Marcellus Shale, Move Over
Drillers explore potential from Burkett, Rhinestreet, other
shales closer to surface
Pittsburgh Business Times
2 March 2012
By Anya Litvak, Reporter
A couple of southwestern Pennsylvania natural gas operators are
moving on up the shale column and beginning to explore formations
hundreds of feet above the Marcellus in hopes of striking liquid
treasure.
Range Resources, the region’s largest driller, has been probing
the Rhinestreet and Burkett shales for several years, but only
recently began talking about their results. In 2011, the company
drilled two test wells in the Upper Devonian group in Washington
County, which in this region includes the Rhinestreet, Middlesex,
Genesee and Burkett shales.
The Marcellus is a middle Devonian Shale, which lies several
hundred feet below those.
If the test wells drilled in the next few years show the Upper
Devonian can be developed economically, southwestern Pennsylvania
operators may find themselves sitting on twice as much gas as they
originally imagined. Add to that the potential of the Utica Shale,
which lies below the Marcellus, and it could mean much more
development in this region.
According to Mark Whitley, Range’s senior vice president for the
Appalachia and Southwest divisions, the Upper Devonian is expected
to mirror the organic yield of the Marcellus below it.
“So far, our experience has been where the Marcellus is dry, the
Upper Devonian is dry” and vice versa, Whitley said.
In the “super-rich” area of the Marcellus, which is how Range now
refers to portions of Washington and Beaver counties, the test
wells it drilled in the Upper Devonian seem to be similar in
liquid content to the Marcellus below it. This gas is much more
profitable to drill at current low gas prices because it is higher
in energy content, fetches more buck per btu and can be separated
into its liquid components, which could be sold separately, adding
more value.
LAYERING UP
Range’s main drilling program will still be focused on the
Marcellus in the next several years, Whitley said. But the company
will continue testing the Upper Devonian in Washington County and
will begin to test in Beaver County to get a better sense of its
potential for future planning.
Already, much of Range’s acreage in this region has the Utica
underlying it, albeit it’s a dry slice of the Utica Shale and
isn’t economic to develop at current gas prices.
“For our long-term plans here, I can envision we would have
Marcellus development wells on one pad and on that same pad” would
be a Utica and an Upper Devonian well, Whitley said. “To some
extent, it’s a cost savings. You’ll be able to use mostly the same
type of (gas gathering) system.”
As Ray Walker, Range’s COO, told investors last month, “it’s
really exciting to think that we could essentially have a lay-down
double sitting right on top of our super-rich Marcellus acreage,
especially when you think about the impact to our value.”
The same could be true for Rex Energy Corp., which tested one
Upper Devonian well last year and has plans to test another one in
Butler County in 2012.
“Obviously, you have greater economies of scale when you can sit
on one location and drill different zones,” said Jesse Carl, a
financial analyst with Rex.
Last year, State College-based Rex drilled a well in the Burkett
Shale. This year, it’s aiming to probe the Rhinestreet Shale,
which is about 500 feet shallower and, Rex expects, will produce
more liquids because of that.
“If successful, this will give Rex four significant producing
zones in our Butler County acreage,” said Patrick McKinney, Rex’s
president and COO.
While neither company has disclosed the cost of an upper Devonian
well versus a Marcellus well, Carl said: “Obviously, if you don’t
have to drill as deep, it’s cheaper to do.”
Range and Rex have revealed the most about their Upper Devonian
exploration, but other natural gas drillers are looking at
shallower shales, too.
EQT Corp. told investors last year it drilled an exploratory Upper
Devonian well in West Virginia, and Atlas, before it was bought
out by Chevron, had plans to drill one in southwestern
Pennsylvania.
Ultra Petroleum, which operates in the northeastern part of the
Marcellus, has drilled several test wells in the shallow shales
there.
COOKING THE CARBON
The Marcellus, a middle Devonian shale deposited about 390 million
years ago, is rich in natural gas liquids in southwestern
Pennsylvania but dry throughout the rest of its footprint, and
doesn’t bear much oil because its carbon matter has been cooked
for too long and under great enough pressure to break it down into
gas.
The carbon material trapped in the Marcellus mostly comes from
marine life, according to Michael Arthur, Penn State University
professor of geosciences and co-director of the Marcellus Center
for Outreach and Research, and contains very little sediment.
Upper Devonian shales, such as the Rhinestreet, have much more
sediment, which dilutes the carbon content of the shale.
But while they may not be as organically endowed, these shallower
shales are likely in that sweet spot of time — under just enough
heat and pressure to yield liquid hydrocarbons.
“I’ve certainly heard from various industry representatives that
they are optimistic about this,” Arthur said.
Both Rex and Range have drilled upper Devonian test wells from
existing well pads that already have producing Marcellus wells on
them.
And neither company has found that fracking the upper portion
interferes with the fractures created in the lower play.
That’s in part due to the thick limestone barriers that separate
the upper, middle and lower Devonian, Arthur said.
LAND MATTERS
Savvy attorneys and landowners already are specifying which
formations the gas company they’re leasing to can produce from,
according to J. Peter Lambrou, vice president of land services at
RKR Resources LLC.
Neither Range nor Rex expect that drilling shallower will create a
problem with the terms of current leases.
“Most of these leases are not specific just to the Marcellus —
they are (for) gas rights,” Whitley said of Range’s portfolio.
That’s evolving, according to Lambrou.
“Operators/drillers are and will continue to be in favor of a
blanket lease” that doesn’t mention depth, he said.
But more and more leases, at least those crafted by consulting
companies such as RKR and at law firms, get specific about which
formations are included, what’s excluded and is therefore
available for leasing to other firms once the primary lease is
expired, even if the drilled wells are producing.
Anya Litvak covers energy, transportation, gaming and accounting.
Contact her at alitvak@bizjournals.com or (412) 208-3824.