EVALUATING RESERVES FOR THE MARCELLUS SHALE Hart Energy Publishing Pittsburgh, PA November 3, 2010 D. Randall Wright (615) 370-0755 [email protected] 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 [email protected] wrightandcompany.com Sometimes the Wright choice is obvious..