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Thursday, July 14, 2011

Shell Seeks Best Drilling Sites in Butler, Lawrence Gas Fields

- Shell Seeks Best Drilling Sites in Butler, Lawrence Gas Fields

Thursday, July 14, 2011
Knight Ridder/Tribune Business News
by Timothy Puko, The Pittsburgh Tribune-Review

Bill Langin is playing a giant game of Battleship in Butler and Lawrence counties, using a drill rig to plot targets in the Marcellus shale.

Langin is in charge of Appalachian exploration for Royal Dutch Shell plc, which holds the mineral rights to about 100,000 acres in the two counties and more land in northern Pennsylvania. About a year ago, Shell bought East Resources Inc. of Marshall for nearly $5 billion, and the company just finished drilling its first well in this part of the state.

Langin, 34, of Moon is not a wildcatter looking to drill in the sweetest spots he can find. His job is to drill in outlying areas, looking for data, zoning in on targets he cannot see. He asks: Where can Shell drill in its Appalachian holdings and profit?

"Sometimes (the testing) works; sometimes it doesn't. It's kind of sketchy, so the only way you can really gauge the production is once you drill a well," said Langin, a Luzerne County native and Ivy League graduate who spent most of his career working on projects in the Gulf of Mexico and off the shore of Brazil.

His team of 12 geologists and engineers does radiation testing, taking thousands of feet of core samples from underground and reviewing production data from other wells. To answer questions that data cannot, they drilled an 8,600-foot exploration well in Little Beaver, Lawrence County. Its rig is 142 feet tall, twisting thousands of feet of steel pipe into the earth. At the bottom, the well reaches out 5,000 feet sideways into the next town.

The work in this fringe area of the Marcellus shale fairway is part of escalating drilling in Butler and Lawrence counties. Shell also is tapping into the Utica shale, a gas-rich layer that is deeper and extends beyond the Marcellus formation.

Shale gas extraction in Pennsylvania remains under a spotlight, and corporations such as Shell, Exxon Mobil Corp. and Chevron Corp. moved into the region a year ago, buying big stakes. The companies have different ways of estimating potential quantities of gas, experts said.

"They're not just looking at their own land. They're evaluating all of it," said Anthony Ingraffea, professor of civil and environmental engineering at Cornell University. "Eventually it's going to be the last four or five (companies) standing, and Shell plans to be one of those."

Shell plans to bring in a drill rig dedicated to the region next year. If things go well, it could add nine more. The company will spend two to four years determining how rich the land is with gas, and whether to drill here before tapping other oil and gas fields around the world, Langin said.

Shell continues to lease land in Butler and Lawrence counties, adding about 30,000 acres to the 70,000 it bought from East last year, Langin said. Its big-picture exploration methods not only help the company gauge and manage holdings, but help its officials to decide where to lease land, said Badie Morsi, director of the University of Pittsburgh's Petroleum Engineering Program.

It's difficult to determine how much gas the Marcellus shale will produce in a given location. Pressure and natural fractures vary, Morsi said, meaning drillers can only approximate reserves.

"It's very difficult to make generalizations," Morsi said. "It depends upon your luck. You're shooting in the dark at 10,000 feet. It's not a known thing where you go in and grab it."

It's common for multinational corporations such as Shell to take the time for advance work, Morsi said. If they drill edge areas first, the production there can indicate how much gas is inside the circle, he said.

That helps companies to plan efficiently for infrastructure costs, such as pipelines and compressor and processing stations, Langin said. They know the gas is there, but they must figure out how much is there and how hard it is to extract -- then they can determine how high gas prices must be before drilling would be profitable.

Texas-based Range Resources also has holdings in Butler County. It tapped the first successful Marcellus well more than six years ago in Washington County, and being first on the scene brought competitive advantages, spokesman Matt Pitzarella said.

Instead of expanding in new territory, the company is concentrating on Washington and Lycoming counties, where shale formations hold gas and other marketable resources, Pitzarella said.

Range touts research from global financial services firm Morgan Stanley that says those Marcellus areas could turn a 10 percent initial profit, even with natural gas prices as low as $3 per million British thermal units (Btus) on the New York Mercantile Exchange. Natural gas futures for August delivery closed Friday at $4.2 per million Btus.

"It's not that we don't like those areas (north of Pittsburgh), but we're focused on where we believe our highest rate of return is," Pitzarella said.

Copyright (c) 2011, The Pittsburgh Tribune-Review

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1 comment:

  1. It is interesting to learn about the scope of this project. I am a land owner in New Beaver Borough that is under lease for $3. per acre with Central Appalachian Petroleum. There are 227 other land owners with similar leases that were part of an Oil Assignment to East Resources then sold to Shell. To put it into perspective the Sale in Lawrence County is over 21,000 acres of land. We get roughly $352. per year for Shell holding our lease. Like others we were mislead by land men to obtain our land. In most all of the leases the land owners never met the notaries who signed and recorded the leases. Eric Kapp's name appeared on our lease. He acknowledged to me that he never met me or my husband, yet he signed and notarized our documents as a commissioner of deeds and then assigned himself and three other officers of Central Petroleum an royalty equal to what we would get as a land owner. I recently brought this to the attention of other land owners because they requested that this information not be indexed at the Lawrence County Court House. It is a shame that they used their powers to take advantage of the farmers and landowner who held the assets. It is also interesting that they can drill 5000 feed sideways to the next town and our property adjoins the Patterson well in Little Beaver yet isn't considered part of the pull. Lana Boyer