economic uplift from marcellus - utica development in new york state

7/30/2019 Economic Uplift from Marcellus - Utica Development in New York State

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TEL (603) 559-9800

PETRO ENTERPRISES, JNC .Cotwuftatru to. Jtui.udWj d . ~

P .O. Box 503RYE , NEW HAMPSHIRE 03870

FAX (603) 55 9-1097

ECONOMIC UPLIFT FROM MARCELLUS-UTICA DEVELOPMENT1N

NE W YORK STATE

Executive Summary

Using well documented data from the experience of drilling anddeveloping the Barnett shale in Texas , we have been able to draw an analogywith our own Marcellus-Utica development in New York State. Most of theBarnett development has been within , or in the general vicinity of Ft. Worth ,with that play now e xtending into 23 counties with a total of 13,740completed wells through February 2010. Data compiled from the earlieractivity through 2007 has revealed that the first 7,170 wells created anannual economic uplift to the area of Ft. Worth and vicinity of $8.2 billion,or approximately $1 .14 billion for every 1000 wells drilled and completed inthe Barnett shale .

In Ne w York we have both highly prospective Marcellus and Uticashales , with some areas where these formations overlap. Based on formation

thickness and reserve potential , the New York play will be more e xtensive ,and more prolific than the Barnett in production of natural gas. ExperiencedBarnett geologists in Texas believe that it will ultimately be productive overan area of 6000 to 7000 square miles . In ou r most conservative estimates ,total development of the Marcellus and Utica are projected to cover an areaQfabout 13 ,500 square miles . Using a very conservative estimate in wellspacing , we anticipate 81 ,000 wells will be drilled and completed in thatarea. With the same ratio of annual economic uplift to wells drilled as hasresulted from development of the Barnett shale , we project that Ne w YorkState will experience an annual economic uplift of $92 billion from theMarcellus and Utica shale development. With less conservative assumptionsthis could rise to as high as $123 billion. And again, comparing our activitywith the Barnett experience , Marcellus-Utica development could result inthe generation of 800 thousand new jobs over the approximate 30 years ofdrilling and development. We anticipate that actual experience will e xceedthese projections .


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ECONOMIC UPLIFT FROM MARCELLUS-UTICA DEVELOPMENTIN

NEW YORK STATE

New York State is nearing th e final approval fo r commencement of what will be a hugenatural gas play based upon tw o shale bodies present over much of the State acreage .Despite this impending game changing economic activity, to date there has no t been evena pre l iminary analysis of he potential economic impact of this gas development on th eState economy . This report sets forth such an analysis . We are fortunate in that otherstates , especially Texas and Pennsylvania , are currently in ongoing development ofnatural gas from shale bodies and can provide information assisting us in analyzing th eoperational and economic impact that will be felt in New York.

Drilling and production has commenced in Pennsylvania only recently, and the fullmeasure of their natural gas play is not ye t apparent. In Texas , however , the natural gasplay in the Barnett shale has served not only as a laboratory for development ofoperational technology fo r production from th e shale , but has also provided a window onthe future economic performance that flows from this activity. Th e Perryman study ofthe Barnett shale development has been widely recognized as an e x cellent analysis of abroad range of economic data from th e important counties having Barnett shaleprospects.

In the mid to late 1980s George Mitchell of Mitchell Energy began considering th e ideathat gas, known to be present in th e Barnett shale, might be produced commercially .Operators ha d been drilling through th e Barnett for years on their wa y to deepercommercially proven prospects , but believed that the gassy Barnett could no t produceenough gas to be economic. Mitchell reasoned that if a well drilled through th e shale wa sadequately stimulated, more gas would flow and economics would improve . Heexperimented with several kinds of stimulation including hydraulic fracturing, changingingredients , volumes and pressu res until he hit upon a combination that seemed tosignificantly increase the flow of gas . He was able to get rates as high as 1. 0 to 1.2 millioncubic feet pe r da y from some of hese wells , and was able to achieve profitability withimproved hydro fracing and better drilling and completion cost control. With thatsuccess, he figured that i fwe can do that with a vertical well, wh y can't we do muchbetter with a horizontal well that will have a lateral leg that extends ou t into th e shalebody for a thousand or several thousand fee t. With th e much greater exposure of heshale to the well bore in th e horizontal leg, he applied hydraulic fracturing in severalstages and wa s ab le to bring initial wel l rat e s up very substantially. At that point , heknew he had a winner and leased much more acreage, and the Barnett play took off withproduction starting in 1999 and expanding every year since then over some 23 counties .

