?The Appalachian Basin is the largest onshore sedimentary basin in the U.S., with producing formations covering eight states, starting as far south as Tennessee and reaching north into New York State. The region is characterized by shallow conventional tight-gas sands, coalbed methane and shale-gas plays, which typically have long reserve lives.

More than 1 million wells have been drilled in the basin, with cumulative production of more than 70 trillion cubic feet equivalent (Tcfe). Approximately 90% of the production is gas with a typically high Btu content.

Along with the high Btu content, the basin’s proximity to major population centers allows the region to command a positive basis differential of approximately 15% to Nymex.

With more than 200,000 producing wells in the basin and 3,100 operators, the region is fragmented and has traditionally been dominated by smaller players. With the recent interest in the Marcellus shale, however, the area has seen a renaissance of activity as larger companies have dedicated more resources to this emerging play.

Attractions, challenges. Appalachia is primarily a gas-producing basin featuring long-life reserves and multiple stacked, producing formations with low finding and development costs. Easy access and distribution to northern and eastern markets results in a price premium to Nymex.

Operations in Appalachia are low risk due to repeatable, resource-type plays. Horizontal drilling applications have proven successful, and access to largely untested deeper targets below 5,000 feet provides considerable new exploration potential.

Challenges include fragmentation with many smaller operators, a general perception that the area is mature and difficulty in acquiring access to technical data. Access to lands is challenged by severed mineral rights involving oil and gas as well as coal, and price volatility strongly affects the economics of wells, due to low production rates.

Marcellus shale. The Marcellus shale is an unconventional shale-gas resource play gaining significant interest as a result of recent drilling success and positive economics. The play is the result of a depositional system and tectonic setting similar to the Barnett, Fayetteville and Woodford shales, but to a much larger extent. The Marcellus shale has a linear extent of approximately 600 miles as compared with the Barnett shale, at some 120 miles.

The core area of the play is expanding and is defined by shale thickness, pressure and maturity. Moreover, the Marcellus is potentially a multiplay area with variations such as wet-gas areas, dry-gas areas and more geologically complex areas.

The potential of the Marcellus shale has attracted some of the largest natural gas producers in the U.S. and is attracting interest from foreign companies as well. Recent recoverable resource estimates suggest approximately 363 Tcf from the core Marcellus region. Horizontal well results have consistently shown increases in both estimated ultimate recovery (EUR) and initial production (IP) rates as technology has improved, with EURs ranging from 3.0-5.75 billion cubic feet equivalent and IPs ranging from 2.1-5.8 million cubic feet per day.

Transaction activity. The region has traditionally not been as highly liquid as other U.S. basins; however, recent activity in the Marcellus is boosting interest and in particular driving up acreage costs. The recent StatoilHydro/Chesapeake joint venture for $3.38 billion ($1.25 billion in cash and $2.13 billion in future drilling commitments) implied a cost of $5,769 per acre.
—Bobby Stillwell, (713-437-5044) Scotia Waterous

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