One metric used by the exploration and production industry is the estimated ultimate recovery (EUR) of a well, or the expected amount of hydrocarbons that can be produced economically over the life of the well.

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In the Marcellus Shale, for example, the estimated ultimate recovery varies based on where the properties are located and the prowess and experience of the operators drilling. These operators usually get more efficient as they drill and complete more wells. (For related reading, see Oil And Gas Industry Primer.)

EUR in the Marcellus Shale
In August 2010, Chesapeake Energy (NYSE:CHK) raised the estimated ultimate recovery of its wells in the Marcellus Shale from 4.2 to 5.2 billion cubic feet equivalent per well. The company attributed the large increase to "strong production results."

Range Resources (NYSE:RRC) is one of the largest operators in the Marcellus Shale. The company has 1.3 million acres that are prospective for the Marcellus with the bulk in the core area of the play.

Range Resources uses an estimated ultimate recovery of 5 billion cubic feet equivalent for wells on the company's 600,000 acres in southwestern Pennsylvania. This estimate is based on 95 wells drilled to date in that area.

New Player, Old Game
Ultra Petroleum (NYSE:UPL) is a newer entrant to the Marcellus Shale but has still managed to build a sizeable acreage position in the play. The company has 255,000 net acres under lease and plans to drill 85 net wells in 2010.

Ultra Petroleum is using an estimated ultimate recovery of 3.75 billion cubic feet equivalent for wells on its acreage, which is concentrated in the north central part Pennsylvania.

Although this estimated ultimate recovery is below that of its peers, the management of Ultra Petroleum disclosed during its second quarter conference call in July 2010, that the company is considering increasing the estimated ultimate recovery.

"Well declines have been flatter than we originally projected in our 3.75 billion cubic feet estimated ultimate recovery type curve... If the trend continues, we will likely push our estimated ultimate recovery estimates upward," said William Picquet, a vice president at Ultra Petroleum.

Other operators are using even higher estimated ultimate recovery numbers in the Marcellus Shale. Atlas Energy (Nasdaq:ATLS) reported that recent well results on its acreage imply an estimated ultimate recovery of 6 billion cubic feet equivalent.

CONSOL Energy (NYSE:CNX), which has acreage in Pennsylvania and West Virginia, said that several wells drilled in the first half of 2010 were so good that the estimated ultimate recovery ranged as high as 9.9 billion cubic feet equivalent for some of the wells. The wells were drilled in Greene County, Pennsylvania.

The Bottom Line
The estimate ultimate recovery of wells in unconventional resource basins is an important metric for investors to watch, although each operator uses a different number based on its own experience.

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Tickers in this Article: CHK, RRC, UPL, ATLS, CNX

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