EVALUATING RESERVES FOR THE MARCELLUS SHALE

Hart Energy Publishing

Pittsburgh, PA
November 3, 2010

D. Randall Wright
(615) 370-0755
randy@wrightandcompany.com
wrightandcompany.com
THE MARCELLUS SHALE: HOW IT ALL STARTED
Play began in 2004 with the Range Resources Renz well
Other “local” companies took note
• Atlas • Cabot
• Chesapeake • Consol/CNX
• EQT • Others
 In 2007, it was estimated that the play could produce 50+ Tcf

 Leasing costs dramatically increased

 Game on – Jobs, Jobs, Jobs

PA MARCELLUS PRODUCING WELLS
As reported August 15, 2010 for 12 Months, July 2009 – June 2010
849 Horizontal and Vertical Active Gas Wells

Source: Pennsylvania Department of Environmental Protection

LEADING PRODUCERS FOR FIRST REPORTING PERIOD
Horizontal Wells Only
OPERATORS WITH THE MOST PRODUCTION
As reported August 15, 2010 for 12 Months, July 2009 – June 2010
Horizontal Wells Only
Talisman Energy USA, Inc.
53 wells – 27.8 Bcf

Shell/East Resources, Inc.

25 wells – 10.1 Bcf Cabot Oil & Gas Corp.
34 wells – 23.0 Bcf

Chesapeake Appalachia LLC

45 wells – 31.0 Bcf

Range Resources Appalachia LLC

97 wells – 31.0 Bcf + liquids and NGLs Atlas Resources LLC
10 wells – 2.2 Bcf

EQT Production LLC

14 wells – 7.6 Bcf

Source: Pennsylvania Department of Environmental Protection

TOP 10 SW PA HORIZONTAL PRODUCING WELLS
As reported August 15, 2010 for 12 Months, July 2009 – June 2010

Range Resources Appalachia, LLC

5 of the top 10 producing wells EQT Production, LLC
for reporting period 5 of the top 10 producing wells
4.0 Bcf + liquids and NGLs for reporting period
5.0 Bcf

Source: Pennsylvania Department of Environmental Protection

TOP 10 NE PA HORIZONTAL PRODUCING WELLS
As reported August 15, 2010 for 12 Months, July 2009 – June 2010

Cabot Oil & Gas, Corp.

4 of the top 10 producing wells
for reporting period
6.8 Bcf
Bradford

Chesapeake Appalachia, LLC

6 of the top 10 producing wells
for reporting period
11.4 Bcf

Source: Pennsylvania Department of Environmental Protection

YOU HAVE HEARD/READ THE PRESS RELEASES
(That is why you are here.)

 Initial Open Flow Rates (24-hour)

• 26 MMcf per day (Range)
• 21 MMcf per day (Atlas)
• 18 MMcf per day (Cabot)
• 15 MMcf per day (EQT)
 First 30-day Average Rates
• 22 MMcfe per day (EQT)
• 11 MMcfe per day (Range)
• 8 MMcfe per day (Cabot)
• 4 MMcfe per day (CHK)
 Lateral Length
• 2,500 – 9,000 feet
RECENT MARCELLUS TRANSACTIONS
Buyer Seller Amount
Royal Dutch Shell, PLC East Resources, Inc. $4,700,000,000
CONSOL Energy, Inc. Dominion Resources, Inc. $3,475,000,000
Reliance Industries Ltd. Atlas Energy, Inc.* $1,700,000,000
Mitsui & Company Ltd. Anadarko Petroleum Corp.* $1,400,000,000
BG Group, PLC Exco Resources, Inc.* $950,000,000
The Williams Companies Inc. Alta Resources, LLC $501,000,000
Ultra Petroleum Corp. Undisclosed $400,000,000
Reliance Industries Ltd. Carrizo Oil & Gas, Inc.* $392,000,000
Statoil ASA Chesapeake Energy Corp. $253,000,000
Reliance Industries Ltd./Atlas Energy, Inc. Undisclosed $192,000,000
Sumitomo Corp. Rex Energy Corp.* $140,000,000
Chesapeake Energy Corp. Epsilon Energy* $100,000,000
Atinum Partners Co. Ltd. Gastar Exploration Ltd.* $70,000,000
TOTAL $14,273,000,000
* Indicates Joint Venture (JV)
THE MARCELLUS SHALE LEARNING CURVE
PHASE I PHASE II PHASE III
Exploratory Research & Development Exploitation & Optimization
(Defining Reservoir Parameters) (Reasonable Certainty, (Consistency, Repeatability,
Reliable Technology) Economically Producible)

Statistical
Economy Optimization
of Scale
Infrastructure
Marketing

Completion

Drilling

Horizontal

Regulatory

Geoscience
Vertical

As the Number of Wells Drilled Increased

HOW DO YOU EVALUATE SHALE RESERVES?