As with most formations , the geology o f the Barnett varies considerably over the playarea , with th e best production coming from the Wise , Denton, and Tarrant County corearea, followed by th e P ar ker , Johnson, and Hood County Tier 1 area, and then by the


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remaining Counties as the Tier 2 area . In general, drilling and completion costs are nowfairly consistent with vertical wells costing about one million dollars to drill andcomplete , and horizontal wells costing tw o million dollars drilled and completed. All o fthese wells have fairly high initial flush production rates but decline rapidly with typicaldeclines of 55 to 60 % in year one , 30% in year 2 , 15% in year 3 , and 10% per yearthereafter.

We are fortunate to have current information on drilling and production from th eMarcellus formation in Pennsylvania, which has characteristics almost identical to thosein New York State. We expect well producing rates obtained from Marcellus shale wellsin Ne w York will be about the same as those no w producing in Pennsylvania. Althoughit is too early to be sure , we expect that th e rates of production decline in the Marcelluswill be quite close to those experienced in th e Barnett shale in Texas.

As examples of what we believe ca n be expected over a range of initial producing ratesand cumulative producible gas reserves, we have prepared three well projections in thefollowing Tables P-1 , P-2, and P-3 . In each o f these we have projected average daily

production by year over expected producing life to yield , respectively, cumulativereserves o f2 .5 , 4 .0, and 8 .0 billion cubic feet of natural gas . There are many reasons fora range of well quality , which will lead to these quantities of producible reserves . Tobegin there are areas where formation thickness is much greater than in other areas .There is also the fact that in some areas both the Marcellus and Utica will be productiveand in some areas both of them will have greater thickness than in other areas. And , ofcourse, there is th e basic condition of favorable geology and formation quality that wehave mentioned previously. It is quite probable that some wells will have greaterreserves than even th e 8.0 billion assumed in Table P-3 . Th e U.S Geological SurveyOffice has estimated that th e Barnett in some areas can have 160 billion cubic feet ofnatural gas in place per square mile . Ifthe Barnett can have that level o f in place

reserves , it is certainly possible fo r th e combination o f Marcellus and Utica to have asmuch or more . We are too early to estimate what final recovery rates will be achieved ,but it is probably reasonable to assume a minimum 30% recovery . That would mean 48BCF per square mile and if spread over only 6 wells that would be 8 BCF per well. Andon th e issue of recovery factor , we should keep in mind that a lot o f laboratory work isgoing to be initiated for improving recovery from shale bodies and that will probablyresult in higher recovery levels. Se e Tables P-1 , P- 2 and P-3.


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Table P-1 Projected 2.5 BCF Marcellu s-Utica We ll

Venture MCF Cumulative 2500Years Per Day MCF Production

1 2,000 730 ,0002000 -

2 1,000 1,095 ,00 03 600 1,314 ,0004 420 1,467 ,300 1500

5 336 1,589,940

I ' - Ven tu re Years6 286 1,694,330 1000 .7 257 1,788,281 \ - t MCF Per Day8 232 1,872,837

I 500 -9 208 1,948,93710 188 2,017,42711 169 2,079 ,069 0

12 152 2 ,134 ,546 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

13 137 2 ,184,475 Years

14 123 2 ,229,41215 111 2 ,269,85516 100 2,306,253

IICumulative MCF Production

17 90 2 ,339,012 3,000,00018 81 2,368,49519 73 2,395,029 2,500,000

20 65 2,418,910 2,000,000

21 59 2,440,403 1,500,000

22 53 2,459,747I c~llHH" t ~ 1 1 irH - I Icllt lttH tlllll Cumulat ive MCF1,000,00023 48 2,477,156 Productio n

24 43 2,492 ,825 I 500,000

25 39 2,506 ,9 26

I- ., ' , i I I

26 35 2,519 ,618 1 3 5 7 9 111 3 15 17 19 21 23 25 27 2927 31 2,53 1,0 4028 28 2,5 41 ,320

I Years

29 25 2,550 ,57230 23 2,558 ,899


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Table P-2 Projected 4.0 BCF Marcellus-Utica Well

Venture MCF Cumulative- - ~ . - - -- - - ~ ~ - - =---- - - -- - - = ,

Years Per Day MCF Production3500 T ~

1 3,00 0 1,095,000 3000

2 1,500 1,642,5002500

3 90 0 1,971,000 >4 63 0 2,200,950

cu

02000 ....

