Members of the oil and gas community generally recognize the Marcellus shale as the largest and most economic natural gas shale play in the continental United States. With its close proximity to large East Coast energy markets, the Marcellus has a built-in customer base right on its doorstep.
Studies performed by the Energy Information Administration estimate core Marcellus potential at approximately 141 trillion cubic feet – a shale gas giant by any measure. Marcellus pioneers such as Range Resources, Cabot Oil & Gas, and XTO Energy cracked the "drilling and completion code," helping to push finding and development costs in the play under $1.00 per Mcfe – lower than any other shale basin in the US. These attributes make the play especially attractive, but add in the Marcellus' optimum location, directly adjacent to the most populated area in the lower 48 states, and you have a game-changer.
Many investors are aware of the numerous competitive advantages the Marcellus holds, and as a result have become familiar with the large independents developing the play. There are, however, numerous smaller oil and natural gas companies, both public and private, that have also taken steps to aggressively exploit the advantages of the Marcellus. Some of these companies have been operating in the Appalachian region for decades.
Here are some recent activity reports from the Marcellus:
Marcellus and Utica get new NGL hub
Over the next couple of years, almost 500 MB/d of new fractionation capacity will be built in the region encompassing the Marcellus and Utica shale plays. Sometime in 2016 or sooner, Houville will blast past Conway as the second largest Y-grade hub in the country, exceeded only by Mont Belvieu in Texas.
By the end of 2014, the northeastern US will go from about 100 MB/d of NGL fractionation capacity to nearly 600 MB/d. That's because wet gas production is growing by leaps and bounds in both the Marcellus and Utica, and the processing, transportation, and fractionation infrastructure is trying desperately to keep up with production. RBN Energy reports that, "Producers are aggressive and willing to partner with midstream companies to ensure their production is interrupted as little as possible. The vast majority of these midstream deals are supported by long-, fee-based agreements."
There are lots of producers waiting anxiously to maximize netbacks on their production of NGLs, some of which is ethane now being rejected, or other products being transported long distances for fractionation, storage, or simply to find a market. RBN Energy notes, "NGLs aren't of much value until they are fractionated (i.e., split) into purity products: ethane, propane, normal butane, isobutane, and natural gasoline. There is a very long history of processing and fractionation in the region, but nothing like the scale of what is happening now."
UGI Corp. and Tenaska Resources enter into agreement
Valley Forge, Pa.-based UGI Corporation [NYSE: UGI] has entered into agreements with Tenaska Resources LLC, a natural gas exploration and production affiliate of independent energy company Tenaska, to jointly develop gas resources in the Marcellus shale region in north-central Pennsylvania. UGI Energy Services Inc. will construct and operate about 20 miles of new gathering pipelines and related gas processing and compression facilities for wells that Tenaska intends to drill in Potter County, Pa., with the first phase of construction targeted for late 2013 or early 2014.
The initial investment in the proposed gas gathering system is estimated to be up to $25 million, with the total investment in gathering for full development of Tenaska's Potter County acreage estimated to be in the range of $65 million over ten years. In addition to the gathering opportunity, UGI announced that it has invested $25 million for an approximate 19% non-operating working interest in acreage that Tenaska operates near Mainesburg in Tioga County, Pa. Both projects are located in proximity to UGI's midstream and distribution assets, including 14.7 billion cubic feet (bcf) of natural gas storage.
Crestwood acquires assets from Enerven
Crestwood Midstream Partners LP (NYSE: CMLP), as operator and 35% owner of Crestwood Marcellus Midstream LLC (CMM), has completed the acquisition of natural gas compression and dehydration assets from Enerven Compression LLC (Enerven) for $95 million. The transaction was funded under CMM's existing $200 million revolving credit facility and is expected to contribute approximately $11 million to $12 million of earnings before interest, taxes and depreciation (EBITDA) to CMM in 2013.
Antero redeploys capital to Marcellus and Utica
Denver-based Antero Resources has sold all of its natural gas and pipeline assets in the Piceance basin to a private company for $325 million in cash plus the assumption of all of Antero's Rocky Mountain firm transportation obligations.
Antero Resources chairman and CEO Paul M. Rady said, "[This] sale allows Antero to redeploy capital and human resources to its Marcellus and Utica shale projects where we are focused on the development of liquids-rich natural gas and oil reserves. With the closing of the Piceance transaction, Antero will complete its transformation into a pure-play Appalachian basin shale producer with a large scale, low-cost, liquids-rich drilling inventory."