## Paul Fulton Scholarship Paper

Marcellus Shale Decline Analysis Submitted by: Brandon Baylor

Abstract: The major Appalachian Basin topic being discussed b y oil and gas producers today is
the Marcellus Shale formation. Since 2004 business es have only recently been able to aggressively pursue natural gas production from thi s underground formation. Given the lack of production data in the Marcellus, this paper draws parallels from similar U.S. shale formations. The expected ultimate recovery (EUR) of hydrocarbon s in the shale formations (such as the Barnett Shale and Haynesville Shale formations) is used as a basis for the Marcellus Shale predictions.

In the engineering task of predicting the Marcellus Shale decline, past trends of performance will be evaluated. The analysis presumes that these tre nds and controlling factors will persist. Different factors such as initial production rate, curvature of the decline, and rate of decline will be taken into consideration in the analogy between shale formations. The EUR is defined as the amount of hydrocarbons produced from the time the w ell is drilled to the time of abandonment. This study will compare the Barnett and Haynesville Shale formations to the Marcellus Shale.Marcellus Shale Decline Analysis

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### Table of Contents

EXECUTIVE SUMMARY .................................

................................................... ........................ 3

Purpose ...........................................

................................................... .......................................... 3

Background ........................................

................................................... ...................................... 3

Method ............................................

................................................... ......................................... 4

Scope .............................................

................................................... ........................................... 4

Key Terms .........................................

................................................... ....................................... 5

BARNETT SHALE .....................................

................................................... ................................ 6

Background ........................................

................................................... ...................................... 6

Decline Analysis ..................................

................................................... .................................... 7

HAYNESVILLE SHALE .................................

................................................... ........................... 8

Background ........................................

................................................... ...................................... 8

Type Curves .......................................

................................................... ...................................... 9

MARCELLUS SHALE ...................................

................................................... .......................... 10

Background ........................................

................................................... .................................... 10

Type Curves .......................................

................................................... .................................... 11

CONCLUSION ........................................

................................................... .................................. 12

WORKS CITED .......................................

................................................... ................................. 13

APPENDIX A: BIBLIOGRAPHY ..........................

................................................... .................. 14

APPENDIX B: TABLES ................................

................................................... ........................... 15

Barnett Shale Reservoir Properties ................

................................................... ........................ 15

Marcellus Shale Reservoir Properties ..............

................................................... ...................... 15Marcellus Shale Decline Analysis

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### EXECUTIVE SUMMARY

Purpose

The purpose of this paper is to consider production decline curve parallels between the Barnett/Haynesville Shale and Marcellus Shale forma tions. Decline curve analyses and expected ultimate recovery (EUR) predictions are found in th e public domain for the Barnett and Haynesville Shale. The type curve characteristics are thereafter applied to the Marcellus formation. The study of these reservoirs will bene fit producers of the Marcellus formation and provide an insight into the expected value of this previously untapped formation.



### Background

Shale formations are organic-rich rocks typically r egarded as source rocks for underground hydrocarbons. Because of the low permeability and porosity of the shale formations, oil and gas companies had no way to economically produce the ga s in place. However, with the onset of horizontal drilling, improved stimulation methods, and increased natural gas prices, producers began investing in the resources necessary to produ ce the formerly untapped gas reserves.

The typical shale gas reservoirs consist of 50-600 feet of net pay thickness, 2-8% porosity, and depths of 1,000-13,000 feet (3). With trillions of cubic feet of natural gas now available, producers look to utilize vertical drilling, horizo ntal drilling, and hydraulic fracturing techniques to pursue production in the U.S. shale plays.

Figure 1: Lower 48 Shale Gas Plays (http://www.oerb .com/Portals/0/images/shale_gas-map2.jpg)Marcellus Shale Decline Analysis

4 The Marcellus Shale lies 5,000 to 8,000 feet below the earth’s surface and covers roughly 2/3 of the states of Pennsylvania, New York, and West Virg inia (6). This formation, which is still in its producing infancy, has 21 Bcfe of proven reserves a nd 4-8 Tcfe of probable and possible reserve potential (10). This relatively new play has drawn the attention of producers because of its large size and potential economic impact on the U.S. Comm onwealth (9). In 2005 wells began to be drilled on a regular basis; although, sufficient pr oduction data has not yet been collected to accurately predict the EUR for these early producin g wells. Pennsylvania oil and gas regulation, for instance, does not require producers to report annual well production until five years have passed. Therefore, 2005 well production will not e nter the public domain until the year 2011 (11).

