Appalachian Basin

Whole Lotta Natural Gas Goin’ On in Susquehanna County

Susquehanna County resident and geological engineer Chris Acker dives deeper into the resource potential of natural gas in his county. This is a follow-up to a previous post, “The Marcellus Natural Gas Revolution is More Than Just Money.”

Last month, I wrote a piece on the natural gas industry in Susquehanna County, Pa., highlighting some of the benefits accruing to the community.  However, it only touched upon the magnitude of the long-term economic opportunity.

This got me thinking about the overall size of the Susquehanna “Marcellus play” and how it might be reasonably estimated.  To be fully transparent, I will detail the variables involved and the sources for their quantification.  With assumptions clearly stated, the reader can decide if the results are valid.  Moreover, some may wish to substitute their own inputs and interpret those results.

Estimating the scope of our local Marcellus Shale play involves a series of multiplications, the inputs for which must be based on best available information. We begin with hard numbers and then use historical data as a guide in the analysis.  In essence, we take surface area and multiply it by the number of wells drilled in that area, which is then multiplied by lifetime production and price to arrive at a dollar figure.

Surface Area x Number of Wells Drilled x Production x Price = $

As you shall see, Marcellus economic potential in Susquehanna County could be large, huge or gigantic.  All the figures are detailed in the table toward the end of this post.

Production in the area will also last decades.  Thus, an underlying premise is that future activity will be allowed, a likely scenario given the state’s insistence on responsible development.

To begin our analysis, we have three incontrovertible facts.

  1. The surface area of Susquehanna County is 832 square miles;
  2. The Marcellus Shale underlies it all and is relatively thick; and
  3. The 2010 U.S. Census tallied 43,356 inhabitants for the county.

To develop a range of how much total recoverable natural gas underlies Susquehanna, we must multiply an assumed number of horizontal wells per square mile by the county’s surface area, or 832 square miles.  This gives us a maximum well total.  Naturally, not every inch of the county will be drilled, so this maximum will be scaled back to provide a high/low range.

Royalty “units” are generally on the order of 640 acres (one square mile) and typically run one-half mile by two miles.  This allows for mile long horizontal “laterals” to be drilled in either direction extending from a centrally located pad.  The number of wells per pad to develop a field usually ranges from about four to as many as ten in a densely configured program.

Each well will have an associated “estimated ultimate recovery,” or EUR.  EURs are serious business in any energy company’s financial reports, as they are an indication of the firm’s underlying (literally) wealth and often audited by outside engineering consultants.  Intentionally misrepresenting EURs is a prosecutable offense, so the values companies provide can be accepted with some confidence.

The two largest participants in Susquehanna are Cabot Oil & Gas and Chesapeake Energy, followed by Southwestern, Carrizo, Chief and Williams (WPX).  A fine source of current information can be found in the presentation recently made by Cabot at an energy conference (image below – click to enlarge).


They cite 200,000 leased acres (about 300 square miles), or 38 percent of the county’s surface area.  Moreover, they indicate a potential of 3,000 drilling locations — a tight spacing of ten wells per square mile.  Importantly, average EURs per well have steadily increased from five billion cubic feet (bcf) in 2008 to 14 bcf in 2012.  This remarkable growth is due to many factors, including improved drilling techniques and advancing technology.

Some have questioned these substantial EURs, especially when compared to shale gas plays in other parts of the country.  Susquehanna County, however, is fortunate to sit atop a thick, prolific portion of the Marcellus — a “sweet spot,” as some might call it.

Note, though, that most of the drilling has taken place in the southern portion of the county and there are some indications that EURs closer to the New York border to the north may not be as large, as the formation thins in this direction.  Nonetheless, several years of hard production data and decline curve analyses substantiate the EURs published by the companies in all county areas.

A wealth of information may also be found on  For instance, about 1,200 wells are currently permitted in the county and another 700 are started, of which at least 425 are producing.  Recent permits are now averaging around 300 annually with 200 well starts per year (not all permitted wells are drilled right away).  Through 2012, 715 bcf have been cumulatively produced, generating $2.4 billion in wholesale revenues.

Estimated royalties paid to Susquehanna County landowners total $300 million, based on a statutory minimum of 12.5 percent.  However, royalty rates have been climbing, and Cabot uses a 15 percent rate in its financial projections.  It is, therefore, likely average royalty payments in the future will exceed state-mandated minimums.

Let’s look at three levels of potential gas production over the life of the Susquehanna Marcellus play.  The “low” scenario, at 10 trillion cubic feet (tcf), is conservative and likely a floor to the resource potential.  The “medium” scenario is quite achievable, yielding 30 tcf over the next 20+ years.  The “high” column — 100 tcf — is based on optimistic assumptions and the most that could be reasonably anticipated.  Note that 100 tcf is a gigantic amount, representing four years of total U.S. natural gas demand, which is currently around 24 tcf per year.

Also note the Marcellus shale encompasses roughly 96,000 square miles, and that estimated recoverable reserves for the entire formation vary widely.  For instance, the federal Energy Information Administration pegs it at 141 tcf, but that number is challenged by many in industry and academia. In fact, some Penn State estimates place reserves at 400 tcf to over 1,000 tcf.  In any event, reserves in the total formation are not the concern of this analysis.  We know that the Marcellus is a large natural gas play, and that Susquehanna County sits upon a particularly prolific sweet spot.  Current EUR data (reserve estimates) would indicate that, for Susquehanna County alone, the middle scenario (30 tcf) is quite defensible.

In our next step, we seek to determine the total dollar amounts that may be generated, for which we will need to predict the price of natural gas in the years to come.  As a wise man once said: “To prophesy is extremely difficult – especially with regard to the future.”

We are fortunate, though, that certain cost of production parameters can guide us to a reasonable floor, and we can then estimate a high level. Many variables in the energy market could affect natural gas prices, including new sources of demand and government regulations, but let’s estimate some ranges for the sake of discussion.

Natural gas is commonly priced in dollars per thousand cubic feet, or mcf.   Consensus seems to be that $4/mcf is a good price to use for baseline forecasts, and I will use $8 in the “high” column as an upper bound. The following are just a few articles for further reading that can help one understand these figures:

It is a given that price prediction far into the future is at best imprecise.  However, no matter what reasonable values we plug in, the cumulative revenues generated are enormous – namely, many billions of dollars. Multiply these gross revenues by a royalty rate and you get cash flowing directly to Susquehanna County  landowners.  Our middle scenario generates $18 billion in royalties, likely paid over twenty or thirty years.  The upper end appears too large to fathom.  Divide these distributions by population and you get a rough idea of per capita royalties over the lifetime of the play.

Please note, royalties are now and will continue to be highly skewed in favor of large landholders, naturally, since payments are based on acreage.  To reemphasize, the per capita estimates are for illustrative purposes only:


These numbers are quite astounding at any level. Susquehanna County is already producing about one bcf/day, enough to heat four million homes. Moreover, industry is on track to produce two to three bcf/day in the next few years, placing output in the range of our middle scenario. Currently, flat-out production is constricted by take-away capacity (i.e. pipelines), but necessary infrastructure is now being built or in approval phases.

Natural gas production in Susquehanna County is a decades long prospect with national and even international consequences. It is quite likely that some youngsters in kindergarten today will see their children, and maybe even their grandchildren, involved in the area’s natural gas industry


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