The Marcellus Shale - Its History and Importance to Both Appalachia and America

Devonian black shale exists throughout Appalachia and is especially prevalent in Pennsylvania, Ohio and West Virginia. It is the basis for al shale plays in the region, regardless of their depth or formation. Devonian shale has long been recognized for its production potential, with first known production going as far back as 1821. It has been noted for spotty areas of sustained production in PA with strong shows in OH and WV. It was largely ignored for years because of the expense of extracting gas from shale (pre-horizontal drilling and hydrofracturing technology) and the expense of building infrastructure to transport it to market.

The new Marcellus Shale play began in 2003, when Range Resources targeted the Lower Silurian formation in Washington County, PA. Although this formation was not successfully produced, shows in the Marcellus intrigued geologists, and Range successfully completed it first Marcellus well in 2004. Since then, they have been credited with being the first to improve and perfect much of the horizontal drilling and hydrofracking technology which has made the Marcellus prolific. Competitors naturally took note, followed suit, and the black gold rush (in both liquid and vapor form) ensued. Leases, which had for years had been bought at a “standard” $25 per acre began climbing. Prices quickly went through the roof, with some as much as $7000 per acre or more. Major companies who had scoffed at Marcellus Shale production possibilities were suddenly scrambling to pick up leases, buy out competitors, and catch up on the technology. The rest, as they say, is history.

Let us now discuss the formation itself, both geographically and as to its reserves. The Marcellus is now well-known as a prolific commercial shale gas play. Technology, along with geological information gathered during the many successful completions, has allowed exploration companies to identify a window for wet gas (condensate or NGL’s) as well as more specific areas likely to produce oil. It still remains to be seen how far West the formation will be commercially productive and how much of that lies in OH. There, the Marcellus exists at depths of roughly 3000’ to 5000’ throughout much of the Eastern part of the state. There are several dozen producing Marcellus wells in OH, but it still remains to be seen how prolific or productive the area will be and exactly what the geographic range will be.

Chesapeake and Range were among the pioneers to begin exploration of the Marcellus west of Pennsylvania. To date, most of the shale production in Ohio comes from the Utica, a sister formation that is overlapped in many areas by the Marcellus. I know EQT, for instance, bought leases which were specific to these two shale zones only, ignoring the possibility of exploring at other depths. I know this because it cost them big time in Belmont County, where they produced six or more prolific wells from the Pt. Pleasant, a formation lying immediately adjacent to the Utica. The lease which controlled exploration rights there was specific as to the Marcellus and Utica (as named formations) and made no reference to the Pt. Pleasant.

The lease and wells were originally owned and operated by Rice Energy (alternately called Rice Resources), bought-out by EQT in 2017 in a $6.7B deal. Since then, they have been involved in litigation with the mineral owner, Thomas Shaw, and the current landowner, Terra LLC. The case, entitled EQT vs Terra, LLC has been adjudicated time and time again, with EQT losing each and every bout. Most recently, just a few months ago, Ohio’s 7th Court of Appeals ruled against them, finding them guilty of mineral trespass and unlawful taking of production and income. The only venue left for them is Ohio’s Supreme Court, and there is absolutely no reason to believe they will have success there. It seems they painted themselves in a corner due to the language in their own lease.

Many people, myself included, considered the Utica and the Pt Pleasant to be one in the same with regard to potential areas of production. I, myself, wrote and copyrighted a book in 2011, when the Utica was in its infancy, entitled “The Utica/Pt. Pleasant Play in Ohio”. The Rice lease however, was very specific as to including the Marcellus and Utica only, and by name. This mistake will cost them a minimum of $60M, the amount adjudicated in the most recent ruling. If they continue their appeal to the OH Supreme Court, that amount will surely rise, as both interest and production income continues to accrue.

Now, back to the Marcellus. The Marcellus Shale is huge, both geographically and in terms of estimated potential reserves. XTO Energy CEO Bob Simpson had initially estimated that it may encompass 3 million acres or more. It is also worth noting that, although it potential is best proven in PA, Ohio may well be a player too, and not just as to the Utica. It seems the potential of the Marcellus in Ohio has been marginalized because it is less thick there than it is to the East. However, EXCO Resources has gone on record as saying that their best wells in PA have a core of only about 100 feet or so. Taking into account technological advances, total recoverable reserves have now been estimated to be as much as 1500 TCF or more – over 30 times the original estimate. Penn State refers to this 1500 TCF as being “gas in place”, a big difference, but impressive just the same. Almost every major not married to the Bakken or the Permian basin in now active in pursuing the Marcellus in PA and adjoining states (except NY, of course).