5 50 4 2,384,910Q)0..

, - ~ ~- ~ Venture Year stJ1500 - 45 4 2,550 ,62 0 - - - -.~ ~ MCF Per Day7 40 8 2,699 ,54 0 1000 -

8 36 7 2,833,495

9 33 0 2,954 ,05 5 I 500 .10 297 3,062,558

11 268 3 ,160 , 211 l0

12 241 3 ,24 8 ,09 9 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

13 217 3,327 , 19 8 Years- = - = - - ~ - ~ --14 19 5 3,398 ,387

15 17 6 3,462,458

16 15 8 3 ,520,121 I Cumulative MC F Production17 14 2 3 ,572,018 4,500,00018 128 3,618,725 4,000 ,000 - - ~ - - - -19 115 3,660,762

I3,500,000

20 104 3,698,594 3,000 ,000

21 93 3,732,644 2,500,000

22 84 3,763 ,28 9 ! ~ : : :]fjlfljJiltJH ltl:ltlHi ~tl Cumulative MCF23 76 3,790 ,86 9 Production24 68 3,815 ,69 1

I I . I

500,000 . .25 61 3 ,838 ,03 1 -; ' ; ! " ~ : - - r -1 .. t '"' t '""t' - 1 " 1 ; 11 , 1 , 0 _. : '" ; 11 , 11 , I _ , _.. . , . , ._ ,

26 55 3,858,137 1 3 5 7 9 11 13 15 17 19 21 23 25 27 2927 so 3 , 876,23228 45 3,892,518

Years

29 40 3 , 907,175 - --

_;_ -- -- - --- - - = - ~ - - - -30 36 3,920,367


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Projected 8.0 BCF Marce llus-Utica We ll

Vent ure MCF Cumulative 7000Years Pe r Day MCF Production

1 6 ,000 2,190 ,000 6000

2 3,000 3,285 ,0005000

3 1,800 3,942,000 >4 1,260 4,401,900

Ill0 4000

...

5 1,008 4,769,820 IUI:L . l Ventu re YearstJ 3000 -907 5,100,948~ \ ~ MCF Per Day7 81 6 5,398,963 2000

8 735 5,667,1779 661 5,908,569 1000

10 595 6,125,82211 53 6 6,321,350 0

12 482 6,497 ,325 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

13 434 6,655,703 Ye ar s

14 39 1 6,798,24215 35 1 6,926,52816 316 7,041,985 I Cumulative MCF Production17 285 7,145,897 9,000 ,00018 256 7,239,417 8,000 ,00019 231 7,323,585 7,000 ,00020 208 7,399,337 6,000 ,000

21 18 7 7,467,513 5,000,000

22 16 8 7,528,8724,000,000 -3,000,000 Ji:ll ttU t l ~ l i j ~ J i fl l H iHUii .1111 Cumulative MCF23 15 1 7,584,095 I 2,000,000 Production

24 13 6 7,633,795 1,000,00025 123 7,678,526 I - I ; 1 i, i ,., .

. .. j I o . .26 11 0 7,718,783 1 3 5 7 9 111 3 1 5 1 7 1 9 2 1 2 3 2 5 2 7 2 927 99 7,755 ,015 I28 89 7,787 ,623 Years29 80 7,816,971

,_- - -

- - --30 72 7,843,38431 65 7,867,15532 59 7,888,550


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The excellent study of the Barnett by the Perryman Group in Texas ha s been used by Dr .Timothy W. Kelsey o f Penn State University as source of material for an analysis ofdevelopment and production from the Marcellus shale formation in Pennsylvania . Webelieve th e Penn State analysis of the Marcellus is a good lead-in to an analysis for Ne wYork State . The geological similarity of he Marcellus in Pennsylvania to that in Ne wYork allows us to project Marcellus development in Ne w York with nearly ident ical

operational characteristics , with the exception of shallower drilling depth . However , inNe w Y orlc , we have added operational requirements , but economic benefit , of a deeperUtica shale body . Actually, the Utica formation has a wider coverage over the countiesofNew York than does the Marcellus. A review of the geology ofboth formationssuggests the presence of a sweet spot overlap area covering all, or most of nine countiesin central , eastern , and southeastern Ne w York. In that area , both formations have goodthickness, and fairly high levels o f otal organic carbon (TOC) , which is normally aprerequisite to commercial production of hydrocarbons.

