March 23, 2008

Getting ready for a gusher

Vast reservoir under state could hiss for decades

By Joe Morris
Staff writer

A ponderous natural-gas reservoir, largely out of reach until now, could more than double the nation's annual output - and it sits underneath practically all of West Virginia.

The gas floats in black shale, fine-grained sedimentary rock, about 5,000 feet below ground in a bed geologists call the Marcellus Shale formation. Though developers have long known about the Marcellus' potential, they've left it mostly untapped because boring down so far proved too expensive.

But with gas prices staying high and new technology becoming more affordable, the Marcellus is suddenly ripe, and drillers all over the state are aiming at it.

- Chris Dorst
Derricks such as Cabot’s near Loop, in Jackson County, rising 62 feet high, have been proliferating across the state as drillers go after potentially huge gas reservoirs contained in the Marcellus.
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"The question is, who isn't thinking about the Marcellus right now?" said Nicholas "Corky" DeMarco, director of the West Virginia Oil & Natural Gas Association trade group. "There are studies of the formation being done all over the state."

According to research released earlier this year by Penn State University and the State University of New York at Fredonia, the Marcellus - which stretches over 54,000 square miles, from upstate New York into Southern West Virginia - could contain as much as 516 trillion cubic feet of gas, though only 50 trillion can be recovered today by existing technology.

By contrast, the nation now produces 30 trillion cubic feet per year, and that amount has been falling.

Tapping the Marcellus could enrich U.S. energy resources by as much as $1 trillion, the study's authors estimated.

Similar black, or gas-rich, shale reservoirs at the Marcellus' level have been tapped with spectacular results in Texas and Arkansas. Partly because of the success of prospecting pioneers there, Appalachian Basin drillers have been getting the resources they need to follow suit, said Philip Towey, exploration manager for Cabot Oil & Gas Corp.'s Eastern Region in Charleston.

"As a result of their success, everybody started looking in their back yard," Towey said. The Appalachian Basin black shale "has the potential to be the single largest gas play in the country right now."

Houston-based Cabot and West Virginia's other biggest drillers - Dominion Resources Inc. of Richmond, Va., Equitable Resources Inc. of Pittsburgh and Chesapeake Energy Co. of Oklahoma City, along with a newer player, Houston's PetroEdge Resources LLC - appear to be the most active in Marcellus exploration and drilling in West Virginia, DeMarco said.

Revitalizing Appalachia

"It has definitely revitalized the industry in the Appalachian Basin," said Joe Holsen, reservoir and production manager at PetroEdge.

Though PetroEdge is a smaller player in West Virginia, Holsen said, it is probably most active in Marcellus drilling in the state, having opened 41 Marcellus wells in Lewis, Marion, Ritchie and Wetzel counties. Right now it's drilling one, in Wetzel County, but this year it expects to add 15, Holsen said.

Cabot, the state's No. 3 producer, started running tests on Marcellus shale about three years ago, mainly in Southern West Virginia, said Tom Liberatore, its Eastern Region vice president and regional manager.

"We're aggressively pursuing it," he said.

Cabot has drilled eight wells in Southern West Virginia straight to the Marcellus this year, Liberatore said. But 50 to 80 more state wells are also planned this year that will tap gas reserves above the Marcellus, mainly in south-central and Southern West Virginia. Plans are to take these wells deeper to look at the Marcellus too, Liberatore said.

"They're probably all going to be Marcellus plays," he said.

West Virginia's biggest gas producer, Dominion, has been testing the Marcellus for three years now and expects to drill its first five to six producing wells this year, in the north-central part of the state, said Rick Goings, general manager of geosciences for Dominion's Exploration and Production unit in Jane Lew.

"We're trying to be smart about it," he said. "The Marcellus is thin [in West Virginia] but certain places are going to have sweet spots."

Chesapeake, meanwhile, has said it has 1 million acres of Marcellus acreage under lease, making it possibly the biggest Marcellus owner.

In a company disclosure released last month, Chesapeake said it is employing two operated rigs to develop the reservoir. By drilling up to 1,400 wells "in the years ahead," it says, it stands to produce as much as 7.1 trillion cubic feet, though that is only an estimate.