Much like the Marcellus Shale, the Barnett Shale wa s previously thought to have been only a hydrocarbon source rock with no producing reservoir potential. However, the success in the Barnett Shale led to development in other shale pla ys, including the Marcellus Shale. Because of the lack of production data from the Marcellus, the Barnett and Haynesville formations will be used as case studies and an analogy to the Marcellu s. Gas in place of the Barnett Shale is 50 trillion cubic feet. However, according to geology .com only ten percent of the gas in place is economically recoverable utilizing the current hydr aulic fracturing and stimulation techniques (5).



### Method

Numerous sources were referenced during the researc h phase of this paper. Information about the history of shale plays in the Lower 48 was obta ined online from various industry resources. Well costs and decline curve data for public compan ies were obtained for the Marcellus, Haynesville, and Barnett Shale formations. In addi tion, data about shale gas reservoir modeling was available from the SPE Eastern Regional Meeting in 2009.



### Scope

The document will cover the EUR of the Barnett and Haynesville Shale formations and decline predictions in the Marcellus. Data is also availab le regarding the economic viability in the Marcellus. The feasibility of producing from shal e reserves depends on effective fracturing and stimulation techniques. Usually production from sh ale plays is not possible unless complex, non-linear fractures are present to connect the lar ge reservoir surface area to the wellbore. This paper does not address the topic of complex hydraul ic fracturing techniques or stimulation techniques to maximize production in shale gas form ations.Marcellus Shale Decline Analysis

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### Key Terms

- Bcfe : Billion cubic feet equivalent

- EUR : Expected Ultimate Recovery

- FBHP : Flowing bottom hole pressure

-ft : Feet

- Mcfe : Thousand cubic feet equivalent

- mD : Millidarcy

- MMcfe : Million cubic feet equivalent

- psi : Pounds per square inch

- SPE : Society of Petroleum Engineers

- Tcfe : Trillion cubic feet equivalentMarcellus Shale Decline Analysis

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### BARNETT SHALE

Background

The Barnett Shale formation, located in the Fort Wo rth Basin, is a complex reservoir that began drawing the attention of oil and gas producers in t he 1980s. The first well was drill in 1981 in Wise County, TX (2). Because most of the parameter s across an entire formation are not exactly consistent, most reservoir decline predictions come with a range of input values and results. The Barnett Shale still provides a good comparison to t he Marcellus Shale because of similar rock and reservoir properties. See Table 1 in Appendix B for more information on the specific formation properties of the Barnett Shale.

Figure 2: Barnett Shale Geographic Map (http://geol ogy.com/research/images/barnett-shaleformation-map-lg.jpg)Marcellus Shale Decline Analysis

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### Decline Analysis

Figure 3 provides a type curve for the first five y ears of production of the Barnett Shale
formation. The EUR was found to be 2.5 Bcfe with a n initial production rate of approximately 3.5 MMcf/d. For this formation, the production rat e falls nearly 73% in the first year. This steep decline in rate means that the majority of cumulati ve production will come early in the life of the formation. It is important to note that most compa nies consider the first 10 years of production to be the most important. This is because the majo rity of the EUR is produced during this period and drives the project economics. Figure 3 below a lso provides type curves for other U.S. shale plays in the Lower 48.

Figure 3: Type Curves for the Barnett Shale (12)Marcellus Shale Decline Analysis

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### HAYNESVILLE SHALE

Background

The Haynesville Shale is another shale gas play in the Lower 48 that may provide insight into the Marcellus production decline. It extends into East Texas, Northwest Louisiana, and Arkansas;
sometimes it is referred to as the Louisiana Shale. Schlumberger assessed the total depth of the formation to be 18,000 ft in 1981 (1). Pressure in this deep, thick formation is abnormally high for a shale play (20,000 psi). Predictions expecte d the Haynesville Shale to be as big as the Barnett formation, which would make the Haynesville one of the biggest natural gas fields in the United States (4). Now the Haynesville Shale is re cognized as the fourth largest gas field in the world (1).