In analyzing th e economic impact of natural gas development in Ne w York State , weassume that Marcellus development will be much llke th e current ex perience in

Pennsylvania. But, in Ne w York, a very well developed Utica shale formation also hasgreat promise ofbeing a prolific produce r of natural gas over large portions of the State .Exhibits A, B, and C included in this study provide structural contour maps of theMarcellus and Utica shales where they are present , and a map of he sweet spot areawhere these formations overlap. We are confident that in th e central , eastern, andsoutheastern portions of the State many wells will be drilled and completed from bothformations. Therefore, our conservative projection of 2. 5 BC F of gas as th e ultimaterecovery for a well producing from th e Marcellus and, or , the Utica, should understateboth the total potential of Ne w York in producing natural gas, and its total economicimpact.

Our basic approach in analyzing natural gas development in Ne w York, has been to beginby defining th e areas o f all counties involved in the play . We, then , have approximatedfor each county, th e reduced area available for drilling based on geologic mapping thatshows the absence of Marcellus or Utica formations in portions of the county . We haveelected to use square miles as the parameter for area measurement. We begin with theinventory o f counties that have areas that are deemed to be geologically prospective fornatural gas production from either, or both , the Marcellus and Utica formations . Oursource for this information is the excellent study by the Reservoir Characterization Groupat the Ne w York State Museum . This team was headed by Richard Nyahay, and thestudy is th e best reference available on these shale prospects in Ne w York State . Wehave included 37 counties as potentially productive of gas from these formations . Fo reach of these counties, we have obtained the measured area in square miles, reduced it topotentially productive square miles , and eliminated those areas that were shown to benon-prospective geologically. Our next reduction wa s an arbitrary assumption of terrainor surface obstruction often percent , upon which drilling would not be feasible .

It is important to note here that the inclusion of all or part of 37 counties as potentiallyproductive of natural gas from these shale formations does no t imply that they will be


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commercially productive. The most unforgiving of all elements in the search forhydrocarbon production is geology. Fonnation characteristics can change abruptlyfrom location to location, and this is especially true o f shale bodies where naturalporosity and permeability are very limited in all cases. A natural fracture system that isencountered at one well location, may be completely absent at the next. The presence o fintervening faults between one location and the next can mean one well is productive and

the next is a dry hole. In shale formations the percentage o f clay or silica content cansignificantly influence the level o f productivity. Although the use of seismic technologycan provide evidence o f fracture systems and other encouraging formation characteristics,only drilling the hole can provide the defining information that will reveal the presence o fcommercial production at a location.

From the Nyahay et al study, we have concluded that the most probable areas forsuccessful commercial production will occur in the Marcellus-Utica overlap area in thecentral, eastern and southeastern counties o f the State. This would be the equivalent o fthe Core area o f the Barnett shale in Texas. That is not to say that there will not be otherareas with good commercial production. Only drilling will establish the most prolific

areas for production, and there will be a loto f

drilling in manyo f

the counties across theState. The Nyahay study simply provides the information on geology and chemicalcharacteristics o f the Marcellus and Utica formations that indicates a higher likelihood o fcommercial success in the central, eastern, and southeastern counties. Further drilling inthe State may reveal excellent Utica and Marcellus production that is currently notevident.

We have assumed three levels o f success in drilling the prospective terrain availablesquare miles, as 80%, 70%, and 60%, meaning that these percentages o f the square mileswould yield productive wells. Having assumed the successful productive square miles,we have further assumed an average number ofwells per square mile. Fo r each square

mileo f

640 acres, the NYS DEC allows one vertical wellon

each 40 acres or16

wells,but we know that most operators will elect to drill both vertical and horizontal wells.Therefore, we need to focus on the number o f wells that would, on average, be drilled ineach square mile. I t is possible to drill a well with a short lateral on as little as 60 acres,but we assume that most operators will prefer tracts o f 130 to 160 acres. As knowledge o fthe subsurface is accumulated through drilling, operators in a given area will modify theirwell spacing preferences. In a further effort to be conservative in our analysis, we haveassumed that a total o f six wells, including both vertical and horizontal, will be drilled ineach square mile o f 640 acres.

