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Large, Small Producers Face Same Egress Issues in Appalachian Basin

Producers, both large and small, face similar regulatory and commercial challenges to getting the infrastructure they need in the Appalachian Basin for egress, according to a panel of executives who spoke at Platts' Appalachian Oil and Gas Conference in Pittsburgh on Monday.

Andrew Winkle, vice president for the Marcellus for Norway's Statoil ASA, said the company was skeptical about the Marcellus at first, but entered the play in 2008 and now holds about 760,000 net acres.

"From the beginning, nobody expected the Marcellus to grow like it has; it's just been exceptional," Winkle said. "When we were out actually looking for egress opportunities, we actually had to persuade and use our credit lines and history as a company to push people to accept that this is going to happen. That reality is here now, but it's behind where we are with production."

Winkle said interstate pipelines were a key part to the puzzle, and he said Statoil was looking at ways to interconnect with them better, and to possibly help accelerate the process of having the pipelines become bi-directional, thereby bringing more supplies to the Gulf Coast.

"If we continue to increase [production], one thing is going to happen: the price is going to go down and production will stop," Winkle said. "The opportunity is there to produce a lot more gas, the [Appalachian] basin has a lot more capacity to do so. But until those new egress opportunities come out, we're going to see a leveling off until the egress opportunities catch up with production."

Bryan Moody, vice president for business development at Eclipse Resources I LP, concurred. Eclipse holds 90,000 net acres in the core Utica fairway.

"We're much smaller, so we have to look at egress as how can we secure that to some degree," Moody said. "We hire consultants to give us advice on the marketing piece. Interestingly, they don't feel that getting out of the Utica specifically is going to be that big of a problem. We as a company feel otherwise, and are looking to secure firm [capacity] on any interstate pipe that can get us out of the area.

"Most of those [pipelines] don't get you to the marketplace, so you have to take out from another pipe to get to market. We are moving quickly to ensure that we can flow our gas, and try to do it for less than a dollar negative on Henry Hub. Being a small company, that's the way we look at our economics. We're going to get dinged pretty hard, whereas Statoil and Range [Resources Corp.], maybe not; maybe they can do some bigger things. As a smaller company, our concern is residue gas and ethane and we're trying to take steps to make sure that we have somewhat decent pricing."

John Applegath, Range vice president for the southern Marcellus, said the company had decided long ago not to be in the midstream.

"We're pretty well tied at the hip to MarkWest, Superior, PVR, depending on where we are; they handle all of that," Applegath said. "But part of it is working with them to make sure that we don't drill on a pad or a location that they need for a compressor station or for a plant site, that we have development that syncs in with where they can get the right-of-way and where it makes sense."

Applegath added that "overall, regulations put a constraint that have to be worked around. It's just a matter of understanding what they are and working around it and figuring out the solution." Case in point, the decision by MarkWest Energy Partners to build a natural gas processing complex in Majorsville, WV (see Shale Daily,Sept. 3).

During his opening remarks, Applegath said that in the long term, Marcellus development would be constrained by overall national demand and takeaway capacity.

"If somebody doesn't burn the gas, eventually it doesn't get produced," Applegath said. "The industry could have the ability to produce 40 Bcf/d, and yet only 20 Bcf/d moves.

"Many of the main lines are looking at projects to make their compressor stations coming up from the Gulf Coast bi-directional. Some of them have said they're going to do that next summer. We'll see what happens on that, but [to] assure that flow happens, we've got to sign up for these pipeline projects and make sure that we can get access to markets. Hopefully those projects will stay up with the development. Some of the areas in the Marcellus that aren't shaded 'core' but have already had well tests, those well tests are better than anything in the Barnett, Haynesville or any of the other gas plays. It's just a matter of time before we see those spread out, given the right economics."

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