CHAPTER 1 OVERVIEW OF MAJOR U.S. SHALE PLAYS: MARCELLUS|UTICA, NIOBRARA, EAGLE FORD|BARNETT, AND BAKKEN

• Jurisdiction: United States

Development Issues in Major Shale Plays
(May 2014)
CHAPTER 1
OVERVIEW OF MAJOR U.S. SHALE PLAYS: MARCELLUS/UTICA, NIOBRARA, EAGLE FORD/BARNETT, AND BAKKEN
Barry Osborne
Vice President-Land
Southern Marcellus Shale Division
Range Resources Corporation
Canonsburg, Pennsylvania
Hillary N. Snyder
Senior Associate
Burleson LLP
Pittsburgh, Pennsylvania

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BARRY OSBORNE is Vice President Land - Southern Marcellus Shale Division for Range Resources in its Canonsburg, Pennsylvania office. Immediately prior to joining Range, Barry served as Land Manager and General Counsel to Vantage Energy in its Fort Worth, Texas office and helped to establish Vantage's entry into the Marcellus Shale in 2011. Barry has served as Assistant General Counsel for Encana Oil & Gas (USA), Inc., as well as Vice President of Land and Legal for Cornerstone E&P Company and Matador Petroleum Corporation. Barry is a graduate of the University of Texas at Austin and the University of Texas School of Law, and is Board Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization. Barry is a member of the Shale Gas Roundtable and also a member of the Advisory Board for the West Virginia University Energy Land Management Program. Barry has 30 years of experience in the oil and gas industry and has worked in producing basins in Texas, New Mexico, Oklahoma, Kansas, Louisiana, Colorado, Utah, and Wyoming, as well as the Marcellus Shale in Pennsylvania, Ohio, and West Virginia. Barry is a past speaker for the Rocky Mountain Mineral Law Foundation, as well as the State Bar of Texas.

HILLARY N. SNYDER is a senior associate with Burleson LLP in Canonsburg, Pennsylvania. She concentrates her practice in oil and gas title examination mainly in the Marcellus and Utica plays. She has practiced law in the Pittsburgh area since 2001. Hillary received her B.A. from Duquesne University in 1998. She attended the University of Pittsburgh and received her Juris Doctor in 2001. Hillary began her career focusing on estate planning, estate administration, and business transactions. She is licensed to practice law in Pennsylvania.

Index

I. The Shale Revolution

II. U.S. Natural Gas Production and Consumption Summary

III. Brief Glossary of Common Natural Gas Related Terms

a. Geological Terms

b. Natural Gas Terms

c. Terms Related to Hydraulic Fracturing

d. Terms Related to Natural Gas Measurement

IV. Overview of Key Shale Plays in the United States

a. Harriett Shale

1. Geography and Geology

2. Barnett Shale Production

3. Notable Producers

b. Marcellus Shale

1. Geography and Geology

2. Marcellus Shale Production

3. Notable Producers

c. Utica Shale

1. Geography and Geology

2. Utica Shale Production

3. Notable Producers

d. Bakken Shale

1. Geography and Geology

2. Bakken Shale Production

3. Notable Producers

e. Niobrara Shale

1. Geography and Geology

2. Niobrara Shale Production

3. Notable Producers

f. Eagle Ford Shale

1. Geography and Geology

2. Eagle Ford Shale Production

3. Notable Producers

V. Conclusion

Endnotes

Bibliography

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I. The Shale Revolution

Arguably the biggest innovation in energy so far this century has been the development of shales. Developments and innovations in the use of horizontal drilling technology and hydraulic fracturing technology have opened up oil and gas reservoirs for development that were not previously believed to be economically viable. Shale formations that had been long identified and previously viewed as only source rock for the producing horizons above them, are now being developed directly through horizontal drilling and hydraulic fracturing. As a result, there has been a boom in drilling activity and production in several basins across the country. This new chapter of exploration and development has not only led to substantial benefits for the industry and for the regions containing these basins in the form of employment and financial opportunities, but for the country as a whole on an international scale. Already, many industry watchers are predicting that the United States will become a net exporter of energy within the next five years, changing the world energy balance in our favor.

