not be available until either or both wells start producing natural gas.

Elizabeth Skrapits and Michael J. Rudolf contributed to this report.

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