Earnings season got off to a strong start as Marcellus players Cabot Oil & Gas Corp. and Range Resources Corp. delivered upside surprises, as did Pioneer Natural Resources Co. in the Permian.

While it was widely anticipated that Range would update the estimated ultimate recoveries (EURs) of wells in its southwest Pennsylvania Marcellus acreage, the magnitude of the increase exceeded expectations.

Range’s new EURs for wells in its “super-rich,” wet-gas and dry-gas areas are, respectively, 10.9 billion cubic feet equivalent (Bcfe), 12.3 Bcfe and 12.2 Bcfe, representing increases of 26%, 41% and 63% from earlier 2013 levels. With the higher EURs and tighter spacing between laterals, Range estimates that its unproved resource potential in the super-rich and wet-gas areas moves up by some 12- to 15 trillion cubic feet equivalent (Tcfe), taking its total Marcellus resource potential to 38 to 49 Tcfe.

Cabot delivered an earnings beat of about a nickel and a lot more besides: a boost in 2013 year-over-year production guidance to just under 50%, continued improvements in days-to-drill times, a 2-for-1 stock split and a bump in the dividend.

However, one of the more striking comments was Cabot’s statement that even if its Marcellus gas sales realized $0.10 to 0.15 per thousand cubic feet (Mcf) less than Nymex pricing, because of recent widening of basis differentials, the company’s “typical Marcellus well, defined as 14 Bcf average, provides a 120% return,” according to chief executive Dan Dinges.

In a June study, analysts at Credit Suisse took an in-depth look at major U.S. basins, evaluating them using both traditional internal rates of return (IRR), as well as a new metric—an undiscounted value per acre—aimed at capturing the impact of multiple stacked laterals and spacing considerations.

Using traditonal IRRs, the report estimates returns in the 30% to 55% range for just three gas-focused areas at the recent natural gas strip price: the Marcellus southwest liquids-rich, the Utica wet-gas and the Marcellus northeast areas. For investors anticipating a natural gas price recovery to $5, these areas would see returns rise to, respectively, 68%, 67% and 47%.

(Note: This points to varying acreage quality in the northeast Marcellus. On its investor presentation, Cabot says its acreage lies in the sweet spot of the play, where rates of return “rival or exceed” those of top U.S. liquids plays at current commodity prices.)

The Credit Suisse analysts still think the highest returns are to be had in oil-levered basins. Its three top-ranked basins are the Marcellus super-rich, followed by the Utica liquids-rich and, tied for third place, the Eagle Ford liquids-rich and Niobrara Wattenberg. These provide returns of, respectively, 65%, 61% and 56%, at an assumed West Texas Intermediate price of $90 per barrel. At $100 per barrel, the returns move up to 74%, 72% and 66%.

Of interest was the new Credit Suisse metric factoring in the impact of multiple stacked laterals and spacing in a play, which helped highlight the relative attractiveness of the Permian Midland Basin and the Niobrara Wattenberg. Under the new metric, these rank slightly higher than the Marcellus super-rich, ranked #1 on an IRR basis.

The methodology used by Credit Suisse to calculate its new metric is to take the net present value of a typical well (using a 10% discount factor) and multiply it by the number of wells that can be developed on a section, based on spacing assumptions. The value is then divided by the number of acres in a section (normally 640 acres, but 1,280 acres in the Bakken) to arrive at an estimated value per acre.

Coming in with the highest value per acre was the Permian Midland, where stacked laterals add up to $203,777 (comprised of $97,012 from the horizontal Wolfcamp, $34,005 from the vertical Wolfberry and $72,759 from the horizontal Spraberry). Second is the Niobrara Wattenberg at $201,431 ($71,940 from each of the Niobrara B and C zones, plus $57,522 from the Codell). The super-rich Marcellus ranks third with $195,931 ($111,961 from Marcellus and $83,970 from Upper Devonian.)

With its earnings, of course, Pioneer released some very impressive results from its latest Wolfcamp A well—IP of 1,702 barrels of oil equivalent per day, 30-day average of 1,107 per day—underscoring the economics of multiple stacked horizons across great swaths of its Midland basin acreage. Double-digit gains followed in Pioneer’s stock and other Permian players’. It’s all good. With results like these, it’s hard not to see the industry outlook getting better—way better!

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