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The proximity to the Northeast markets provides incentive for companies to continue activities in the Marcellus shale even though natural gas prices remain in the doldrums.
The number of drilling rigs in Pennsylvania reached a three-year low at the end of September. However, production continued to climb during the first half of 2012, according to data from the Pennsylvania Department of Environmental Protection (DEP).
The culprits were low natural gas prices for the former and new gathering system infrastructure coming onstream for the latter. Production is expected to increase even more since so many wells are waiting to be connected to the delivery pipelines, according to an article in the Philadelphia Inquirer Oct. 3, 2012. About one-third of the completed wells in the state are still waiting for a hookup.
The rig count in Pennsylvania was at 63 rigs by late September 2012, down from 109 rigs a year earlier. Some rigs have been moved out of the state as companies pare down drilling. The number of rigs in Ohio, mostly in the Utica play, rose to 19, an increase of six rigs since last year. West Virginia had 27 rigs running both this year and last year.
The US Energy Information Administration (EIA) said in May, "With the shift to and increase in horizontal wells, Pennsylvania's natural gas production more than quadrupled since 2009, averaging nearly 3.5 Bcf/d in 2011.
"Drilling programs in Pennsylvania's shale formations, like those in other, more established plays such as the Barnett and Eagle Ford in Texas, are migrating to more liquids-rich areas due to the price premium of crude oil and natural gas liquids.
"The effect of low natural gas prices is apparent in Pennsylvania's 2012 well count for the first third of the year. From January through April, drilling began on 618 new natural gas wells; over 700 new natural gas wells were started over the same period in 2011. In contrast, 263 new oil and 'combination' (oil and natural gas) wells were started in Pennsylvania from January through April 2012, well above the 164 new wells that began drilling during the corresponding period in 2011," according to EIA.
Focus on drilling, production efficiency
Even though the number of drilling rigs in the Marcellus has fallen, companies continue to develop the available resources through more efficient drilling and production technology.
Consol Energy, for example, said in its operations update in July that it achieved a peak 24-hour production rate of 17.9 MMcf in a well in Westmoreland County, the highest of any well in company history.
During 2Q 2012, the company drilled 17 Marcellus shale wells and placed another 18 wells online. Noble Energy, operator of a joint venture with Consol, drilled six Marcellus wells in the liquids-rich area of the play. Noble has one rig drilling in the area, and two additional rigs are expected to arrive in 3Q 2012. Noble Energy now expects to drill 31 wells in 2012 on its operated acreage, down from earlier expectations of 39 wells, according to the company.
Consol has reduced the cost of completing its wells. The company pointed out that its costs per frac stage in 2011 was US $205,000 per stage. In 2012 to date, frac costs have declined to $181,000 per stage.
The company has found other ways to improve production efficiency and lower costs. The Gas Division extended its laterals to an average of 1,242 m (4,100 ft) in the first half of 2012. In 2011, the average was 1,000 m (3,300 ft). "Longer laterals, when combined with other efficiencies such as pad drilling, help to make Consol's Marcellus shale program economic at current projected NYMEX prices," said the company's update report in July.
The division also used water from coal mines for hydraulic fracturing for the first time. "The three-well Morris 14 pad in southwest Pennsylvania was fraced with a 10% blend of mine-sourced water. The pad came online in early July and was producing at an initial rate of 18 MMcf per day," according to the report.
Anadarko Petroleum ended its 2Q 2012 producing about 1.2 Bcf/d gross from about 340 wells. The company spudded 17 wells during the quarter using four operated rigs. Another 39 wells were spudded with 11 non-operated rigs.
"The company's focus on capital efficiency and optimization has resulted in a 16% reduction in drilling costs since 1Q 2012, while drilling cycle times have been safely reduced to an average of 20 days per well from 22.5 days during 1Q 2012," according a 2Q 2012 report from Anadarko. "The company also reduced its average completion cost to approximately $3.7 million per well compared to $4.5 million per well at year-end 2011."
Anadarko also began testing another formation in the play. Its first Geneseo well was completed with encouraging early results. The formation is about 303 m (1,000 ft) shallower than the Marcellus shale. The company expects to begin production from a second Geneseo well soon.
Cabot Oil & Gas Corp. maintains its enthusiasm for the play. Marcellus production averaged more than 700 MMcf/d for the last two weeks in August, hitting a record 752 MMcf during one 24-hour period.
"This production increase was driven by a coordinated effort to manage field line pressures rather than new well connections," said Dan O. Dinges, chairman, president, and CEO in a press release. "Our infrastructure provider, Williams Partners LP, recently completed a series of projects and upgrades that improved the pipeline system operating efficiency, allowing increased production."
