Plenty of pluck left in the Marcellus, report says

HOUSTON — The Marcellus region is now the biggest natural gas shale play in the world, and there’s still about $90 billion to be made by tapping the area’s reserves, according to a study by energy analyst group Wood Mackenzie.

The Marcellus, which stretches from New York to West Virginia, produced about 15.6 billion cubic feet of natural gas per day in August, about 38 percent of total U.S. natural gas production for the month, according to the U.S. Energy Information Administration. The agency doesn’t expect the boom to taper off anytime soon, and several of the biggest companies are cashing in.

Wood Mackenzie predicted that the top 20 operators in the Marcellus will  earn nearly $86 billion over the life of the play after  the costs of reaching the reserves. Among the 20 largest operators are Fort Worth-based Range Resources Corp., Pittsburgh’s EQT Corp., Houston’s Cabot Oil & Gas Corp. and Denver-based Antero Resources.

For comparison, Wood Mackenzie estimated that there’s about $118 billion to be made by extracting the resources in North Dakota’s Bakken region — but most production there is higher-priced oil compared to the natural gas dominant in the Marcellus.

At the peak of activity between 2018 and the early 2020′s, companies will drill 2,600 wells per year in the Marcellus, Wood Mackenzie analyst Jonathan Garrett projected, up from about 1,400  this year. The new wells will drive production up by nearly 25 percent to 20 billion cubic feet of natural gas equivalent per day by 2020, according to Wood Mackenzie.

Those big production numbers have contributed to lower natural gas prices in the region, especially in the northeast sections where there’s not as much infrastructure to bring the gas to market, Garrett said. But even with gas in those regions going for less than the U.S.  benchmark Henry Hub price, operators can make a hefty profit. Returns on investments can be as high as 30 percent to 40 percent in the  best areas of the play, Garrett said.

The prospect of returns like that will draw $10.9 billion in new capital to the region in 2014, Wood Mackenzie estimated, far more than any other gas play. Through 2035, the top 20 operators are expected to spend nearly $110 billion in the Marcellus and drill more than 25,000 new wells.

Most of those wells are now being drilled in the in the Southwestern Pennsylvania region and West Virginia, where wells produce  natural gas that contains valuable natural gas liquids and condensates. There’s also still strong opportunity in the Northeastern Pennsylvania area, where high-pressure wells that contain only natural gas — what the industry calls dry gas — can produce a great deal of it quickly, Garrett said.

Overall, he said, Wood Mackenzie’s estimate of $90 billion in remaining value may turn out to be on the low side.

“If well costs continue to trend down and well results continues to trend up,” Garrett said, “I wouldn’t be surprised if this number goes up a bit.”