Marcellus tops Haynesville as leading US gas play
A new IHS report points to a new leader for the North American market, writes Shaun Polczer
The mighty Marcellus shale has surpassed Haynesville as the largest natural gas producing region in the US, according to a new IHS report. New pipeline expansions have allowed production from Marcellus to exceed 7 billion cubic feet per day (cf/d) just seven years after the first horizontal well was drilled in 2006. "The Marcellus has been a game-changer for early entrants," said Bryan McNamara, author of the IHS report Marcellus Shale Company Play Analysis. "Companies have created significant shareholder value through low-cost, efficient growth that has been commensurate with the explosion of production coming from the Marcellus."
Output from Marcellus has continued to grow in spite of low natural gas prices and a falling rig count. With gas prices averaging $2.75/m British thermal units (Btu) in 2012, the number of Marcellus rigs fell by a third over the course of the year to approximately 80 rigs. Yet the number of drilling permits only fell 5% in the same period, which IHS suggests is indicative of a "robust inventory" of future drilling locations when prices recover.
Despite the falling rig count, the Marcellus has more gas-directed rigs than any other region in the US. Activity has kept pace in the top five counties - Bradford, Lycoming, Susquehanna, Tioga and Washington. With the exception of Washington County, all are located in the dry gas window in the northeast section of Pennsylvania. More than 3,100 Marcellus wells have been drilled in the past two years.
Even as large producers like EOG Resources scale back gas drilling in the Marcellus, returns in the play remain strong, according to IHS. Lower prices have forced producers to become more efficient by using longer laterals and higher numbers of fracture stages per well, which in some wells has doubled the expected ultimate recovery volume.
Cabot Oil & Gas, active in Susquehanna County, has seen its proved undeveloped reserves per Marcellus well go from 4.5bn cf in 2009 to 9bn cf in 2012, with some producing wells booked in excess of 20bn cf.
Some producers can turn a profit at $3/m Btu, which bodes well for 2013. The IHS outlook calls for an average natural gas price of $3.72/m Btu, rising to $3.98/m Btu in the second half of the year.
Said McNamara: "In this case, we anticipate drilling activity picking up across all five counties, given the potential for higher returns. We expect continued operational success and high production growth to remain value drivers."