Figure 4: Haynesville Shale Geographic Map (http://carmouchelandservices.com/images/haynesvill e-shale-map.gif)Marcellus Shale Decline Analysis

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### Type Curves

Figure 3 below presents recently released data for Petrohawk’s decline curve analysis and cumulative production plot for the Haynesville form ation. Like the Barnett, the early years of production decline will be considered because this is the most critical time of the well’s life. At 18 MMcf/d, the Haynesville has a higher initial pro duction rate than both the Marcellus and the Barnett. This means that the reservoir has a great er potential to produce natural gas; however, many other factors also play into the overall amoun t of production for a given formation. Petrohawk predicted the EUR of the Haynesville form ation to be 7.5 Bcf with 6 Bcf of the recovery coming in the first 10 years of production . In other words, 80 percent of the overall recovery from this formation will take place over t he first ten years (8). Compared to other formations, that is a large amount of recovery in t he early life of the producing field. Companies working in this field have seen an early pay-off to their investments. How does this compare to predictions in the Marcellus Shale?

Figure 5: Type Curves for the Haynesville Shale (8)Marcellus Shale Decline Analysis

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### MARCELLUS SHALE

Background

Old vertical wells have existed in the Marcellus Sh ale, but the formation was not tapped into on a regular basis. Before horizontal drilling was util ized, producers occasionally hit natural fracturing systems and were able to see some produc tion. Now producers are assertively pursuing this formation with new drilling and compl etion techniques. The reservoir properties of the Marcellus are comparable to the Barnett Shale, but production data may not decline in the same manner. See Table 2 in Appendix B for more in formation about the reservoir properties of
the Marcellus Shale.

Figure 6: Marcellus Shale Geologic Map (http://sche ma-root.org/science/geology/stratigraphy /formations/shales/marcellus/marcellus_shale_map.gi f)Marcellus Shale Decline Analysis

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### Type Curves

Figure 7 below presents Chesapeake Energy’s predict ed decline curve analysis of the Marcellus Shale formation. The initial production rate for t his curve is about 4 MMcf/d, which is lower than the Haynesville Shale but slightly higher than the Barnett formation. The EUR for this type curve is 4.2 Bcfe. Both the Barnett and Haynesvill e Shale formations had steep decline rates in the first few years of production. In Figure 7 the Marcellus production rate declined 70% after the first year but only 17% of the EUR was produced . In addition, only 55% of the production will be produced in the first ten years, which is c onsiderably less than the Haynesville formation.

Year Cum. Production (Bcfe) % of EUR Recovered

2 1.1 26

4 1.5 36

6 1.8 43

8 2.1 50

10 2.3 55

Table 1: EUR for the Marcellus Shale

Figure 7: Type Curves for the Marcellus Shale (7)Marcellus Shale Decline Analysis

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### CONCLUSION

1.) Due to hazardous terrain, environmental regulat ions, and lack of equipment, the Marcellus Shale formation is not expected to take off until 2 010 (9).

2.) Potential of the Marcellus Shale will be compar able to the Barnett because of their similar initial production rates and first year decline rat e. However, the Marcellus may decline slower in later years.

3.) It will take longer to evaluate the profitabili ty from the Marcellus Shale because a smaller percent of the reserves will be recovered in the fi rst ten years than the other shale plays. Longer reserve recoveries will impact the overall economic s of the play.

4.) According to estimates generated by Deutsche Ba nk, the range of internal rate of return (IRR)
for the Marcellus Shale is 72-100% before tax deduc tions. IRR is used by producers to
determine whether or not to make an investment. Th e IRR is greater for the Marcellus than for any other U.S. shales, Deutsche Bank concluded, bec ause of premium natural gas pricing due to location and relatively low royalties in Appalachia . In addition, the Marcellus is estimated to have the lowest breakeven price ($3.17) when compar ed to the Haynesville and Barnett Shales.

5.) The lack of annual production data in the publi c domain for five years (due to state regulations) limits independent analysis of actual well data.Marcellus Shale Decline Analysis

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### WORKS CITED

1.) American Exploration Corp. “Target: New Haynesv ille Shale Resources,” presentation, 2009.

2.) Brackett, Will. “A History and Overview of the Barnett Shale,” presentation for the Powell Barnett Shale Newsletter, October 2006.

