How to invest in Marcellus Shale gas stocks

Want to know how to join the rapidly growing mass of investors making huge investments in Marcellus Shale natural gas stocks? This article will give you a good background on the recent developments that have thrust the Marcellus Formation onto investor's radars.

Is there a massive natural gas field located in the Appalachians?

For many years geologist have known about the Devonian black shale called the Marcellus. It is easy to spot with its black color and is slightly radioactive, making it easy to identify on a geophysical well log. The problem was that most wells drilled within the Marcellus did not produce large quantities of gas. Most natural gas industy players never envisioned the formation being a "super giant" gas field, thus very few investments were made in the area. As recently as 2002 the United States Geological Survey published its "Assessment of Undiscovered Oil and Gas Resources of the Appalachian Basin Province." In their report they concluded the formation contained an estimated undiscovered resource of about 1.9 trillion cubic feet of gas. Given the massive area of the Marcellus, it wasn't a large amount.

Major changes in estimates and production

In 2003 a company called Range Resources drilled a well in Washington County, Pennsylvania (located within the Marcellus). Early results indicated decent flows of natural gas were possible. They began to experiment with drilling and Hydraulic fracturing processes that had worked previously in other Barnett Shale wells in Texas. Apparantly something worked. Production began in 2005, and by 2007, over 350+ well had been issued permits in Pennsylvania alone. As time progressed many insiders began to take notice. In the early part of 2008, two science professors released estimates that the Marcellus formation might contain more than 500 trillion cubic feet of natural gas. Using "fracking" techniques, and horizontal drilling methods, they estimated approx. 50 trillion cubic feet were recoverable. If true, the value of recoverable resources would be in the trillions as well, and would be enough to service the needs of the United States for years.

November 2008 Dept. of Energy Shale Gas Map
What is shale and how is gas extracted from it?

Shale is in effect rock. It is formed by organic matter that has decayed and been stored underneath the ground for millions of years. Natural gas is created int he pore spaces of the shale, and collects within fractures within the shale, and is collected within mineral grains and organic material. The gas has difficulty esacaping due to the fact that the pore spaces and fractures within the shale are very small. Most older wells within the Marcellus produced gas, but at a very slow rate. Most wells that produced had one thing in common. They intersected multiple natural fractures within the formation. The well bore would penetrate the natural fractures and enough gas would be produced to make the wells viable.

Horizontal drilling and fracturing

Most naturally occuring fractures within the Marcellus were vertical, therefore a vertical well would not intersect very many fractures. With newly developed horizontal drilling methods, suddenly wells were able to intersect a number of naturally occuring fractures. This dramatically increased initial production of wells drilled. Another method used to increase production is Hydrofracing. This is done by sealing off a bore hole and injecting water or gel at very high pressure into the well. The high pressure fractures the shale and increases the size of previous fractures. In order to prevent the fractures from closing when the water is removed, sand or another form of "propent" is used to maintain the size of the fractures and allow the gas to escape into the well. Using these two methods, wells were able to substantially increase the flow of gas, and profits for the operators.

Potential economic benefits

The Marcellus is the largest volume of natural gas located closest to the major population areas of New York, New Jersey, and the rest of the Eastern Seaboard. It is also located in an area that is accessable to the Eastern Midwest regions of the United States. Since most of the gas has to be transported by pipelines, the central location leads to significantly lower investments for transportation. As time goes and the availability of the gas is proven, the infrastructure to produce, transport, and consume the gas will be expanded. Could Pennsylvania be the next Texas of energy production?

Landowners, Leasing, and Right-of-ways

Just like Jed Clampet, many people are discovering new found wealth in land they thought was only good for farming etc. Initially mineral rights were going for a hundred or so dollars per acre, but recently that figure has grown to as much as two or three thousand per acre. Landowners have begun to recieve checks in the hundreds of thousands, just for the right to drill. As well as mineral rights, gas producers also need right-of-ways to build pipelines to transport the gas to where it will be consumed. It is estimated that thousands of miles of pipeline will be needed in order to get the gas to the locations it will be used. Right-of-ways are being purchased throughout the Marcellus Shale and can range from a couple of dollars per linear foot to as much as a hundred dollars per foot in populated areas.

Drilling activity and companies involved

There are quite a few companies you may invest in that are involved in the Marcellus shale. They participate by leasing mineral rights from land owners or sharing in royalties from producing wells. Range Resources, Chesepeake Energy, Cabot Oil & Gas, Southwestern Energy Production Company, Atlas Energy Resources are just a few of the companies participating in the rush to take claim to the area.