Shale has been the primary driver of US gas supply growth since 2007, and the Marcellus shale has been the largest single contributor to rising production.
Marcellus production topped 14.5 bcfd in March and is expected to account for nearly one fourth of all US gas output by 2015, according to a report by Morningstar Inc.
The Marcellus's eminent position stems, in part, from the ability of wells in the formation to come online at high initial production (IP) rates and to sustain those rates for longer than wells in other shale formations.
Morningstar found the median Marcellus shale well continues to flow at 100% of its initial production rate for its first 6 months.
"Once you drill a well, it keeps flowing at a high rate for an extended period. That is very distinct from pretty much any other shale play that we've seen so far in the US," Mark Hanson, Morningstar equity analyst and coauthor of the report, told UOGR. By comparison, Hanson said, a well in the Haynesville shale in Louisiana may see production decline 50% during its first 6 months online.
Morningstar analyzed state data showing the performance of nearly 4,500 wells in Pennsylvania and more than 1,000 wells in West Virginia dating back to 2009. Researchers looked at IP rates, decline rates, drilling and completion activity, and sweet spot migration, among other factors.
Researchers found production rates for wells across the Marcellus generally decline 65% over any given 3-year period. However, Hanson said, the formation is not homogenous and some counties see meaningful production declines from initial flow to the 6 month mark.
Conversely, in a handful of counties, production rates actually increase 10-30% during their first 6 months online. Morningstar pointed to examples of this in Greene, Susquehanna, and Wyoming counties, Pa.
"Such counterintuitive results (most shale gas wells experience steep declines over the first few months) help explain why Marcellus production has risen faster than analysts' forecasts," the report said. The median, 30-day IP rate of Marcellus shale wells was found to be 5 MMcfd in mid-2013, up from less than 3 MMcfd in late 2011, and it is not unusual for companies to bring wells online at much higher rates.
Southwestern Energy Corp. said in November that one of its Susquehanna County wells, the Seamen 2H, flowed at a peak, 24-hr initial production rate of 32.2 MMcfd. And Cabot Oil & Gas Corp. reported a 10-well pad it operates recently came online at a combined IP rate of 168 MMcfd, implying an average IP rate of 16.8 MMcfd/well.
Driving US growth
The Marcellus stretches across portions of Pennsylvania, Ohio, West Virginia, and New York. Moody's Investor Service figures the formation holds an estimated 141 tcfe of recoverable reserves.
Marcellus output climbed from virtually nothing in 2007 to 9 bcfd in 2013, equivalent to the combined production growth of the Haynesville (4 bcfd), Eagle Ford (3 bcfd), and Barnett (2 bcfd) shales (Fig. 1). According to Morningstar, output from the formation helped boost US production 14 bcfd, or 25%, during the 6-year period, more than offsetting declines from conventional reservoirs and the Gulf of Mexico.
If not for the Marcellus, Morningstar found, US gas production would likely have peaked in late 2011 or early 2012 as producers reduced gas-directed drilling in response to weak domestic gas prices.
Only 40 rigs
Hanson said even if drilling activity in the Marcellus shale effectively shut down, the massive backlog of uncompleted wells could sustain output for a year.
Roughly 1,300 Marcellus wells are awaiting completion and infrastructure tie-ins across Pennsylvania and West Virginia. "If you didn't do any drilling it would basically take 9-12 months to work off that inventory," Hanson told UOGR.
One company with a sizable well backlog is Chesapeake Energy Corp. The independent producer had 159 wells in various stages of completion or awaiting pipeline connections at year-end 2013. In 2014, Chesapeake is dedicating 15% of its capital spending budget to the Marcellus and plans to run 7-8 rigs.
Morningstar figures that only 1,000 wells need to be brought online across the shale formation each year to keep production steady. Considering it takes one rig about 15 days to drill a Marcellus well, this means that only 40 working rigs are needed to keep production flat during the next few years.
This means that even with the recent reductions in the Marcellus rig count there are still more than enough rigs to continue growing production. Baker Hughes reported 76 were working in the formation in late March, compared to 90 a year ago (Fig. 2).
Many Marcellus producers raised their output in 2014 and expect more growth this year. Cabot increased its Marcellus production 67% year-over-year to 1.2 bcfd in the fourth quarter of 2013. "Our production growth in the Marcellus was quite remarkable, especially when considering we operated only five rigs in the play for the majority of the year," said Dan Dinges, chief executive officer of Cabot.
Southwestern Energy nearly tripled its Marcellus production to 413 MMcfd in 2013 and expanded its acreage position 66% to 292,450 net acres. Southwestern will participate in 80-85 gross, operated Marcellus wells this year.
Rapid production growth across the formation is being facilitated by substantial growth in midstream infrastructure. Shiyang Wang, an analyst with Barclays, said pipeline capacity in the Northeast US rose by 2.3 bcfd in 2013, and processing capacity increased 2.5 bcfd. Another 2.5 bcfd in processing plant capacity and 2.9 bcfd in pipeline capacity are slated to come online this year.
Wang said these infrastructure expansions could support production growth equal to the levels seen in 2013.
Newfound abundance
The Marcellus shale has fundamentally altered the outlook for the US natural gas industry. The US is emerging as a low-cost chemicals producer and is poised to become an exporter of natural gas—a feat unthinkable just 5 years ago when it was widely believed that increasing LNG imports would be needed to meet domestic demand.
According to Hanson, "In short, the growth of the Marcellus over the next several years is likely to be nothing short of astounding."
