Marcellus Shale Gas - Enerplus - Home · PDF file1 Marcellus Shale Gas Overview • Current...

The Game PlanMarcellus Shale Gas

Dana W. Johnson, President, U.S. Operations

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Marcellus Shale Gas Overview

• Current land position of ~ 200,000 net acres

• 70,000 net operated acres with an average working interest of 90%

• Long lease tenure at attractive entry price in area that has good thickness & maturity

• Average 24% non-operated working interest in ~467,000 gross acres (~114,000 net) primarily in Pennsylvania and West Virginia with Chief Oil & Gas

• Average 19% non-operated working interest in ~103,000 gross acres (~20,000 net) in NE Pennsylvania with EXCO Resources

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Marcellus Potential

Planned production

growth of over 150 MMcf/day

over next 4 years

3.9 Tcfe of best estimate

contingent resource

Contingent Resource Est. 2009 2010

Operated - 1.2 Tcfe

Non-Operated 2.1 Tcfe 2.7 Tcfe

Total 2.1 Tcfe 3.9 Tcfe

# of Net Locations 639 926

Land Utilization 55% 65%

Average EUR/Well 3.4 Bcfe average 4.2 Bcfe average

Well Costs $4 – $5 million $4.5 – $6.8 million

Density 4-8 wells/640 acres 4-8 wells/640 acres

2P Reserves 24 Bcfe 117 Bcfe

• Majority of reserve bookings are in Lycoming, Susquehanna and Marshall counties - represents about 1 year’s drilling

• Best estimate of contingent resource is nearly 5x booked corporate 2P natural gas reserves

• Attractive finding and development costs of $1.64/Mcfe in 2010 and over life

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Geologic Variances Across the PlayCounties ranked on weighted criteria:• Formation at least 25 feet thick• Proximity to economic production• Original Gas in Place (OGIP) Bcf• Maturity (Ro% or Heat Value)• Northeast PA average EUR of 4.5 –

5.5 Bcf+• Southwest PA average EUR of 4.0

Bcfe• Although Tier 1 counties in NE PA

have much higher OGIP, expect that greater well spacing is required than in the Tier 1 counties in SW PA

• We expect both regions to have a similar recovery factor

• 98% of Enerplus wells in our resource assessment are in the dry gas window

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Marcellus Performance – Cumulative ProductionType curve estimates have been increased as well

results have either met or exceeded our expectations 25% of wells are above 6 Bcfe type curve

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Marcellus Performance – NE Pennsylvania

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

0 60 120 180 240 300 360 420 480 540 600 660 720 780 840

Dai

ly P

rodu

ctio

n (M

cf/d

ay)

Days on Production

21 MARCELLUSHORIZONTAL PRODUCERS

Lycoming 1 Lycoming 2

Lycoming 4 Lycoming 3

Lycoming 10 Lycoming 11

Lycoming 12 Lycoming 13

Lycoming 14 Lycoming 5

Lycoming 6 Lycoming 7

Lycoming 8 Lycoming 9

Susq. 1 Susq. 2

Susq. 3 Lycoming 15

Lycoming 16 Lycoming 17

Lycoming 18 Average Horizontal

Type Curve (EUR 6 BCF)

6.0 Bcf Type Curve

3.5 Bcf Type Curve

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Marcellus Well Economics

4.0 Bcf Well 5.0 Bcf Well 6.0 Bcf Well

NYMEX$/MMbtu IRR

Payout (Years)

NPV 12%($MM) IRR

Payout (Years)

NPV 12%($MM) IRR

Payout (Years)

NPV 12%($MM)

$6.00 27% 3.4 $2.51 41% 2.5 $4.57 57% 2.0 $6.62

$5.00 16% 4.9 $0.75 26% 3.4 $2.37 37% 2.6 $3.99

$4.00 7% 8.6 ($1.02) 13% 5.7 $0.17 20% 4.2 $1.35

* Assumes long-run well cost of $6.0 MM

• Wells in the liquids rich gas window of the Marcellus that have higher liquids content show a ~20% improvement in netbacks versus dry gas wells

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Well Design• Drilling (Average 30 days)

• Operated• Drilling primarily delineation wells – with vertical pilot, cores and logs• 5 single well pads in Centre County, PA (2 wells ) and Preston County, WV (3

wells)• Lateral length of 4,000’ to 5,000’• Closed loop system with synthetic mud• Installing water infrastructure

• Non – operated• Drilling primarily lease saving operations, rather than pad drilling• Vast majority single well pads with a few 2 to 4 well pads• Longer laterals 3,000’- 5,000’• Closed loop system with synthetic mud

• Completions (2 to 4 weeks)• Operated

• 10 – 12 frac stages, 300’ to 400’ per stage• 4 perf clusters per stage• Slickwater frac with multiple sweeps

• Non-operated• Fewer frac stages and larger frac intervals 400’ – 450’• 6 – 9 perf clusters per stage• Still testing 1 month “resting” of wells• Reduced chemical loading