3.) Cipolla, C.L. et al . “Reservoir Modeling in Shale-Gas Reservoirs,” pa per SPE 125530 presented at the 2009 SPE Eastern Regional Meeting, Charleston, West Virginia, USA, 23-25
October 2009.

4.) "Haynesville Shale Natural Gas Play." OilShaleG as.com, 2009. Web. 25 Mar 2010. http://oilshalegas.com/haynesvilleshale.html

5.) "Marcellus Shale - Appalachian Basin Natural Ga s Play." Geology.com . N.p., n.d. Web. 20

Mar 2010. http://geology.com/articles/marcellus-shale.shtml

6.) "Marcellus Shale." Pennsylvania Department of E nvironmental Protection, Nov. 2008. Web.

20 Mar 2010. http://www.dep.state.pa.us/dep/deputate/minres/oilg as/new_forms/marcellus/0100- FS-DEP4217%20Marcellus%20Shale1.pdf

7.) McClendon, Aubrey. Chesapeake Energy. “Marcellu s Shale – Targeted Horizontal Well Profile,” presentation presented at the DUG East Co nference, 19 October 2009.

8.) Petrohawk. “Introducing Red Hawk and Black Hawk ,” presentation presented at the Howard
Weil 38 th Annual Energy Conference, 23 March 2010.

9.) Schweitzer, R. “The Role of Economics on Well and Fracture Design Completions of Marcellus Shale Wells,” paper SPE 125975 presented at the 2009 SPE Eastern Regional Meeting, Charleston, West Virginia, USA, 23-25 Octo ber 2009.

10.) Seneca Resources. “Exploration and Production, ” presentation presented at the BMO Capital Markets Unconventional Resource Conference, 12 Jan 2010.

11.) Thomas, Ben. Marcellus Shale Decline Analysis . Personal Interview by Brandon Baylor. 28
March 2010.

12.) Ventura, Jeff. Range Resources. “Shale Play Co mparison,” presentation presented at the DUG East Conference, 19 October 2009.Marcellus Shale Decline Analysis

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### APPENDIX A: BIBLIOGRAPHY

1.) Ahmed, Tarek. Reservoir Engineering Handbook . 3rd. Burlington, MA: Gulf Professional Publishing, 2006. Print.

2.) Jacobson, Michael. "Tax Treatment of Natural Ga s." Penn State College of Agricultural Sciences, Web. 20 Mar 2010. <http://pubs.cas.psu.ed u/FreePubs/PDFs/uh190.pdf>.

3.) Nicholls, Tom, et. al. How the Energy Industry Works . London: Silverstone Communications Ltd, 2009. Print.

4.) Pinkerton, John. Range Resources. Presentation presented at the Howard Weil 38 th Annual Energy Conference, 23 March 2010.

5.) Raymond, Lee R., et al. United States. Hard Truths: Facing the Hard Truths about Energy

. Washington, D.C., 2007. Print.

6.) United States Department of Energy. Projecting the Economic Impact of Marcellus Shale Gas Development in West Virginia . Tulsa, OK: ALL Consulting, LLC, 2009. Web. 25 Mar 2010. <http://www.iogawv.com/pdfs/WV_Marcellus_Economics_ ALL.pdf>.Marcellus Shale Decline Analysis

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### APPENDIX B: TABLES

Barnett Shale Reservoir Properties

Table 1 (Source: Works Cited #3)

Depth [ft] 7,000 Reservoir Pressure [psi] 3,800 Pore Pressure Gradient [psi/ft] 0.54 Net Pay [ft] 300 Porosity [%] 3 Matrix Permeability [mD] 1.0 e-5; 1.0 e-4 Water Saturation [%] 30 Reservoir Temperature [  F] 180 FBHP [psi] 1,000



### Marcellus Shale Reservoir Properties

Table 2 (Source: Works Cited #3)

Depth [ft] 5,000 Reservoir Pressure [psi] 2,750 Pore Pressure Gradient [psi/ft] 0.55 Net Pay [ft] 100 Porosity [%] 8 Matrix Permeability [mD] 1.0 e-5; 1.0 e-4 Water Saturation [%] 25 Reservoir Temperature [  F] 105 FBHP [psi] 500