The U.S. Geological Survey (USGS) finally got around to confirming what the industry and investors already knew - that the Marcellus Shale holds a huge amount of natural gas reserves that will supply energy for many years.

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USGS Assessment
The USGS reported in its updated assessment that the Marcellus Shale holds 84.2 trillion cubic feet (Tcf) of undiscovered natural gas along with 3.4 billion barrels of natural gas liquids. This assessment covers the Marcellus Shale in the Appalachian Basin and includes Pennsylvania, West Virginia, Alabama, Georgia, Kentucky, Maryland, New York, Ohio, Tennessee and Virginia.

The previous assessment released by the USGS in 2002 said that the Marcellus Shale contained only 1.9 Tcf of undiscovered natural gas and 11.5 million barrels of natural gas liquids.

Caveat
The USGS assessment is only a very rough estimate and should not be relied on too heavily for a number of reasons. The assessment covers states where the industry is not currently developing the Marcellus Shale including Alabama, Tennessee, Georgia, Kentucky and Maryland.

The mean amount of undiscovered resources is based on a high and low range of resource estimates. On the natural gas side, the USGS estimated a resource range between 42.9 Tcf and 144.1 Tcf. The range for natural gas liquids was from 1.5 billion to 6.2 billion barrels.

Dueling Estimates
The new assessment did nothing to settle the debate over shale gas as another arm of the government recently made its own estimate of the productivity of the Marcellus Shale. The Energy Information Administration (EIA) released a report several months ago that estimated the Marcellus Shale held more than 400 Tcf of natural gas.

After the USGS assessment was updated, the EIA reduced its own estimate to match that of the USGS. The EIA is part of the Department of Energy, while the USGS is part of the Department of the Interior.

These dueling estimates reinforced the biases of both sides of the shale gas debate, as the government has now either increased the amount of natural gas in the Marcellus Shale by over 40 times (USGS) or reduced it by 75% (EIA).

Operators
One fact that no one can argue about is the level of interest that the industry has in the Marcellus Shale, as many operators are actively developing the play, mostly in Pennsylvania and West Virginia. Here is a partial list of some that are involved here:

Range Resources (NYSE:RRC) has approximately 800,000 net acres under lease, and it uses a resource potential from the Marcellus Shale on the company's leasehold between 22 and 32 Tcfe.

Ultra Petroleum (NYSE:UPL) has 260,000 net acres in the play and invested $390 million here in 2010. The company plans to drill 80 net horizontal wells in 2011.

Cabot Oil & Gas (NYSE:COG) has 81 horizontal wells producing and reported that these wells were producing between 420 million and 430 million cubic feet per day of natural gas as of the end of July 2011.

EQT Corp. (NYSE:EQT) has 520,000 net acres and plans to drill 100 wells in 2011. The company estimates the after-tax return on wells here at 72% using a $5 price for natural gas.

National Fuel Gas (NYSE:NFG) has allocated almost its entire capital budget to the Marcellus Shale in 2011 and plans to do the same in 2012. The company estimates its risked resource potential at between 8 and 15 Tcfe.

Chesapeake Energy (NYSE:CHK) operated 30 rigs here in July 2011 and reported average production of 320 million cubic feet of natural gas equivalents per day in that month.

The Bottom Line
The debate over the productivity of the Marcellus Shale will likely never be settled and doesn't really have to be, as the interest in the play is undeniable even at relatively low prices for natural gas. This interest will continue for many more years. (For additional reading, see A Guide To Investing In Oil Markets.)

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Tickers in this Article: RRC, UPL, EQT, CHK, COG, NFG

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