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Natural gas locked in the Marcellus Shale has companies rushing to cash in on possibilities
When event coordinators for Hart Energy Publishing began planning a Pittsburgh conference for natural gas producers, they reserved space in the Westin William Penn Hotel for the gathering.
"We thought we'd be doing extremely well if we had 300 people," said Leslie Haines, editor in chief of Hart's trade journal, Oil and Gas Investor.
A month before the Oct. 19 conference date, the Houston company had a problem -- registrations exceeded the hotel's capacity. Rather than turn away registrants, it moved the conference to the David L. Lawrence Convention Center.
The conference turned into the largest one that Hart has ever produced, with some 1,400 attendees from across the country.
"It was an amazing thing," Ms. Haines said, and a small indicator of surging interest in the Marcellus Shale, a geological formation that sprawls from midstate New York across more than half of Pennsylvania and into Ohio and West Virginia. Little regarded five years ago, the Marcellus Shale is now viewed as one of the world's leading reservoirs of recoverable natural gas.
It was only in 2008 that interest in the Marcellus Shale exploded, a development triggered by the release of two reports.
In December 2007, Fort Worth, Texas, natural gas giant Range Resources released quarterly operating results documenting production from the first modern natural gas wells drilled in the Marcellus, thus giving Wall Street its first glimpse of the formation's profit potential.
The next month, an announcement by Penn State University geoscience professor Terry Engelder and City University of New York, Fredonia, geology professor Gary Lash made that potential appear much greater. In 2002, the U.S. Geological Survey had estimated the shale contained some 1.9 trillion cubic feet of natural gas. The professors estimated it contained between 168 trillion and 516 trillion cubic feet, between 80 and 250 times the government estimate.
The rush was on.
"That's when the bulls eye got painted on Pennsylvania," said Ray Walker, vice president of Range's Marcellus Shale division.
Suddenly investors and producers from all over the country and abroad swarmed into the state to lease land and to drill wells, more than 300 by year's end.
"It's always about capitalism and making money," Mr. Walker said. "That's why it all works."
At the October conference in the convention center, analyst Ray Deacon, with Pritchard Capital Partners LLC, presented a list of producers with leases or wells in the Marcellus Shale that read like a "Who's Who" of natural gas.
With rights to 1.45 million acres, Chesapeake Energy, based in Oklahoma City, Okla., edges out Range, with 1.4 million, as the biggest player in the Marcellus Shale. Third-place Cabot Oil & Gas holds 1.2 million acres.
In terms of company size, Norwegian colossus StatoilHydro Asa, with an $81 billion market cap, is the biggest kid on the block, towering over $30 billion Anadarko Petroleum of The Woodlands, Texas, and Houston-based $22 billion EOG Resources, and dwarfing everyone else.
Local companies involved in the gas rush include Atlas America Inc., with offices in Moon, which has 532,000 acres; Downtown-based EQT Corp., with 400,000 acres; and Cecil's CNX Gas, with 400,000 acres.
But there's still room in the Marcellus for little guys. Or at least there has been.
Petrol Development Corp., in Denver, holds 46,000 acres, and Houston-based Gastar Exploration Limited has leased 42,000 acres. Both have market caps of less than $500 million.
Talk to anyone in the industry about the Marcellus Shale and the conversation is likely to turn to its potential economic impact -- not just the money that a company hopes to make, but the jobs that could be created and the tax revenues that could be generated.
According to a report released in July by Penn State's College of Earth and Mineral Sciences, the Marcellus Shale helped create more than 29,000 new jobs in Pennsylvania in 2008. Of those, about 14,000 were directly related to Marcellus development. The remainder were created by what the study calls "indirect and induced impacts," such as a restaurant near a drilling site hiring more staff because it is serving a larger lunchtime crowd.
The study predicts more than a decade of dramatic growth, with more than 48,000 new jobs this year, then another 98,000 in 2010.
By 2020, the study says, Marcellus development could add $13.5 billion to the state's economy and create more than 176,000 new jobs in a single year.
As for tax revenues, the study predicted the Marcellus Shale would send $800 million into state and local coffers next year, and $1.4 billion by 2020.
Local executives already see evidence of that beginning.
At Range, Mr. Walker said local operations have grown from a one-person office to an office staff of about 150 in Southpointe, Cecil, with another 100 people working in the field in Washington County. He said Range was still "on our way to doubling or tripling" its presence here.
Nicholas J. DeIuliis, chief operating officer of CNX Gas and its largest shareholder, Consol Energy, said his business had added about 50 people over the past year to the Marcellus business unit, which was "three people in a trailer" four years ago, and he anticipates additional hiring across a range of job specialties within both companies. CNX has wells in Greene County.
In a meeting with news media at the October conference, EQT chairman and CEO Murry S. Gerber, credited Marcellus exploration with about 2,000 jobs within the company, and said it could produce 12,000 to 15,000 additional jobs within the next year and a half. EQT is drilling in Washington County.
Mr. Gerber also noted that so far much of the field work, as opposed to the administrative work, has not been done by Pennsylvanians but by migrants from states with more history and expertise in shale gas.
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