Our review o f available data suggests that the Marcellus development in Pennsylvania isat too early a stage to provide information on more than initial well rates, reservepotential, and operating practices. Therefore, we have elected to use the Perryman studybased on the Barnett shale in Texas as the most appropriate source o f economic impactdata for our use in estimating that impact in Ne w York State. Production o f the Barnettcommenced in 1999 and has now shown more than 10 years o f operational and economichistory. Although there are obvious differences between the Barnett area near, and in thevicinity ofFt. Worth, and our New York development area, there are several similarities.


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The Barnett area was at a fairly low economic level when development began,employment opportunities were modest, and municipal budgets were quite restricted.The State and local tax systems are similar to what appears to be close to the evolving taxstructure that will govern natural gas development and production in Ne w York State.We, therefore, believe that the Barnett experience is appropriate for use in forecasting thepotential economic uplift ofNew York Marcellus-Utica development.

In using data from the Barnett experience, we have employed essentially the samemethodology used by Dr. Timothy W. Kelsey in his forecast o f the economic impact o fMarcellus shale development in Pennsylvania. In early 2008, the Perryman Groupprepared a study o f the economic impact o f the Barnett Shale on Fort Worth and thesurrounding area. At the time o f that analysis a total o f 7, I 70 gas wells had been drilledand connected for gas sales within the Barnett Core, Tier 1 and Tier 2 areas. Thefindings from their study should provide reasonable approximations o f potentialeconomic impacts in Ne w York State, especially in the areas with extensive natural gasdevelopment. Perryman reported at that time that the Barnett shale accounted for anestimated $8.2 billion in annual output. Perryman is saying, in effect, that for each 1000

of the 7, 170 wells drilled, completed, and turned into the sales line, $1. 14 billion o fannual economic uplift was achieved. With our forecast o f successful wells in Ne w YorkState, we are using this factor to project potential economic uplift here in Ne w York.See Table 1.


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Table 1 Th e Current Annual Impact of All Ma jor Sources of Stimulus Associated with theBarnett Shale on Business Activity in the Barnett Shale Region

Deta iled Industrial CategorySource : Adapted from Perryman Group , 2008 , Table 7

Gross Product Personal Income EmploymentTotal Percent Total Percent Total Percent

Agricultural Products & Services 56,888,599 1 38,743,790 1541

1Crude Petroleum & Natural Gas 2,201 '1 07,991 27 1,015,147,454 21 5,625 7New Construction 601 ,020,851 7 495278931 10 7,886 9Maintenance & Repair Construction 438,101 ,459 5 361 ,023,204 7 5,535 7Food Products & Tobacco 59,126,567 1 30,203 ,815 1 474 1Printing & Publishing 44 ,783,369 1 29 ,230 ,712 1 419 0Chemicals & Petroleum Refining 42 , 159 ,245 1 19,795,329 0 122 0Fabricated Metal Products 113,957 ,330 1 73 ,571,619 2 1,345 2Machinery, Except Electrical 41,207,018 1 29,438,996 1 327 0Transportation 285,689,717 3 188,945 ,917 4 2 ,497 3Communication 125,864 ,102 2 53 ,735,597 1 400 0Elect ric,Gas,Water,Sanitary Serv. 141 ,588,601 2 61,785,346 1 178 0Wholesale Trade 272,376 ,413 3 157,054,268 3 1,755 2

Retail Trade 1,317,009,628 16 787,530,330 16 23 ,030 27Finance 127,983,892 2 74,525,729 2 615 1Insurance 89,310,082 1 53,392,505 1 576 1Real Estate 422,441,645 5 68,064,005 1 606 1Hotels ,Lodges,Amusements 72,165,676 1 47,342,655 1 1 177 1Personal Services 205,575,691 3 159,941,609 3 2 ,836 3Business Services 349,613 ,818 4 285,195,936 6 3,635 4Eating & Drinking Places 460,215,268 6 244,860,022 5 12 ,318 15Health Services 324 ,897,998 4 274,705,668 6 4 ,890 6Miscellaneous Services 192,991,345 2 167,306,704 3 4,148 5All Oth e r Small Categories 222,713 ,203 1 137,253,976 2 2,888 4Total 8,208 ,789,508 4,854,074,117 83,823

