Pennsylvania has had a long history of energy production in the U.S. After all, the first oil well in our nation was tapped in 1859 near Titusville- not in Texas- as many people would guess. That history of strong energy production continues today as the Marcellus shale is quickly growing as the fastest natural gas producing region in the United States. All in all, leading to huge profits for the various energy firms in the region.
Yet, more gains could had in the years ahead.
Output due the increased adoption of hydraulic fracking continues to rise, while new midstream and natural gas cracking facilities are taking advantage of that output. For investors, as the Marcellus continues to grow and mature, there’s plenty of profits to be had.
The Natural Gas Hotspot
America's "Saudi Arabia of gas", the Marcellus shale is helping energize the renewed interest in natural gas. The rock formation- which stretches through West Virginia, Pennsylvania and New York- is currently the nation’s largest reserve of natural gas. And it continues to pay big benefits for those tapping the formation as well as investors.
According to a new report issued by the Energy Information Administration (EIA), the production from the Marcellus has now reached levels originally targeted for 2015. Taken as a whole, the shale field is now producing around 12 billion cubic feet per day worth of natural gas or about the equivalent of 2 million barrels of oil per day. Putting it another, if the Marcellus shale was its own country, its production of natural gas would put it in the eighth position- ahead of Saudi Arabia. All in all, since 2009 production at the field has risen about 6 times.
That’s huge step in the right direction on the road to energy independence. But investors shouldn’t be satisfied with that torrid growth- more is in store for the region.
The key for the Marcellus is the number of tapped wells that haven’t actually begun producing a drop of natural gas and natural gas liquids (NGLs). That’s because- despite the field’s potential- there’s still insufficient pipeline infrastructure in the region. Investment bank Barclay’s (NYSE:BCS) estimates that there is roughly 1,546 backlogged wells in the region that need to added to pipeline infrastructure.
As these wells get added into the logistics system, production in the field could explode upwards even more, leading to increased profits at the producing firms. Barclays predicts that production in the Marcellus could increase by an additional 46% this year and by another 29% next year as these wells are finally added in.
Playing The Marcellus’s Gassy Potential
With the long-term potential of Marcellus shale to change the future of energy production within the United States, investors should consider adding exposure. Broad-based funds like the First Trust ISE-Revere Natural Gas (NYSE:FCG) make adding that exposure easy. However, there are plenty of individual ways to win in the Marcellus.
The king of them all could be Range Resources (NYSE:RRC). Already, Range has been the leading firm tapping the Marcellus in both dry gas as well as NGLs production. That’s helped the firm see increasing earnings for several quarters now. However, RRC still has plenty of growth on its horizon. The E&P firm predicts that a series of new pipelines- including a new NGL system from Enterprise Products Partners (NYSE:EPD) –will help boost its production to 3 billion cubic feet equivalent by 2015. That will help drive earnings even higher at Range. Likewise, Marcellus-focused drillers Cabot Oil & Gas (NYSE:COG) and Rex Energy (NASDAQ: REXX) will also benefit from new pipeline expansions.
Building all of those new pipelines is the midstream trio of MarkWest Energy Partners (NYSE:MWE), Sunoco Logistics (NYSE:SXL) and Williams Partners (NYSE:WPZ). All hold significant pipeline operations in Pennsylvania and are expanding their offerings to connect many of the backlogged wells. MarkWest is constructing series of pipelines that will send 400,000 barrels of ethane, propane and butane towards the Gulf Coast each day by 2016, while Williams’s recent expansion on its Transco Northeast Supply Line has already brought more Marcellus gas to market. All in all, these projects will benefit MWE, SXL and WPZ shareholders via expanded cash flows and distributions.
The Bottom Line
For investors, the Marcellus Shale continues to pay benefits. The region’s production continues to rise, leading to plenty of profits for the firms that operate within its borders. The previous picks make ideal selections to play the region’s growth.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.