?While the sweetest spot of the Marcellus shale stretches through northeastern Pennsylvania and into southern New York State, “the entire trend could be economic at $4 gas prices,” said Mike Whalen, senior vice president and chief operating officer of Cabot Oil & Gas Corp. Whalen’s presentation at the Developing Unconventional Gas 2009 conference presented by Hart Energy Publishing LP was Cabot’s first public discussion of its Marcellus acreage and strategy.

The company has focused its leasing efforts in the far northeastern corner of Pennsylvania. “We feel this is the core of the play.”

This view corresponds with thermogenic and geologic studies involving total carbon present and formation thickness to determine the most productive areas. In addition to the northeastern section of the Marcellus fairway, where it is “the thickest and the richest,” the reports showed high potential in the southwestern region of Pennsylvania, according to geochemical consultant Jackie Reed.

“We’re obviously dealing with an extremely good source rock.”

The Marcellus thins to the west and south into West Virginia. “It’s not a simple picture,” said Katharine Lee Avary, a geologist with the West Virginia Geological and Economic Survey. The formations “are not like a stack of pancakes. It is a complex stratigraphy. The Marcellus is not created equal across the basin.”

Still, “there is plenty of carbon between those areas and there’s a lot left to be looking at,” Reed said.

Cabot holds some 160,000 net acres purchased at an average $665 per acre. It estimates 4- to 6 trillion cubic feet of gas in place on the acreage.

As for the southern portion of the play, Cabot has drilled 65 vertical wells and two horizontals. The West Virginia Marcellus has a “tail” where the shale thickness ranges from 20 to 50 feet, said Whalen.

Even there, he said, “it’s economic. The economics of the Marcellus in southern West Virginia all the way to New York are pretty rock solid for vertical wells,” but more work is required to define the best areas for horizontal wells in the south.

Also speaking at the conference, John Pinkerton, chairman and chief executive of Range Resources Corp., noted that technology has driven success.

The company, which has a market cap of $7 billion, began operations in the Marcellus in 2004. It has invested more than $1 billion so far, gaining some 1.4 million net leased acres (900,000 in the fairway) and 30 million net cubic feet of gas equivalent per day of production. The company expects to end the year with up to 100 million cubic feet equivalent daily production.

“We are making the Marcellus real,” he said. “This is a huge sandbox, with some characteristics of the Barnett, but with 65 million acres in this play, it is much larger than the Barnett (three million acres).”

The Marcellus/Devonian play could hold up to 516 trillion cubic feet of gas, he said. “We really have no idea, quite frankly, how much gas there really is.”

Regarding the Marcellus’ high-quality shale rock, Pinkerton said an area on the southwest side of the play (about 550,000 acres, averaging 3- to 4 billion cubic feet of gas equivalent reserves per well) shows a variance of wet, high-Btu and dry gas. Not all areas are winners, he said.

Range’s finding and development costs are about $1.16 per Mcf, lease rates run from $50 to $100 per acre, $850,000 drills a back-to-back vertical well, and highly mobile custom-built rigs are key for horizontals, he said.

The Appalachian Basin’s gas serves the “highest-priced gas market in the U.S.,” averaging $2.50 over Nymex, he said. A Nymex price of $4 per Mcf brings Range an estimated 34% rate of return, $5 brings 46%, $6 brings 60% and $7 yields 75%.

“We have heard that there are not enough take-away pipelines in the Marcellus, but that is just not true,” he said. Also, Markwest Energy Partners LP supports Marcellus producers with gas gathering, processing (currently 60 million cubic feet per day, ramping up to 200 million daily in 2010), fractionating and storage service, and also connects residual gas to the Columbia Gas Transmission pipeline.

Abundant water sources are available throughout the area for fracturing operations. Although the state is protective of its water sources, regulators have been educated about its use relative to elec?tric generation, industries and golf courses; gas production uses far less water, he said.

Pennsylvanian legislators and landowners are producer-friendly. Permitting takes about 45 days. There is no severance tax on gas production and should it be imposed, “We are still starting from zero.” Landowners are open to 12.5% royalties and long lease terms, Pinkerton said.

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