It started in about 2003. Range Resources then-COO Jeff Ventura was following with interest the experimentation of combining horizontal drilling and hydraulic fracturing in the Barnett Shale in North Texas. His company had legacy data in Pennsylvania and began to strategically put together an acreage position in the Marcellus Shale. Willing to take a risk, Ventura’s company drilled a well into the shale using the same parameters that were so successful in the Barnett. And a play was born.

Fast-forward to 2015, and the messages are mixed. Some companies are selling off acreage, while others continue to drill away. “I believe that the consensus is that the Marcellus is the largest producing field in the U.S. and will remain that way for the foreseeable future,” said Matt Pitzarella, director, corporate communications and public affairs for Range.

The giant
The Marcellus can be found beneath parts of eight U.S. states. Obviously, not all of this acreage is highly prospective. The core areas in Pennsylvania, for instance, are in the northeastern and southwestern parts of the state.

Current commodity prices are forcing some operators to take a hard look at their continued involvement in the region. Stone Energy, for instance, recently announced that it had shut in its Mary Field, curtailing between 2.8 MMcme/d and 3.1 MMcme/d (100 MMcfe/d and 110 MMcfe/d) of production. “Low commodity pricing, including negative differentials in the region, combined with fees for transportation, processing and gathering, reduced the operating margins to an unacceptable level,”
the company’s release said.

The U.S. Energy Information Agency (EIA) has noted a drop from 98 rigs in the play in January 2015 to 74 as of late August. But it noted that year-over-year production is still expected to be up.

Drilling away
Companies in the region have adjusted to lower commodity prices, reducing capital spending accordingly. After all, gas prices have been depressed in the U.S. for several years now, so they’re used to operating in lean mode. Warren Resources announced in August that it had initial results from two Upper Marcellus wells that were encouraging, with a combined production rate of 481 Mcm/d (17 MMcf/d). “A successful test of the Upper Marcellus could potentially add more than 40 additional well locations on Warren’s acreage block,” a press release noted. “No reserves were booked at year-end 2014 for the Upper Marcellus locations.”

The release went on to report that this section of the Marcellus is 55 m (180 ft) thick, 18 m (60 ft) thicker than the Lower Marcellus. Warren has pipeline infrastructure and pads already in place.

Range, meanwhile, has managed to lower its cost structure by 43% since 2008 to preserve value through the downcycle, according to a recent presentation, and it anticipates continued cost reductions. The company also hedged production to lock in value and reduce its downside risk. For 2016, Range has hedged 630,000 Mmbtu/d of its expected gas production at a floor price of $3.42.

Range benefits from having concentrated acreage in the core of the play, ensuring the greatest productivity for the lowest costs. Several years ago the company became convinced that finding the correct spot for landing the lateral was the key to unlocking the play, and it now applies a host of measurement technologies to determine where best to land the laterals. This has led to the company having one of the best EURs, recoveries and cost per 305 m (1,000 ft).

For 2016 Range expects its average lateral lengths to increase to 2,100 m (6,900 ft).

In its second-quarter earnings report, EQT Corp. reported significantly lower adjusted income but greater production and midstream revenues. Its sales volume was 33.5% higher than second-quarter 2014, though this was more than offset by a 53% lower average realized sales price.

The company spudded 38 Marcellus wells during the quarter.

Magnum Hunter also increased production in 2015, estimating in its second-quarter earnings report that production would be up between 72% and 96% over its 2014 rates. As of June 30, 2015, the company’s proved reserves were at 22.7 Bcme (801.8 Bcfe), although not all of that is in the Marcellus. It replaced about 266% of its 2014 production with reserve additions.

Ultra Petroleum Corp. has partnered with Anadarko and Mistui AMI to develop a 76,000-acre area in north-central Pennsylvania with proved developed reserves of 3.6 Bcme (130 Bcfe). Even at $3/Mcf, the economics stack up nicely.

Finally, Seneca Resources has 200,000 acres that are economic at less than $3/MMBtu, according to a recent presentation. More than 860 of its locations are economic at prices well below that. It’s focusing is 2015/2016 activity in the Clermont/Rich Valley area. Much of its acreage has EURs of 11 MMcm to 17 MMcm (4 Bcf to 6 Bcf) per well.

Seneca has managed to reduce its costs significantly over the past few years, dropping from $8.7 million in 2012 to $5.8 million in 2015 despite increasing lateral length, measured depth and completion stages.

A brighter future?
According to the EIA, all of this activity resulted in a 17% production boost in the first nine months of 2015. Where is all of this gas going to go?

In a report titled “U.S. Natural Gas Outlook through 2020: Demand is the New Captain of the Ship,” low-cost gas supplies have spurred major investments by end users. This will result in a 25% increase in demand over the next five years. Some of this gas will go to Mexico, but the majority will be turned into LNG and shipped to major markets in Europe and Asia. The report noted that the U.S. will become a gas exporter by 2017.

BP’s Energy Outlook added that gas demand could rise by 1.9% annually, reaching 14 Bcm/d (497 Bcf/d) by 2013. Speaking at Hart Energy’s DUG East conference in June, John Staub, E&P team leader for the EIA’s Office of Natural Gas and Biofuels, said, “The speed and magnitude of the growth of the Marcellus gas production have caught everyone’s attention. The size of the resource is clearly large, and that attracts market.” Staub added that natural gas production from the Marcellus is more than twice that produced in the Eagle Ford or Haynesville shales.

NGL production is on the rise as well and is expected to remain more resilient than dry gas, according to a recent Raymond James report. NGLs represent about 25% of total U.S. liquids output. Seneca Resources alone has 1,620 future dry and wet gas locations remaining to be drilled.

The prevailing message seems to be this: Don’t write the Marcellus Shale off just yet. “The main point from our perspective is how fast it’s evolved over the last decade,” said Pitzarella.“We still believe that if this were a ballgame, we’d be in the early innings in terms of efficiencies and evolutions in the play.”

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