A version of this story appears in the January 2018 edition of Oil and Gas Investor. Subscribe to the magazine here.

E&Ps are going long—really, really long—in Appalachia. Average regional lateral length will cross the 10,000-ft threshold sometime in 2018, placing the play alongside the DSU-advantaged Bakken Shale as the lateral-length king in the U.S.

Longer laterals reduce cost—now down to $750 per foot of lateral for Eclipse Resources Corp. (NYSE: ECR), which completed a record-setting 20,800-ft Utica Shale lateral in Guernsey County, Ohio, during third-quarter 2017. Lateral length dominated third-quarter 2017 earnings calls for Appalachian E&Ps. Antero Resources Corp. (NYSE: AR) claims access to 30% of all acreage in Appalachia suitable for 10,000-ft laterals. From CNX Resources Corp. (NYSE: CNX) to Range Resources Corp. (NYSE: RRC) to Eclipse, every public E&P in Appalachia said it will push lateral length beyond 9,000 ft in 2017—and 10,000 ft in 2018, including 16,000 ft for Eclipse.

Three years ago, the move to extend lateral length from the standard 4,500 ft to 7,500 ft was considered a stretch goal. Today, average lateral length nationwide is in the neighborhood of 7,500 ft. While Appalachia holds the record, other regions aren’t far behind. Leading edge laterals are passing the 3-mile threshold in the Eagle Ford, Permian—and will soon cross that threshold in the Anadarko Basin, thanks to regulatory changes in Oklahoma.

Improvements in drilling capability are due in part to better downhole tools, some designed by E&Ps, and directional drilling software that enables the industry to drill more consistent wellbores over extended lengths. E&Ps have captured many of the efficiencies available from a new generation of beefed up drilling rigs. Eclipse drilled its record-setting well in 17 days. Such projects would have stretched beyond 45 days just a few years ago.

The next step in creating a market for consistently long laterals is completion optimization. Eclipse’s management, for example, talked about moving to larger drill pads to deploy simultaneous operations on drilling, completion and production to capture additional capital efficiency. The company is now drilling out all plugs in extended reach Utica condensate laterals in a single trip that may involve up to 120 frack stages.

Why go long? Extended laterals result in faster pay out—faster by 45% in select cases.

That means pay out in less than a year—when all goes well. Consider Chesapeake Energy Corp.’s (NYSE: CHK) McGavin E WYO 6H well in the lower Marcellus. After 32 million pounds of proppant along 10,500 ft of lateral (3,000 pounds per foot of lateral, 446,000 pounds per stage), the well came on at 61 million cubic feet equivalent per day and produced a cumulative 4.3 billion cubic feet of gas during its first 90 days, with an estimated nine-month payout.

The move to longer laterals is influencing how the industry evolves. Lateral length has been a driver for multiple oil and gas transactions from the Permian to Appalachia as E&Ps pursue bolt-on acreage to develop contiguous land blocks. In fact, longer laterals—and lower per unit costs—are the motivating factor for EQT Corp.’s (NYES: EQT) acquisition of Rice Energy Inc. and its contiguous acreage in the liquids-rich southwestern Marcellus Shale.

There are tangible benefits when combining lateral length with optimized completions. In the Haynesville, a 30% increase in proppant loading, reduced stage spacing and increased perforation clusters on longer laterals have revitalized a natural gas play and reversed the production decline despite a challenging commodity price environment.

Granted, the discussion on super laterals focuses on the top one half of 1% of industry laterals. Such headlines, though impressive, can exaggerate impact. Ultimately, those discussions are not so much about today, but on how the practice of longer laterals and optimized completions will impact the industry tomorrow.

For full-field development, which is the apex of goals in tight formation plays, longer laterals promise efficiencies in process and capital that will keep the industry competitive in an extended low commodity price environment. Consequently, lateral length is a discussion that will continue. The technical and regulatory barriers are melting away. Where there are early signs of smoke, fire often follows.

Richard Mason can be reached at rmason@hartenergy.com.

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