Drilling costs range from $2.5 – $3.5

million

Completion costs range from $3.0 –$4.0 million

Marcellus Well Timeline

Well application / permit approval Site Build Drilling Waiting on Frac

Crews Fracing

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45 – 60 days in PA

• 30 – 45 days in WV• Assumes water sources

permitted• Current regulations

45 – 90 days

• Cannot begin building site until permit in hand

• Depends on time of year

25 – 35 days/well

• Multi-well pads

• “self-skidding” rigs help reduce drilling time

30 - 60 days

• Shortage of frac fleets relative to basin-wide drilling activity

7 - 14 days

6 – 8 months

Note: Timeline excludes well “resting” and tie-in to gathering systems

Gathering Gas in the Marcellus

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NE PASusquehanna, Bradford,

Sullivan, Lycoming

Central PAClearfield,

Clinton, Centre

South PACambria, Somerset,

Fayette

SW PA & WVMarshall, Green PA

Midstream Party Chief Midstream Caiman/ Chief Midstream

Caiman Caiman / MarkWest Plant

Comments Most mature area of the field where Chief has been acquiring ROW and laying pipe to their own producing wells for the past 2 years

New drills are just being evaluated and egress routes being investigated

Pipeline activity wasn’t started until 2010 as no wells were completed (assume 1 year behind Marshall County)

Liquids rich gas area that is currently flowing wet into the sales pipe waiting on the MW Plant for liquids extraction

Wells to be tied-in in 2011 30 - 35 6 - 20 25 - 32 25 - 30

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Marcellus Drilling Activity To Date*

Gross Wells Drilled (at Mar 3, 2011) Horizontal Vertical Total

Producing 42 9 51

Partially Drilled** 4 1 5

Waiting on Completion 33 5 38

Waiting on Pipeline 11 6 17

Total Gross Wells 90 21 111

• Planned drilling activity in 9 counties in PA, Marshall and Preston counties in West Virginia, and Garrett county in Maryland

• Majority of producing wells in Bradford, Lycoming and Susquehanna Counties in NE PA (>80% of current production) and Marshall County in WV

• Current net production is ~20 MMcfe/day

* Includes operated and non-op wells drilled by Chief & Exco**Vertical portion of well drilled, awaiting horizontal extension

2011 Marcellus Plans

• 2011 capital program of $160 million• 150 gross wells planned (22.4 net)

• Operated : 5 gross wells, 1 rig• Non-Operated: 145 gross wells, 8 - 10 rigs

• Expect to complete ~121 gross wells with 94 new gross wells on stream by the end of the year

• Capital:• 25% directed to liquids rich gas in SW PA and NW

WV • 30% directed to delineation activity to preserve

lease positions and identify future potential• 45% of capital directed to development drilling in

areas with EUR’s of 4.5 to 5.5 Bcf

• May see upward pressure on capital due to activity levels

• Current average netback ~$2.50/Mcfe

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Production growth of

150% in 2011

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Moving Natural Gas Out of the Marcellus• Enerplus has taken several steps to ensure we can move our growing

Marcellus gas production to market:• Entered into longer term (5 years +) firm “must take” contracts with creditworthy

substantial end users of the natural gas who:• hold firm capacity on the various interstate pipelines (Transco, Tennessee)• have storage capacity and trading ability

• These contracts have flexibility to increase delivered volumes as we bring production to pipe:

• Participated in the Wyoming Pipeline Project that creates optionality for our production between the two key pipelines - Transco and Tennessee

• Entered into a firm processing and marketing agreement with MarkWest for our liquids rich gas produced in Marshall County

MMBtu/dMin Max Min Max Min Max Min Max Min Max

Committed Sales into Transco Pipeline: 12 36 48 74 68 81 65 80 38 45Committed Sales in to Tennessee Gas Pipeline: 21 30 30 38 38 14 6 6

20152011 2012 2013 2014

14 38

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Water Access & Handling

• ERF and our JV partners have sufficient water source permits to execute development plans

• ERF and our JV partners are permitting and constructing additional water impoundments

• ERF developing centralized water infrastructure with gas gathering system (Centre County, PA)

• Implemented closed loop system for drilling fluids management in 2010

• Goal to recycle 100% of produced and flow back water by end of 2011

• Chief building a centralized tank farm for storage and recycling

• ERF reusing flow back fluid on location to reduce fresh water use

• JV partners utilizing industrial water treatment plants and disposal wells for water disposal

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Key Concerns Actions

Environment • Drilling and completion “best practice” being utilized –surface, intermediate and production casing cemented to surface

• Fracing more than a mile below water table• Surface containment systems • Pre-testing water wells

Fracing • EPA frac study underway• On-going education and transparency by industry

needed

Regulatory/Government/Stakeholder

• Sitting on various industry associations to leverage relationships and provide input on regulation

• Holding “town hall” meetings in new areas to build landowner relationships and address local issues

Industry Challenges

Marcellus Summary

• Enerplus has a meaningful position in North America’s best shale gas play

• Marcellus offers significant future growth potential

• Results to date exceeding expectations

• 2011 operations focusing on appraisal drilling in our operated leasehold, continued appraisal and development drilling in our non-operated leasehold

• We’re managing the challenges

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