Cumulative Wells Completed 7,170

Uplift Factor Per 1000 W e l l s $ B i l l i o n ~ 1.14


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As will be noted from a review ofTable I, the Perryman Group prepared a detailedanalysis o f economic activity flowing from the drilling o f hose 7 ,170 Barnett wells onthe production o f goods and services in Ft. Worth and the surrounding area . I t will beobserved that for each category o f product and service, they have estimated the GrossProduct, Personal Income and direct Employment attributable thereto . The Barnettdrilling , and the economic effect upon Ft. Worth and vicinity , provide the best data

available for approximating what will happen in NY State. Obviously , the experience indrilling Marcellus and Utica wells in Ne w York State is not going to track exactly whathas occurred in Ft. Worth and vicinity, but it should provide a reasonable measure o fwhat can be expected. Actually, we are o f the opinion that Marcellus-Utica developmentin Ne w York will provide a greater uplift than was experienced in the Ft. Worth area .First off, our wells on average could prove to be more prolific because we have bothMarcellus and Utica formations as the basis for well completions . In many cases , ourindividual wells will be producing from both the Marcellus and the Utica. In most of ourareas , we do not have the already established commercial infrastructure ofFt. Worthbefore drilling is initiated, and, therefore, creation o f this infrastructure and fulldevelopment o f the areas will create a greater economic uplift. Employment

opportunitiesin

our areas are at a very low level, whilein

Ft. Worth a more vibranteconomy was providing better opportunities than in our NY areas even before the Barnettdrilling began.

In order to relate to the Barnett experience we have prepared the following Table 2 whichsets forth the previously described information from NY counties expressed in squaremiles and carried through to assumptions o f successful drilling at levels o f 80%, 70%,and 60% . These successful levels have then been related to actual wells drilled throughthe conservative assumption o f 6 wells per square mile. We have then applied theeconomic uplift factor from the Perryman study to project economic uplift that could beexpected from the total wells that would be drilled under the success levels o f 60 to 80percent. Even at the lowest assumed success level o f 60% , we arrive at an AnnualEconomic Uplift o f $92 billion .See Table 2.


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Table 2 ECONOMIC UPLIFTFROM NATURALGAS DEVELOPMENT

POTENTIAL TERRAIN 80% 70% 60%TOTAL PRODUCIVE AVAILABLE SUCCESSFUL SUCCESSFUL SUCCESSFUL

COUNTIES SQUARE SQUARE SQUARE SQUARE SQUARE SQUAREMILES MILES MILES MILES MILES MILES

Broome 715 700 630 504 441 378Chenango 899 850 765 612 536 459Madison 662 600 540 432 378 324

Oswego 1312 1,000 900 720 630 540Lewis 1290 500 450 360 315 270Oneida 1213 700 630 504 441 378Cortland 502 500 450 360 315 270OnondaQa 806 800 720 576 504 432Tioga 523 500 450 360 315 270Tompkins 476 450 405 324 284 243Cayuga 864 850 765 612 536 459____ Wayne 1384 600 540 432 378 324Seneca 325 300 270 216 189 162Schuyler 342 300 270 216 189 162Chemung 411 400 360 288 252 216Steuben 1404 1 ,400 1,260 1,008 882 756

Yates 376 350 315 252 221 189Ontario 662 650 585 468 410 351Monroe 1366 650 585 468 410 351Orleans 817 350 315 252 221 189Genesee 495 450 405 324 284 243LivinQston 640 600 540 432 378 324Allegany 1034 1,000 9 00 720 630 540Wyoming 596 550 495 396 347 297Niagara 1140 500 450 360 315 270Erie 1227 1,000 900 720 630 540Cattaraugus 1310 1,300 1 170 936 819 702Chautauqua 1500 1 ,050 945 756 662 567Herkimer 1458 150 135 108 95 81

Otsego1003 1,000 900

720 630540

Delaware 1468 1,450 1,305 1,044 914 783Sullivan 997 950 855 684 599 513

- -

Schoharie 626 550 495 396 347 297!Albany 533 500 450 360 315 270Greene 658 500 450 360 315 270Ulster 1161 800 720 576 504 432Orange 839 200 180 144 126 108

Totals 33,034 25,000 22,500 18,000 15,750 13,500

ProductiveWells@6/sqmi 108,000 94,500 81 ,000

From Perryman Study Annual Economic Impacttor every 1 ooo wells equals 1 .14 billion dollars.

