Marcellus Shale And Natural Gas Production In The NE United States

The successful production of large volumes of natural gas from shale rocks has enormously positive economic consequences for America, and indeed, the world. This is a relatively recent development of extreme importance. For an idea of how important natural gas is, consider exactly what it is and its many uses:

Natural gas is a gaseous fossil fuel consisting primarily of methane but including significant quantities of ethane, propane, butane, and pentane—heavier hydrocarbons removed prior to use as a consumer fuel —as well as carbon dioxide, nitrogen, helium and hydrogen sulfide.[1] It is found in oil fields (associated) either dissolved or isolated in natural gas fields (non-associated), and in coal beds (as coalbed methane).

This so-called "Shale Gas" and the Marcellus Shale development warrants close attention.
Peter
(source)

Marcellus Shale - Appalachian Basin Natural Gas Play
New research results surprise everyone on the potential of this well-known Devonian black shale.
Super Giant Field in the Appalachians?A few years ago every geologist involved in Appalachian Basin oil and gas knew about the Devonian black shale called the Marcellus. Its black color made it easy to spot in the field and its slightly radioactive signature made it a very easy pick on a geophysical well log. However, very few of these geologists were excited about the Marcellus Shale as a major source of natural gas. Wells drilled through it produced some gas but rarely in enormous quantity. Few if any in the natural gas industry suspected that the Marcellus might soon be a major contributor to the natural gas supply of the United States - large enough to be spoken of as a "super giant" gas field.

Early Marcellus Estimates by USGSAs recently as 2002 the United States Geological Survey in its Assessment of Undiscovered Oil and Gas Resources of the Appalachian Basin Province, calculated that the Marcellus Shale contained an estimated undiscovered resource of about 1.9 trillion cubic feet of gas. [1] That's a lot of gas but spread over the enormous geographic extent of the Marcellus it was not that much per acre.

The First Hints of Big Production

Range Resources - Appalachia, LLC may have started the Marcellus Shale gas play. In 2003 they drilled a Marcellus well in Washington County, Pennsylvania and found a promising flow of natural gas [2]. They experimented with drilling and hydraulic fracturing methods that worked in the Barnett Shale of Texas. Their first Marcellus gas production from the well began in 2005. Between then and the end of 2007 more than 375 gas wells with suspected Marcellus intent had been permitted in Pennsylvania [2].

Recent Surprise EstimatesIn early 2008, Terry Englander, a geoscience professor at Pennsylvania State University, and Gary Lash, a geology professor at the State University of New York at Fredonia, surprised everyone with estimates that the Marcellus might contain more than 500 trillion cubic feet of natural gas. Using some of the same horizontal drilling and hydraulic fracturing methods that had previously been applied in the Barnett Shale of Texas, perhaps 10% of that gas (50 trillion cubic feet) might be recoverable. That volume of natural gas would be enough to supply the entire United States for about two years and have a wellhead value of about one trillion dollars! [5]

What is the Marcellus Shale?
Marcellus Shale: Videos, News, Maps, Lease & Royalty Information

The Marcellus Shale, also referred to as the Marcellus Formation, is a Middle Devonian-age black, low density, carbonaceous (organic rich) shale that occurs in the subsurface beneath much of Ohio, West Virginia, Pennsylvania and New York. Small areas of Maryland, Kentucky, Tennessee, and Virginia are also underlain by the Marcellus Shale. See the map of the Marcellus Shale above.

How Deep is the Marcellus Shale?

Throughout most of its extent, the Marcellus is nearly a mile or more below the surface. The map at right shows the depth of the Marcellus Shale. These great depths make the Marcellus Formation a very expensive target. Successful wells must yield large volumes of gas to pay for the drilling costs that can easily exceed a million dollars for a traditional vertical well and much more for a horizontal well with hydraulic fracturing. Using the two maps together, some especially interesting areas can be seen. These are where thick Marcellus Shale can be drilled at minimum depths. Although this is a great oversimplification, it correlates with the heavy leasing activity that has occurred in parts of northern Pennsylvania and western New York.

Where is the Highest Production Potential?

Rock units are not homogeneous. The gas in the Marcellus Shale is a result of its contained organic content. Logic therefore suggests that the more organic material there is contained in the rock the greater its ability to yield gas. John Harper of the Pennsylvania Geological Survey suggests that the areas with the greatest production potential are those areas where the net thickness of organic-rich shale within the Marcellus Formation is the greatest. A map showing this distribution for the state of Pennsylvania is shown at right. Northeastern Pennsylvania is where the thick organic-rich shale intervals are located.

Low Yield, Long-Lasting Production

Before 2000, many successful natural gas wells had been completed in the Marcellus. The yields of these wells were often unimpressive upon completion. However, many of these older wells in the Marcellus have a sustained production that decreases slowly over time. Many of them continued to produce gas for several decades. A patient investor might make a profit from these low yield wells with slowly declining production rates. For new wells drilled with the new horizontal drilling and hydraulic fracturing technologies the inital production can be much higher than what was seen in the old wells. Then as production rates decline a well might receive new hydraulic fracturing treatments to boost production. The wells will eventually deplete but the fracturing treatments help to produce a more complete recovery of the natural gas. Because this method has not been applied long-term to wells in the Marcellus there is little production history data.

How Does the Gas Occur in the Rock?

