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How Long Can the Mighty Marcellus Sit Atop the Gas Market? Part I

For years now we’ve heard the stories of monster Marcellus wells in Northeast Pennsylvania, some with initial production rates topping 30 MMcf/d.  Gas production from the region has grown substantially over the past five years, elbowing out production from other dry gas plays in the Rockies, Midcontinent and even the Haynesville.  But how long can the Marcellus set the marginal price of producing natural gas in the US?

Fair warning, we won’t be able to cover all the analysis necessary for this answer in a single 400 word post.  In this first post, we will provide some visuals that demonstrate the strong well performance seen to date as well as the true size of the core area.

The distribution of results from wells in NE PA shows that although wells IP’ing at 30+ MMcf/d do happen, they aren’t the norm.   The chart below shows dots that represent the cumulative production for individual wells in the NE PA region plotted against the days the well has been on production along with curves that show how wells with expected EURs of 3, 6, 10 and 15 Bcf will produce over time.  Most wells in NE PA are on track to produce between 6 and 10 Bcf over their lives.

The next question is the size of the ‘core’ of the Marcellus in NE PA.  Simply put, the size of the core is the first step in calculating the remaining inventory of wells that can be drilled in a play. To condense the results in first chart into something that works on a map, we calculated implied IP rates from data reported by the PA Department of Environmental Protection (DEP). These IP rates show a defined core area across Susquehanna, Wyoming, Bradford and Sullivan Counties.  Note that this map also includes wells that have been spud but aren’t yet producing according to the PA DEP data from March, giving us an indication of which areas will be contributing to production in the coming months.

Knowing the distribution of well results and the size of the core of the play are a good first step towards understanding play life.  But well economics, well spacing and transportation dynamics must also be considered for a complete picture. Stay tuned for follow-up posts to cover those topics.

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Kathryn Downey Miller is President of BTU Analytics where she leads the firm’s consulting and analytics groups in delivering market advisory services to clients across all sectors of the industry. Additionally, Kathryn oversees strategic planning, financial budgeting and analyst development for the company. Prior to founding BTU Analytics, Kathryn built market expertise in a diverse set of prior industry roles, including buyside investment research at an energy focused hedge fund, energy market fundamentals consulting at Bentek Energy, investor relations strategy consulting for E&P companies and investment banking at Citigroup. She speaks frequently at industry events on North American energy markets and is a CFA charterholder.

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