Currently, most of the horizontal drilling has been concentrated in WV and PA, Northeast toward NY. The “fairway” as it was originally described by Penn State geologist Terry Engelder, runs roughly through the center of PA and into SE New York. This area is most attractive because it has the thickest parts of the shale formation and the highest total organic content (TOC). More recently, emphasis has shifted to SW Pennsylvania, just North of Hancock County, WV after Range Resources made three huge liquid Marcellus wells in what they call “the super-rich area”, rivalling production found anywhere in any of the three target states. Step-outs will continue to occur adjacent to proven productive areas. Who knows where the sweet spots will ultimately be discovered? It is a huge play, and has production, in various forms, over a large tract of land.

In discussing its potential in Ohio again, characteristics remain consistent with the rest of the Susquehanna River Basin. The difference is that the Marcellus begins to thin as it enters Ohio. The Utica is deeper and lies beneath the Marcellus in Eastern Ohio. Here, the Marcellus structure is typically estimated to be 50’ to 150’ thick, whereas it may be as much as 250’ thick at peak formations in PA, WV and NY (we’ll never know about the latter, will we?). However, this should not be discounted too quickly, as we have already discussed how some of EXCO’s best wells has a show of only about 100’ at the core.

Further, the Marcellus is much more accessible in Ohio. Not only is the terrain more conducive to drilling, but the formation is typically not as deep. The Marcellus exists in Ohio at proven depths of about 5000’ and structure maps show it to be as shallow as 3000’ deep in some areas with decent structure thickness. Conversely, Marcellus wells in Appalachia East of Ohio are typically 7000’ to 9000’ deep and consequently are much more expensive to drill. Exploration of the Marcellus in Ohio should be considerably cheaper for these two main reasons.

Peak formations in WV and PA are estimated to hold as much as 1245M of cubic feet of gas per square mile. However, this is only in a very narrow ribbon which is actually very near Ohio’s Eastern border. For the most part, reserves are between 710 and 1244 M cubic feet per square mile. This seems to be just fine for proven Marcellus production. Coincidentally, Eastern OH shows identical untapped riches, a by-product of the high TOC present in both areas. In fact, the potential pay area in OH may be even bigger than that in PA or WV, and much larger geographically.

At present, Ohio has 81 wells permitted for the Marcellus Shale as of March 12 of this year. Most are listed as active and producing according to the Ohio Department of Natural Resources (ODNR). They have identified at least three counties as being potentially productive for the Marcellus in Ohio, being Belmont, Columbiana, and Carroll County, where the Utica exploration really took off. At one point, either Chesapeake or Rex Energy had leased damn near every parcel in the county. Chesapeake’s position is now owned by Encino. As for Rex, they were bought out in 2018 by PennEnergy Resources.

Admittedly, Pennsylvania was, and remains the heart of exploration regarding pursuit of the Marcellus shale. This will likely always be the case. In addition to the prolific oil, gas and NGL production, it was recently established that the flow-back water from Marcellus wells there contain commercially productive amounts of Lithium, an essential element for many items, including batteries for electric vehicles and military equipment. We had previously relied predominately on China for acquisition of such, and they are not a reliable partner to do business with. Besides, why not keep the production income in-house, so to speak, rather than outsourcing to an unfriendly rival?

The Marcellus is also home to one of America’s few cracker plants, used to create plastic and other related materials. Ethylene, propylene and butadiene are all produced at the Beaver County, PA site, and are all important petrochemicals used in the creation of plastic. Likely everything from your laptop, to your cell phone, to your automobile, to many components in your home originate here. It was an economic boom for the area, as has been the Marcellus itself. I wonder how many farmers have gone from being dirt poor to now farming with new John Deere’s, combines, and other new technology to make their job easier and more efficient. I doubt I could count that high.

Aubrey McClendon, the now-deceased CEO of Chesapeake, once described the Utica as being the “biggest thing to hit Ohio since the plow”. This acronym could easily be applied to PA with regard to the Marcellus and its potential. The amount of money generated for state and local coffers is immense. Consequently, the political climate regarding its exploration is relatively tame, especially compared to some of its neighbors (I’m looking at you New York). It’s a little-known fact that PA, despite being the largest US natural gas producer, does not have a severance tax on oil and gas. Instead, they levy a per well “impact fee”. How many roads have been built, or schools constructed as a result of impact fees assessed by the State? A considerable amount, I assure you. Very considerable indeed.

The Marcellus Shale has long been, and will continue to be, a large player with regard to making America energy independent and the largest oil producer in the world. First it was the Bakken. Then the Eagle Ford. Now it’s the Permian Basin, whose incredible production exceeds even that of Iraq. But no one should discount the Marcellus. It was indeed a pioneer in shale exploration, and many of the techniques used to produce other shale prospect were made and perfected here. It will seemingly always be an important figure in America’s oil and gas exploration efforts.