Total AnnualEconomic -Uplift-$Billion 123 108 92


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We recognize that these forecast figures on economic uplift for NY State may raise someeye brows among those conditioned to our rather stagnant economy, but they arebelievable when viewed in the context of the Ft . Worth experience . In Exhibits D-1 , D-2,and D-3 attached to this analysis are compilations of nformation on Barnett drilling bythe Texas Railroad Commission that oversees oil and gas drilling and productionactivities in Texas. Those exhibits shows that as ofFebruary ofthis year 13 ,740 wells

have been drilled in the Barnett with the field area now expanded to 23 counties from theoriginal 3 core counties and 11 Tier I and Tier 2 counties. There will soon be anotherupdate by Perryman, and it can be expected that the new annual economic uplift figuresfrom Ft. Worth and vicinity will be about $16 billion, and development is not even closeto being completed .

Exhibit E-3 provides a progression of cumulative wells and cumulative natural gasreserves in the Barnett over the period from 1993 to 2009. Using a similar format, wehave projected in the following Tables 3A, 3B, and 3C the profile ofwells drilled , andcumulative wells versus time in years for our cases of assumed 60%, 70% and 80%drilling success rates . Thereafter we have applied the $1.14 billion uplift factor from

Table 2 to project economic uplift versus cumulative wells for natural gas development inNY State. As will be observed, even i f only the 60% percent level becomes reality, NewYork State will become a very significant producer of natural gas and will, also, becomea much more prosperous State.See Tables 3A, 3B, and 3C.


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1

36

A B

CompletedYears Wells

1 1502345

6

789

10111213141516171819

20212223242526272829303132

300500800120017002500260027002800290029002900300030003000300030003000

3000300030003000300030003000300030003000300030003000

D

CumulativeWells150450950

175029504650715097501245015250181502105023950269502995032950359503895041950

44950479505095053950569505995062950659506895071950749507795080950

ECumulative

Annual Uplift$Billion

0.20.51.12.03.45.38.2

11.114.217.420.724 .027.330.734 .137 .641.044.447.8

51.254.758.161.564.968 .371.875 .278.682.085.488.992 .3

..!!!QJ

3'0QJ

t

100000

80000

60000

60% SU CCESSFUL CASE

G

Assumes 60% Successful Sq. Miles

c..E 400008

V>

20000

100

0

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31

Years .J Completed Wells Cumulative Wells

Cumulative Annual Economic UpliftProvided by Cumulative Wells

~ 800

0....

0II)

c:

