A surprisingly large group of natural gas players attended the DUG East (Developing Unconventional Gas) conference in Pittsburgh, Penn., last month to discuss Marcellus shale activities. This emerging Appalachian play is an impressive resource and companies are expanding upstream and midstream infrastructure and moving into 24-hr operations to drill and complete hundreds of new wells.

Operators agreed that the Marcellus has low finding and development costs compared with other shale gas plays.

Well costs are dropping as companies hone drilling parameters and progressively improve hydraulic fracture stimulation performance.

Horizontal drilling has gained widespread acceptance and has produced better initial flow rates (up to 26 MMcf/d in a Range Resources Corp. well in Washington County, Penn.). While drilling has dropped off in other plays, activity in the area has been steady. According to Smith Tool International, there were 46 horizontal rigs running in Pennsylvania in July, and 45 in August.

In general, the Marcellus is higher-pressured through Pennsylvania (dry gas in northeast, wet gas in southwest) and lower-pressured in West Virginia, where companies use air-drilling to avoid formation damage.

Range is experimenting with longer laterals and more frac stages. In the last 21 jobs, Range ran eight-stage fracs. The company is also considering reducing well spacing from 1,000 to 500 ft (305 to 152.5 m) and is using new technology that allows water to be recycled. Jeff Ventura, president, chief operating officer, and director of Range said, “recycling flowback water and produced water significantly improves efficiencies and costs.”

Murry Gerber, EQT Corp.’s chairman and chief executive officer, acknowledged the 1,300-strong audience at DUG East as a “a staggering display” of interest in the Appalachian basin shale. He noted there are 3 million Americans employed in the natural gas business (“roughly half of them here today”).

EQT (previously Equitable Resources Inc.) is running 22 drilling rigs in the Marcellus and will have drilled 41 horizontal wells by the end of 2009. The company started off drilling US $5.5 million wells, now spends $3.3 million/well, and expects to work down to $3 million/well in the near term. Gerber attributed the drop in development costs primarily (80%) to process improvements (pad drilling, bit selection) and 20% to a drop in rig rates. EQT does not own any drilling rigs; it contracts rigs from Patterson-UTI Energy Inc., Helmerich & Payne Inc., Union Drilling Inc., and recently brought in a (purple) Savanna Energy Services rig from Canada.

The company plans to increase its drilling in the Marcellus, and Gerber said the Lower Huron (southern extension of the Marcellus) and Berea sandstone are “staggeringly good.”

EQT has been successful with a “starship” drilling pattern (multilateral well bores) in the Huron and Berea formations, in which it fracs the main well bore, but not the limbs. It is now experimenting with the pattern in the Marcellus as well.

Rex Energy Corp. has 65,000 net acres in the Marcellus fairway in Pennsylvania. The company is running two horizontal-drilling rigs and one vertical rig in the Marcellus and will drill eight horizontal wells and five vertical wells this year.

Benjamin Hulburt, chief executive officer, told DUG East participants that operating in Pennsylvania is “light years” better than it was a few years ago. Drilling permits are now issued in 30 days, compared with three- to six-month processing in mid-2008.

Water issues are somewhat overblown, he said. Rex is recycling nearly 100% of its frac water, and access to water is regulated by the various river basin commissions.

Cabot Oil & Gas Corp. has more than 160,000 net acres in northeast Pennsylvania. Michael Walen, senior vice-president and chief operating officer said the Marcellus “may turn into America’s biggest gas field.” He thinks shale resources are a critical component in alleviating the US energy crisis.

The company is drilling 36 horizontal wells and 22 vertical wells in its 2009 Marcellus program, with six horizontal rigs and two to three smaller rigs to drill top holes. In Susquehanna County, Penn., Cabot spends about $1.5 million to drill a vertical well and $3.5 million to drill a horizontal well. Drilling efficiencies have improved dramatically, from 87 days and $335/ft in January 2009 to 22 days and $139/ft in June 2009.

Walen said he expects Cabot to fracture one horizontal well per week through 4Q 2009. The choke point, he said, is being able to transport enough water, fast enough, along narrow, winding roads. Cabot will drill “considerably” more wells in 2010 and move to 1,000-ft well spacing and six horizontal wells/pad.

Chesapeake Energy Corp. holds 1.3 million net acres in the Marcellus and recently engaged Norway’s StatoilHydro in a joint venture. The company operates 18 rigs in the Marcellus with plans to top out with about 40 rigs in 2011.

Aubrey McClendon, Chesapeake’s iconic chairman and chief executive officer, said the Marcellus is likely to be among the top five largest gas fields in the world and “transformative” for the country. He expects the play to reach peak production in 2028.