WPX Energy (NYSE:WPX) has a large acreage position in the Marcellus Shale and is continuing to invest in the development of the company's properties here, as wells still generate high returns despite low prices for natural gas. (To know more about oil and gas, read Oil And Gas Industry Primer.)
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WPX Energy has about 99,000 net acres under lease that are prospective for the Marcellus Shale. The company made a major acquisition here in May 2010, spending $501 million on undeveloped acreage in Pennsylvania. WPX Energy reported average production of 19 million cubic feet of natural gas equivalents per day in Oct. 2011.

This understates the company's production from the Marcellus Shale as WPX Energy has 40 wells that have been drilled, but are waiting on completion or connection to infrastructure. These 40 wells represent production of 110 million cubic feet of natural gas equivalents per day.

One of the largest operators in the Marcellus Shale is Range Resources (NYSE:RRC), which reported production of approximately 400 million cubic feet of natural gas equivalents per day at the end of 2011. The company expects to grow production 50% in 2012 and reach 600 million cubic feet of natural gas equivalents per day by the end of the year.

Marcellus Shale
Although WPX Energy has leases spread across four areas in Pennsylvania, the company is currently active in parts of Susquehanna and Westmoreland counties.

In Susquehanna County, WPX Energy has 40,000 net acres and plans to operate four rigs here in 2012, double the current level. The company expects wells here to provide an after tax internal rate of return of 58%. This return is calculated using an average well cost of $4.6 million, an estimated ultimate recovery of 5.55 Bcfe per well and a natural gas price of $4.85 per Mcf.

In Westmoreland County, WPX Energy has 22,000 net acres under lease and is currently operating two rigs. In 2012, the company plans to be flexible here and maintain one or two rigs depending on market conditions.

Wells here are less productive than in Susquehanna County and WPX Energy is looking to generate an after tax internal rate of return of 21%. This return is calculated using an average well cost of $4.7 million, an estimated ultimate recovery of 4.04 Bcfe per well and a natural gas price of $4.85 per Mcf.

Different Economics
Other Marcellus Shale operators report different returns than WPX Energy since the productivity and cost of wells varies by area and operator. Ultra Petroleum (NYSE:UPL) has acreage in Potter, Tioga, Lycoming and Clinton Counties in Pennsylvania and reports returns in the 43 to 45% range.

Southwestern Energy (NYSE:SWN) has 181,500 net acres that are prospective for the Marcellus Shale and has seen higher production from recent wells drilled and completed with more hydraulic fracturing stages.

The Bottom Line
Although natural gas is out of favor with many operators and investors, the Marcellus Shale is still attracting investment from WPX Energy and other companies. Many areas of this play will continue to see a steady flow of capital, absent a catastrophic collapse in natural gas prices. (For additional reading, check out A Guide To Investing In Oil Markets.)

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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