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    Gas production rises in Marcellus, Utica

    Gas production for the Marcellus and Utica shale plays in the eastern United States is projected to grow to 34 billion cubic feet per day by 2035, according to ICF International, a provider of consulting and technology services to government and private industry. This compares with current production of 25 bcf per day in the first quarter of this year. ICF recently issued its outlook for US and Canada natural gas, natural gas liquids, and oil production through 2035.

    Utica wells are "more gassy" than initially expected, says the report. As a result, gas production growth from the Utica wells has been much greater than anticipated and more growth is expected.

    Improvements in drilling and hydraulic fracturing technology continue to increase estimated ultimate recovery (EUR) per well. Recent well statistics reported by producers suggest that newer wells have longer horizontal laterals and more fracture stages. However, gas EUR in the Marcellus is projected to average 6.2 bcf per well compared to 5.2 bcf per well in the last quarter, says ICF. The gas EUR in the Utica is projected to average 3.3 bcf per well compared to 2.5 bcf per well in the prior quarter.

    Enerplus operations in the Marcellus.
    Enerplus operations in the Marcellus.

    Resource recovery is expected to be higher than previously projected. Current inter-lateral distance ranges between 1,000 and 1,500 feet, but new pilot tests show 500 to 750 feet between laterals.

    ICF experts also project more well completions due to improvements in the number of wells drilled per rig. The number of gas well completions is projected to average about 2,050 wells per year in the Marcellus compared to 1,750 wells per year in the last quarter report and 500 wells per year in the Utica compared to 395 wells per year, as cited in ICF's last-quarter report.

    The Utica and Marcellus shales are regarded as high-growth areas for natural gas liquids supply in the United States. NGL production has increased eight-fold to more than 650 barrels per day in recent years and is projected to continue its rapid growth as NGL infracture – pipelines, gathering systems, fractionation plants, and storage – are constructed to support higher levels of production.

    Exploration and production companies that extract natural gas from the Marcellus Shale will benefit more than natural gas producers elsewhere in North America, even if gas prices weaken, Moody's Investors Services said in a recent report.

    The low-cost, highly productive wells of the Marcellus will continue to be economic, said Moody's associate analyst Michael Sabella, author of the study.

    "Technological advancements since the early 2000s have allowed US natural gas producers to reshape the industry largely through the development of the Marcellus," he said. "The Marcellus has emerged as one of the most profitable regions in the US for producing natural gas," he said, noting that "even if prices return to the weak levels of 2012, producers there will be rewarded."

    Operations at the Marcellus will benefit active producers such as Southwestern Energy, Chesapeake Energy, and Anadarko Petroleum, Sabella noted. And the future credit quality of EQT Corp., Range Resources, and Antero Resources is closely tied to their success in the Marcellus. As takeaway capacity constraints ease, the performance of the producers should improve.

    Midstream operators such as MarkWest Energy Partners and Sunoco Logistics Partners, which entered the Marcellus both early and aggressively, are likewise beginning to see benefits as they complete projects, with increasing production boosting EBITDA and cash flows.

    But the growth of the Marcellus has coincided with the decline in natural gas prices. Low natural gas prices have hurt the credit quality of many natural gas producing E&Ps. EXCO Resources, Forest Oil, and Quicksilver Resources have all seen a decline in credit quality coinciding with the Marcellus' rise, said Moody's Investors Services.

    "Pipeline reversals and exports of liquefied natural gas will create additional investment opportunities for Marcellus producers, even while offering only marginal benefits for gas producers outside the region," Sabella said. "Marcellus producers will remain competitive in the fledgling US LNG industry, and production growth will receive another boost once these projects come online."

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