Natural gas occurs within the Marcellus Shale in three ways: 1) within the pore spaces of the shale; 2) within vertical fractures (joints) that break through the shale; and, 3) adsorbed on mineral grains. Most of the recoverable gas is contained in the pore spaces. However, the gas has difficulty escaping through the pore spaces because they are very tiny and poorly connected. Most historic wells in the Marcellus produced gas at a very slow rate because of the low permeability mentioned above. This is typical for a shale. However, the most successful historic wells in the Marcellus share a common characteristic: they intersect numerous fractures. These fractures allow the gas to flow through the rock unit and into the well bore. The fractures intersecting the well also intersect other fractures and those fractures intersect still more fractures. Thus, an extensive fracture network allows one well to drain gas from a very large volume of shale. A single well can recover gas from many acres of surrounding land.

Horizontal Drilling to Penetrate More Fractures

The fractures (also known as "joints") in the Marcellus Shale are vertical. So, a vertical borehole would be expected to intersect very few of them. However, a horizontal well, drilled perpendicular to the most common fracture orientation should intersect a maximum number of fractures. The diagram to the right illustrates the concept of a horizontal well. High yield wells in the Marcellus Shale have been built using the horizontal drilling technique. Some horizontal wells in the Marcellus Shale have initial flows that suggest that they are capable of yielding millions of cubic feet of gas per day, making them some of the most productive gas wells in the eastern United States. Although some experts are very optimistic on the long-term production rates of these wells, it is too early to determine their productive life or long-term yield.

Increase the Number of Fractures

A second method is used to increase the productivity of a well. That is to increase the number of fractures in a well using a technique known as "hydraulic fracturing" or "hydrofracing". This method uses high-pressure water or a gel to induce fractures in the rock surrounding the well bore. Hydrofracing is done by sealing off a portion of the well and injecting water or gel under very high pressure into the isolated portion of the hole. The high pressure fractures the rock and pushes the fractures open. To prevent the fractures from closing when the pressure is reduced several tons of sand or other "propant" is pumped down the well and into the pressurized portion of the hole. When the fracturing occurs millions of sand grains are forced into the fractures. If enough sand grains are trapped in the fracture it will be propped partially open when the pressure is reduced. This provides an improved permeability for the flow of gas to the well.

Economic Significance of the Marcellus Shale Gas Field

The presence of an enormous volume of potentially recoverable gas in the eastern United States has a great economic significance. This will be some of the closest natural gas to the high population areas of New Jersey, New York and New England. This transportation advantage will give Marcellus gas a distinct advantage in the marketplace. Gas produced from the shallower, western portion of the Marcellus extent (see map above) might be transported to cities in the central part of the United States. It should have a positive impact on the stability of natural gas supply of the surrounding region for at least several years if the resource estimate quoted above proves accurate.

Gas Leases & Signing Bonuses

Many landowners are being approached with offers to lease their land. The size of the signing bonuses that have been paid in transactions between informed buyers and informed sellers is directly related to two factors: 1) the level of uncertainty in the mind of the buyer, and 2) the number of other buyers competing to make the purchase. These factors have changed significantly in a very short time. As recently as 2005 there was very little interest in leasing properties for Marcellus Shale gas production. The Marcellus was not considered to be an important gas resource and a technology for tapping it had not been demonstrated. At that time the level of uncertainty in the minds of the buyers was very high and the signing bonuses were a few dollars per acre. When the potential of the Marcellus was first suspected in 2006 a small number of speculators began leasing land - paying risky signing bonuses that were sometimes as high as $100 per acre.

In late 2007 signing bonuses of a few hundred dollars per acre were common. Then, as the technology was demonstrated and publicized signing bonuses began to rise rapidly. By early 2008 several wells with strong production rates were drilled, numerous investors began leasing and the signing bonuses rose from a few hundred dollars per acre up to over $2000 per acre for the most desirable properties. If the results of current and future drilling activity do not match the expectations of companies paying for leases the amounts that they are willing to pay could drop rapidly.

Gas Royalties

Although signing bonuses generate an enormous amount of interest because they are guaranteed income, royalties can be significantly higher. A royalty is a share of a well's income. The customary royalty rate is 12.5 percent of the value of gas produced by a well. Higher royalty rates are sometimes paid by aggressive buyers for highly desirable properties. The royalties paid to eligible property owners from a well yielding over one million cubic feet of natural gas per day can be hundreds of thousands of dollars per year. These royalties are divided by all eligible property owners within a production unit (an area of land that is thought to contribute gas to a producing well - typically 640 acres). The amount paid to each eligible property owner is based upon their ownership share. (Get a gas royalty estimate.) If the Marcellus Shale holds up to the optimistic expectations of some natural gas experts, Pennsylvania, Ohio, New York and West Virginia could temporarily have an enormous boost in income that might be sustained for a few decades.

Natural Gas Drilling Activity

Several companies are actively drilling, leasing or planning activity on Marcellus Shale properties. Range Resources, North Coast Energy Inc., Chesapeake Energy, Chief Oil & Gas LLC, East Resources Inc., Fortuna Energy Inc., Equitable Production Company, Cabot Oil & Gas Corporation, Southwestern Energy Production Company, and Atlas Energy Resources are all involved. Shares of most of these companies are up strongly over the past two years. The Pennsylvania Department of Environmental Protection says that drilling permits are up strongly since 2005 and much of the activity increase can be attributed to wells targeting the Marcellus shale. Some of the new wells appear capable of yielding millions of cubic feet per day and that has companies working hard to acquire leases on desirable properties and complete new wells.

Other Gas Shales in the United States

The events described above are not unique to the northeastern United States or the Marcellus Shale. The horizontal drilling and hydrofracing technologies were perfected for shale reservoirs about four years ago in the Barnett Shale of Texas. The technology was then applied to the nearby Fayetteville Shale of northcentral Arkansas. Then, shortly after the Marcellus activity began, drilling and leasing in the Haynesville Shale of northwestern Louisiana started. These are just two of several unconventional gas plays now happening in the United States.