Equitable, No. 2 in West Virginia production, has estimated this year that its Marcellus holdings could yield up to 5 trillion cubic feet.

(Chesapeake, along with PetroEdge and Eastern America Energy Corp., is also fighting the West Virginia Coal Association and other drillers in a case before the state Supreme Court over how closely Marcellus wells can be drilled to other wells, and the decision in that case could affect how many Marcellus wells are ultimately drilled.)

Officials from Chesapeake and Equitable did not return calls for comment.

"There's definitely something there," said Ken Mariani of EnerVest Management Partners Ltd., a Houston-based driller and energy investment company. EnerVest is just beginning to evaluate its Appalachian acreage for Marcellus potential, said Mariani, general manager of the company's Charleston-based Eastern Division.

"They [drillers] are coming, they're committing lots of dollars," he said. "It's generating a lot of excitement."

Because much of the shale above the Marcellus has been producing for decades, the rights to its gas are mostly claimed already, said Cabot's Liberatore.

"West Virginia is a very mature production state," he said. "Most [Marcellus rights] are already leased or waiting to be drilled, or tied up."

- Chris Dorst
Derricks such as Cabot’s near Loop, in Jackson County, rising 62 feet high, have been proliferating across the state as drillers go after potentially huge gas reservoirs contained in the Marcellus.
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There may be some exceptions in the north-central part of West Virginia and eastern counties including Mineral, Pendleton and Grant, Liberatore said. "But just about any available lease has been picked up," he said.

150 feet per hour

At a new Cabot site in Jackson County, the drill bit under a 62-foot derrick is burrowing down about 150 feet per hour toward the Marcellus, on its way to a depth of 5,081 feet.

Three shifts of four workers apiece keep the rig operating 24 hours a day. As it grinds through earth, they flush the drill bit with air and soapy water, clearing the shavings away into a pit dug behind the derrick.

When the well passes water tables and deeper stratifications, 40-foot steel casings are inserted, one screwed into the other. Then the casings are sealed off with concrete, isolating the water and rock surrounding them. The well proceeds in this way through each stratification.

Once the Marcellus is penetrated, water and sand are pumped under pressure to crack and prop up the formation, creating a pathway - no thicker than a sand granule - for the natural gas to flow to the well bore.

In a week's time, the drilling rig's work will be finished. For the next 50 years or so, gas will flow from the well, Liberatore said.

"A lot of people pass these derricks every day and don't give it a thought," he said. "But it's really amazing what they do."

Overlooked for years

Just a few years ago, the Marcellus was going largely ignored.

"Everyone bypassed the shales, they never paid attention to them," Liberatore said. "But you started to see interest as gas prices firmed up, in the past three to five years."

In the early '90s, gas prices were languishing around $2 per million British thermal units, but for the second half of this decade they have ranged from $5 to $12, and today are above $9.

Those prices have made it more feasible for drillers to use more advanced technology that breaks into - or "fracs," in industry parlance - gas-rich rock, creating openings with water pumped in at intense pressure that let gas escape into newly drilled casings.

"The addition of these key technologies ... look like they will be key drivers in making this new play economically viable," Liberatore said.

Another expensive technology that had accelerated Marcellus drilling is horizontal drilling, which involves angling wells, instead of boring them straight down.

A conventional vertical well into the Marcellus would cost about $1 million, while the cost of a horizontal well would rise to about $3 million, said Dominion's Goings.

"We've known for years that the Marcellus contains gas," he said. "The technology today on horizontal drilling and hydraulic fraccing has put it in reach."

It's only recently, in fact, that Appalachian drillers have had sufficient access to the deep-drilling rigs and other necessary equipment, said Holsen at PetroEdge.

"Most rigs in the Appalachian Basin are for shallow drilling," he said. Equipment vendors, consequently, had parked most of their deep drillers out West, for the deeper wells typically drilled there. "Only about a year ago could you start getting the larger fraccing equipment with more horsepower."

The potential is anybody's guess, Holsen said.

"There are some areas that are better than others, and you'll find out as you go from West Virginia to New York," he said. "There's going to be a huge spread in results."

To contact staff writer Joe Morris, use e-mail or call 348-5179.