* Utica Shale may not be Marcellus but still significant
* Proximity to Marcellus could make it cost-effective
By Jon Hurdle
PHILADELPHIA, July 1 (Reuters) - Is there even more natural gas than thought encased in the rock below Pennsylvania?
The state that is already estimated to have enough gas in its Marcellus Shale formation to meet total U.S. needs for a decade or more may have additional reserves trapped in geological strata above and below the Marcellus, some energy companies believe.
Test wells sunk in recent months have yielded promising quantities of gas that may indicate major new reserves of a fuel that would reduce carbon emissions, cut U.S. petroleum imports, and generate thousands of jobs.
If confirmed, the new fields would also be economically attractive because they could be exploited by gas rigs that are already drilling into the mile-deep Marcellus, a rock belt that runs from Virginia to New York and extends under Lake Erie to Canada.
One of the fields, the Utica Shale, has already generated interest in the Canadian province of Quebec where a number of horizontal test wells have been drilled, and that optimism is spreading to Pennsylvania, birthplace of the world’s oil industry in the mid-19th century.
Range Resources Corp. (RRC.N), a Texas-based gas driller that is active in the southwestern Pennsylvania portion of the Marcellus, said it has successfully tested two wells, in the Upper Devonian Shale above the Marcellus, and the Utica, below it. It plans to release more details in the coming months.
“The results are very promising,” Range spokesman Matt Pitzarella wrote in an email. “Even though it’s still very early, the prospects are very good, indicating that either of these formations could be stand-alone gas fields.”
The wells used the same horizontal drilling technology coupled with hydraulic fracturing that together have enabled a boom in development of the Marcellus, a field underlying two-thirds of Pennsylvania where the industry expects to drill some 5,000 wells this year.
Gas from the vast Marcellus Shale is particularly profitable for producers because it is high quality and close to the populous northeastern United States market.
Terry Engelder, a Pennsylvania State University geologist, estimates it holds 489 trillion cubic feet of gas, enough to meet total U.S. needs for about 20 years at the current national consumption rate of some 23 trillion cubic feet a year.
Neither Engelder nor energy industry experts have formally estimated Utica’s reserves. CIBC analyst Andrew Potter said 50 trillion cubic feet of recoverable gas was a reasonable estimate for the Quebec portion of the formation.
Since the new shale plays are in the same areas as the Marcellus, they could be developed from existing well pads, cutting costs and reducing environmental damage from the extraction of more gas, Pitzarella said.
Engelder, whose Marcellus estimates helped spark the current drilling boom, said the Utica and other shale formations may not contain as much gas as the Marcellus but are still attractive to energy companies because they can be exploited with existing equipment.
“The Utica doesn’t have to be nearly as good as the Marcellus to be economic because we already have the infrastructure in place,” Engelder said.
The Utica Shale, which covers much of the same geographic region as the Marcellus, in addition to its portion in Quebec, is also being targeted by East Resources Inc., which is already active in the northern Pennsylvania section of the Marcellus.
The Upper Devonian Shale, of which the Marcellus is a part, underlies Virginia, West Virginia and Kentucky as well as sections of Ohio and Pennsylvania.
East is preparing to drill test wells in the Utica Shale this year and believes the formation could contain as much or even more gas than the Marcellus, said Paul Dudenas, the company’s manager of corporate engineering.
East agreed in May to be bought for $4.7 billion by Royal Dutch Shell (RDSa.L), which is seeking shale-gas assets.
Preliminary drilling of nearby formations indicates the Utica geology is similar to Marcellus. Dudenas said that justifies $7 to $8 million for a test well, twice the cost of a typical Marcellus well.
Still, experts have yet to publish estimates for the wholesale gas price at which drilling in these shale formations would be profitable.
Utica is around 4,000 feet (1,200 meters) deeper than the Marcellus, so the economics of extracting gas from the new formation could be challenging even if existing infrastructure was used to reach it.
But a major new reserve could become much more attractive if the market price of gas rises significantly above Wednesday’s $4.53 per million British Thermal Units for benchmark Henry Hub gas NG-W-HH, a relatively low level that has prevented even faster development of Pennsylvania’s gas resources.
The potential of the Utica is such that it would be worth exploiting independently of the Marcellus development. “If the Marcellus didn’t exist, we would still be drilling the formation,” Dudenas said, referring to the Utica Shale.
In northeast Pennsylvania, Cabot Oil & Gas Corp. (COG.N) recently completed a successful test well into the Purcell Limestone, between the upper and lower Marcellus levels.
The well yielded a 30-day average of 7.3 million cubic feet a day, indicating the Purcell reserve may contain significant quantities of gas, Cabot chief executive Dan Dinges told a conference call in February. (Reporting by Jon Hurdle; Editing by Alden Bentley and Dan Trotta)