Recently released data from the state of Pennsylvania showed that the company had 14 of the top 20 producing wells in the first half of 2012. "Since the start of our efforts in Pennsylvania, our cumulative production has reached 354 Bcf, with only 145 producing horizontal wells," said Dinges.
The DEP noted that the top five gas producers – Chesapeake Energy Corp., Cabot Oil & Gas, Talisman Energy USA Inc., Range Resources Corp., and Anadarko – produced 61% of the state's total. The four most productive counties, representing 68% of production, are Bradford, Susquehanna, Lycoming, and Tioga.
In West Virginia, one company that is planning on increasing its operations in the Marcellus is Antero Resources. The company is operating 10 drilling rigs in the play in northern West Virginia. An 11th rig was being added in August and a 12th rig in October.
Antero has 315 MMcf/d of gross operated production in the play, of which 98% is coming from 88 horizontal Marcellus wells. Nineteen horizontal wells are either being completed or waiting on completion.
The company also has two fully dedicated frac crews currently working along with spot crews as needed. A third Antero-dedicated frac crew is scheduled to begin work in 4Q 2012. In 2Q 2012, Antero completed 13 horizontal Marcellus wells with an average 24-hour peak rate of 14 MMcf/d and an average lateral length of approximately 2,182 m (7,200 ft).
Antero has 258,000 net acres in the Marcellus shale play. Only 16% of that acreage was associated with proved reserves at mid-year 2012.
Citrus Energy now ranks as the No. 10 producer in Pennsylvania with 14 wells, all in Wyoming County. The company has the two top wells in the state with only 26,500 leased acres.
Long-term service life
The service companies still see the Marcellus as an area for continued drilling and development. "Many of the operators are migrating toward the liquid producing areas and are looking for reliable and efficient solutions to solve their development challenges," said Thomas Distephano, northeastern general area manager, Weatherford International.
Weatherford has operations in Indiana, Illinois, Kentucky, West Virginia, Pennsylvania, and Ohio to service clients in the Marcellus and Utica shale plays. "We are currently moving more resources to client job sites in the area, and in most cases the additional bodies are related to an introduction of a new product or service. Additionally, we are building new locations so we are better equipped to supply resources when needed, and the goal is to hire and train locally when possible," he told E&P.
"The Marcellus has proven its economic value but is still in its infancy in terms of lifecycle, so we anticipate continued activity for the coming decade. We believe the Marcellus operators will turn to technology to increase efficiency and maximize their rate of return. These technological improvements will materialize in both the drilling and completions phase of the well," he said.
Other companies pull back
According to EOG's 2Q 2012 report, the company planned to further decrease its drilling activity on its dry gas reserves during the second half of 2012 "due to the ongoing weakness in natural gas pricing.
"Through active drilling programs in prior years and 2012 to date, EOG has captured strategic natural gas acreage in the Uinta, Horn River, Barnett, Haynesville, and Marcellus plays. When natural gas prices rebound, EOG will hold an attractive portfolio of natural gas resources for future development," according to its report.
Refining impacts, new technology
One unexpected impact from the Marcellus boom has been the turnaround of three refineries in Pennsylvania. The Marcus Hook crude oil refin ery shut down in Decem ber 2011 due to high crude oil prices overseas. In July, Delaware County offi cials released an IHS report that rec om mended renovating the plant to use Marcellus gas.
Two other refineries have seen changes in ownership that want to take advantage of the nearby surplus of gas and liquids. Sunoco's Philadel phia refin ery was purchased by the Car lyle Group and is now Philadelphia Energy Solu tions. Delta Air lines bought the idled Cono coPhillips refin ery in Trainer to refine jet fuel for the airline.
On the technology side, EQT Corp. has launched several different projects that impact the bottom line. The company began a program to convert the power generation on drilling rigs to use LNG, displacing the diesel at the well site. This program marks the first LNG rig conversion in the Marcellus shale and will provide a cleaner burning alternative fuel for the region's drilling operations.
"We continually look for opportunities to improve our operations, and displacing diesel, by introducing the use of alternatives such as LNG and field gas, is one way of doing so," stated Steve Schlotterbeck, president, E&P for EQT, in a press release. LNG is about 40% less expensive than diesel. The LNG being used for EQT's pilot program is produced locally from Marcellus natural gas reserves. EQT's initial rig conversion is now operating in northern West Virginia. A second rig also has been converted and is now in operation.
EQT also introduced its new fracing design. Its original design called for 91-m (300-ft) stages consisting of five clusters on 18.2-m (60-ft) spacing. The new design calls for 45.5-m (150-ft) stages that consist of five clusters on 9.1-m (30-ft) spacing.
The wells using this design have a 40% higher IP and 20% to 25% greater estimated ultimate recovery. The incremental cost per well is about $1.2 million. The return on the incremental investment is higher than 100% at a NYMEX gas price of $4 per MMBtu.