CNX Gas (NYSE:CXG) raised its production guidance for 2009 due to better than expected results in the Marcellus Shale, as unconventional shale plays continue to attract capital despite the fall in natural gas prices.

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The company raised guidance from 85-87 Bcf of natural gas production for 2009. While this increase in guidance may not seem that great, it represents significant growth over the 76.6 Bcf of production in 2008.

CNX Gas is majority owned by CONSOL Energy (NYSE:CNX), a large coal company with properties in Appalachia. This relationship has advantages for CNX Gas and may give it an advantage over other exploration and production companies, as it has better access to capital due to the size of its parent.

CNX Gas has now drilled five horizontal wells in the Marcellus, and has reported a 3.14 MMcf (million cubic feet) per day average initial production rate on April 19.

Well Costs
Operators in the Marcellus Shale are continually lowering the cost to drill as they learn more about the play. This is because the Marcellus is more of a "manufacturing" business model. This refers to an area where there is little exploration risk because the oil or gas is known to be present, and the key is to develop the resources in a commercially-successful manner. (Read more in Peak Oil: Problems And Possibilities.)

CNX Gas now sees its well costs in the Marcellus in a range of $3.6-3.7 million, down substantially from the $5.2-5.5 million cost when the company first entered the area. These reduced costs are due to efficiencies in drilling and lower service costs caused by excess capacity in the market.

These increased efficiencies can be substantial for an operator. An example is the experience of Ultra Petroleum (NYSE:UPL) in the Pinedale Field in Wyoming. Over the last three years the company has seen substantial reductions in well cost and time to drill as it gained more experience in the field. Its well cost has fallen from an average of $7 million in 2006 to $5.5 million in 2008. The company's time to drill moved from an average of 61-24 days in the same time frame. (Drill down into financial statements to tap into the right companies and let returns flow, see Unearth Profits In Oil Exploration And Production.)

Other Players
Range Resources
(NYSE:RRC) is another operator in the Marcellus Shale, and just reported a 12% year over year growth in production in the first quarter of 2009. The company attributed its strong growth in part to the Marcellus Shale. Range Resources has six specially-designed rigs planned for the Marcellus and will drill 60 wells here in 2009.

Even the giants of the industry are getting into the Marcellus. Exxon Mobil (NYSE:XOM) recently revealed that it has 19,400 acres in the area. This contradicts the conventional wisdom that the majors have "abandoned" North America to focus on large international projects.

CNX Gas raised production growth and reported several successful horizontal wells in the Marcellus Shale, as the company and other operators target this massive shale play with capital and other resources.

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Tickers in this Article: CXG, CNX, UPL, RRC, XOM

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