Evaluating unconventional resources

and serving the petroleum industry
for over 22 Years
THE MARCELLUS SHALE:
Some basic geology…
GEOSCIENCE
Defining Reservoir Parameters

 Depth: 2,000 to 9,000 feet

 Net Pay: 25 to 300 feet
 Porosity: 2 to 12 percent
 Matrix Permeability: 50 to 800 nanodarcies
 Water Saturation: 10 to 35 percent
 Pressure Gradient: 0.4 to 0.7 psi/ft
 Original Gas in Place (OGIP): 25 to 200 Bcf/sq. mi.
 Recovery Factor: 15 to 40 percent
STRUCTURE MAP
Subsea Depth – Base of the Marcellus
MARCELLUS GROSS ISOPACH MAP

Source: W.D. Von Gonten & Co. (used with permission)

AREAS OF POTENTIAL HYDROCARBON PRODUCTION
ESTIMATING RESERVES

 Volumetrics
• Porosity
• Thickness
• Original Gas in Place (OGIP)
• Recovery Factor
SHALE PETROPHYSICS AND VOLUMETRICS
• Free Gas
• Gas Filled Porosity
• Kerogen Created Porosity
• Inter-Connected Porosity
• Formation Thickness, Pressure, Temperature
• Drainage Area
• Recovery Factor (RF)
• Varies by Permeability
• Varies by Stimulation Coverage

• Adsorbed Gas
• Gas Content (scf/ton)
• Based on Correlations
• RF Varies by Pressure
MARCELLUS SWEET SPOTS MAY EMERGE
Based on Activity and Production to Date
ESTIMATING RESERVES

 Volumetrics
• Porosity
• Thickness
• Recovery Factor
• Original Gas in Place (OGIP)
 Performance
• Type Curves
• Statistical Analysis
• Probability Analysis
 Reserves per 1,000 feet lateral (wellhead)
 FIVE OPERATOR TYPE CURVES
Southwest PA Area
10000
Range of Values
Based on ARIES™
IP 2.4 – 6.5 MMcf/D
“b” Factor 1.5 – 1.7
Initial Decline 62.5 – 72%
EUR 3.4 – 5.0 Bcfe

Mcfe/D 1000

100
0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96 102 108 114 120

Months
Source: Various Public Websites
 NINE OPERATOR TYPE CURVES
Northeast PA Area
100000
Range of Values
Based on ARIES™
IP 4.1 – 12.2 MMcf/D
“b” Factor 1.2 – 2.0
Initial Decline 63 – 77.5%
EUR 3.75 – 7.0 Bcfe
10000

Mcf/d

1000

100
0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96 102 108 114 120
Months
Source: Various Public Websites
NORMALIZE PEAK MONTH TREND ANALYSIS
Example Data

Trend Parameters
Based on ARIES™
IP 3.5 MMcf/D
“b” Factor 1.7
Initial Decline 70%
EUR 4.0 Bcf (approximately)
STATISTICAL ANALYSIS IN RESOURCE PLAYS

 Society of Petroleum Evaluation Engineers (SPEE)

• Monograph 3:
 Repeatable results
 Continuous hydrocarbon system that is
regional in extent
 Offset well performance may not be a reliable
predictor
 Wright’s experience suggests that EURs usually
exhibit a lognormal distribution
 Resource plays can become highly predictable IF
there is a large sample size
PROBABILITY PLOT - VOLUMETRICS
Hamilton Group OGIP per Square Mile (Bcf/Mi2)
Example Data

Lognormal Regression

P10

P50

P90
PROBABILITY PLOT - VOLUMETRICS
Marcellus OGIP per Square Mile (Bcf/Mi2)
Example Data

Lognormal Regression

P10

P50

P90
PROBABILITY PLOT – WELL PERFORMANCE BASED
EUR per 1,000 feet Effective Lateral Length
(MMcfe/1,000 ft.)
Example Data

Lognormal Regression
RISKS AND ONGOING CHALLENGES
 Rig and service crew availability
 Placement of laterals, effectiveness of completions
 Statewide regulatory issues
Water use and disposal
Gas leakage and groundwater contamination issues
 Pipeline capacity, transportation bottlenecks
 Plants, processing and installation
 Gas and liquids pricing
WHAT DOES WRIGHT EXPECT NOW?

 More wells » more data » more accurate reserves

estimates
 Play to continue rapid development toward
statistical and mature phases
 Drilling/Completion techniques to improve
 Infrastructure to provide outlets to markets
 Average EURs, lateral lengths, optimal spacing,
efficiencies to be more clearly defined
THANK
YOU!
D. Randall Wright
(615) 370-0755
randy@wrightandcompany.com
wrightandcompany.com
Sometimes the Wright choice is obvious.