But this so-called "shale revolution" did not happen overnight. Hydraulic fracturing technology has been around since 1947, and initial efforts to adapt it to shale only began in the early 1980's. These efforts were pioneered by George Mitchell through his company Mitchell Energy in the Barnett Shale of the Fort Worth Basin. After these early forays into shale development, it was not until the late 1990's and early 2000's that the specific type of fracturing for shale, combined with an evolving horizontal drilling technology, began to build significant momentum and these technologies began to migrate out of the Barnett Shale and into the developing shale plays of the time. The years of research and development finally began to pay off and the impact of these new drilling and completion technologies on the U.S. energy supply became notable beginning in 2008.

Since then, shale drilling in the industry has developed rapidly, with shale gas currently accounting for approximately 44% of total U.S. natural gas production and headed much higher. With this abundant new supply, U.S. gas prices have fallen to a third of those in Europe, while Asia pays five times as much.¹

Tight oil, produced with the same technology as shale gas, is boosting U.S. oil production as well, with output up 56% since 2008, an increase that, in absolute terms, is larger than the total output of each of eight of the 12 OPEC countries. Indeed, the International Energy Agency predicts that in the coming years the U.S. will overtake Saudi Arabia and Russia to become the world's largest oil producer.² Today, according to the U.S. Energy Information Administration, U.S. shale accounts for 223 billion barrels of oil reserves and 2,431 trillion cubic feet of natural gas reserves.

Ten years ago, if you were to ask any economist what would be the potential biggest source of global instability, most would have likely told you that it was the big trade deficit in the U.S. and the big trade surplus in China. Shale has the potential to change what seemed to be that inevitable destiny. America's shale revolution will have a radical impact on the global economy, with the consequent cut in the U.S. trade deficit, transforming the global trade dynamic by changing the balance of competitiveness in the world economy. In addition, inexpensive natural

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gas is fueling a U.S. manufacturing renaissance, as companies build new plants and expand existing facilities giving us a further leg up in the competitive global economy.³

Many other countries are reassessing their own energy policies in light of the shale energy revolution. China, seeing the speed and extent of U.S. shale gas development, has placed a high priority on developing its extensive unconventional gas resources. For China, replacing coal with natural gas in electricity generation is essential to mitigate public discontent and health problems stemming from the heavy burden of urban air pollution.⁴

Further, the geopolitical impact of the shale revolution is already evident. For example, Iran is now seriously at the table in nuclear negotiations, which might well not have happened were it not for American shale. When strict sanctions were imposed on Iranian oil exports, many feared that world oil prices would spike, and that the sanctions would ultimately fail, owing to insufficient alternative supply. But the increase in U.S. oil production over the last two years has more than made up for the missing Iranian output, at least partially enabling the sanctions to work and thus compelling Iran to negotiate seriously, which it was unwilling to do before.⁵

The potential impact of the shale revolution and how it is potentially changing the game on a global scale is not going unnoticed in Washington, D.C. In a recent white paper issued by the office of U.S. Senator Lisa Murkowski (R-Alaska), it was recognized that "exports of petroleum products must continue without burdensome regulations" and that "the United States should encourage the free trade of any energy commodity, and not impost trade restriction to serve a climate change policy agenda. Trade and consumption will occur with or without us, and the only question is whether we enhance or demote our global position. This is true for natural gas as well as for coal, oil, and other sources of energy."⁶

Overall, the shale energy revolution provides a new source of resilience for the U.S. and enhances America's position in the world. The emergence of shale resources in the U.S. demonstrates, once again, how innovation can change the balance of global economic and political power.

II. U.S. Natural Gas Production and Consumption Summary

Year over year, U.S. gas production grew by a relatively modest 1% in 2013. Production grew from 65.7 Bcf/d in 2012 to 66.6 Bcf/d in 2013, representing the lowest annual growth since 2005. By comparison, year-over-year growth in 2012 was 5% and 7% in 2011. Even though natural gas prices rose 35% in 2013 over 2012, 2013 natural gas prices were still the lowest since 2002, with the exception of 2012. Even with relatively low natural gas prices prices, however, natural gas disposition, which includes consumption (96% of all disposition) as well as injection and exports, remained relatively flat. This is compared to a 3% annual increase in 2012. This flattening of natural gas consumption has been attributed by many as due to a market share increase by coal in power generation because of the year over year increase in natural gas prices.⁷

Of the major shale plays, production from the Marcellus Shale rose 61% while production from the Eagle Ford Shale rose 54% and by 33% in the Bakken Shale. The...