gii5

604020

0

~ ~~ ' ~ ( )c . : : : ; ; ~

Cumulative Wells Completed

Cumulative

L


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A

1

Years

36

12

3

4

5

67

89

10

11

12

13

14

15

16

17

1 8

19

2021

22

23

24

25

2627

28

29

30

31

32

B

Completed

Wells1SO

300

600

1 000

1 SOO

2100

2800

3000

3000

3000

3000

3000

3000

3000

3000

3000

3000

3000

3000

34003800

3800

3800

3800

3800

3800

4000

4000

4000

4000

4000

4000

D

Cumulative

Wells1SO

450

10SO

20SO

3SSO

S6SO

84SO

114SO

144SO

17450

204SO

234SO

26450

294SO

324SO

3S4SO

384SO

414SO

44450

478SOS16SO

SS4SO

S92SO

630SO

668SO

706SO

74650

786SO

82650

86650

906SO

946SO

E

Cum u lative

Annual Uplift

$Billion0.2

0 .5

1.2

2.3

4.0

6 .49. 6

13. 1

1 6.S

1 9.9

23.3

26.7

30.2

33.637.0

40.443.8

47.3

50.7

S4.SS8.9

63.267.S

7 1. 9

76.2

80.S

8S. 1

89.7

94.2

98.81 03 . 3

107.9

,--

TABLE 3B70% SUCCESSFUL CASE

.!!! 1000001i~"0Ill

80000

..,

-E. 60000

~ 40000I20000

0 1

G

Assumes 70% Successful Sq. Miles

~ m ~ ~ m ~ m ~ ~ m ~ m ~ ~ m ~~ ~ ~ ~ ~ ~ ~ N N N m

Year s Completed W ells CumulativeWells

Cumulative Annual Economic UpliftProvided by Cumulative Wells

~.!!! 120

;g 100

0 80~ 60g 40~ 20

0

~~ ~ , ~ ~c . - V . ~

Cu mulati ve We lls Co mple t ed

Cumula t ive

M


16/25

1

A B

CompletedYears Wells

1 150

2 300

3 600

4 1000

5 1500

6 22007 2800

8

9

101112

13

1415

16

17

1819

2021222324

25262728

2930

3132

3600

4000

4000

4000

4000

4000

4000

4000

4000

4000

4000

4000

40004000

4000

4000

4000

4000

4000

4000

400 0

4000

4000

4000

4000

D

Cumulative

Wells150

450

1050

2050

3550

5750

8550

12150

16150

20150

24150

28150

32150

36150

40150

44150

48150

52150

56150

6015064150

68150

72150

76150

80150

84150

88150

92150

96150

100150

104150

108150

ECumulative

Ann ual Up lif t$Bil lion

0.2

0.5

1.2

2.3

4.0

6.6

9.7

13.9

18.4

23.0

27.5

32.1

36 .741.2

45.8

50.3

54.9

59.5

64.0

68.673 . 177.7

82 . 3

86 . 8

91.4

95 .9100.5

105.1

109 . 6

114.2

118. 7

123.3

TABLE 3C

80% SUCCESSFUL CASE

G

Assumes 80% Successful Sq. Miles..!!! 120000'i j

3 100000'"C4J

...

4Jc.E8

80000

60000

40000

20000

0~ ("() lJ l

f 0

r-... Q)::::1 ~ ~ fo.. Q) M ("() ~ fo.. Q) ~~ M ~ N N N N N ("()

Years CompletedWells CumulativeWells

~ 140~ 1200 100

e 80~ 601: 40~ 20iii 0

Cumulat ive Annual Economic UpliftProvided by Cumulative Wells

~ ' ! > ~ ~ < : >~ ~ ~

Cu mul ative W ells Completed

Cumulative

M


17/25

Referring back to Table 1, it will be noted that Perryman derived a new employmentfigure of 83 ,823 based upon 7,170 wells or almost II , 700 new jobs for every 1000Barnett wells drilled and completed . We should be able to generate the same level ofemployment , i f not more, from drilling the Marcellus and Utica shales in New YorkState . Using our minimum case of 60% successful acreage , we could expect newemployment of over 800 ,000 new jobs over a 30 year period . We need those jobs if we

are to keep our young people here in New York as they enter the job market .

A close examination of he assumptions in this study will reveal a strong bias toward theconservative side. For example our conservative projections of producing rates andultimate natural gas recoveries do not even consider the very substantial gains availablefrom the use of multiple laterals , infill drilling and refracing declining producing wells .But even with the use of conservative assumptions , the results clearly demonstrate a seachanging opportun ity for economic re vitalization of he State economy and employmentpicture. These results should be viewed as very conservati ve, and this opportunity shouldbe viewed as huge .


18/25

STUDY OF THE POTENTIAL F.CONOMlC UPLIFT FROM MARCELL L" S AN DUTICA SHALE WELL NATURAL GAS DEVELOPMENT IN NEW YORK STATF.

EXHLBlTS

Ex hi bit A Utica Shale Contour Map for New York SrateFrom Reservoir ( haracterization Group-Nev . York Stale Museum

Exhibit B Marcellus Shale Conto u r Map for Ne w York StateFrom Reservo1r Characterization Group-New York State ~ l u s e u m

Ex h ib it C Marcellus - Utica Shales S\vcet '.;pot OverlapFrom Reservoix ChariiCCrization Group-New York State Museum

Ex h ibi t D - 1 Barnett Well Statisticc;Texas ltailroad Commission Rec.ords

Exhibit D -2 Barnett Production & PermibTexas Railroad Commission Records

Ex hibit D -J Barnett Dril lin g & Rese rves Pr ofileTexas Rai lroad Commiss ion Reco rds


19/25

1 1 1 1 1 1 1 1 1 1Q O O O O O O O O O O OC::S O O O Q Q Q O O O O0 O O O O Q O O O O O- . - ( " o o ( " ) - . ; : f & O t O I " o - 0 0 0 ) 0

I I I I a I' I I t ~I

I


20/25

..

..

\ ....I

I -

l fr'-----;-- ~ -

..

--) i_ .\ ~ - ~.\

......

:0

IX Iw \_./II

/ r---l l~ 1

.

, ) -r ' r -1 k .

. . - - J

1)1_ J

0m


21/25


22/25

Exhibit D-1

Ne,vark, East (Barnett Shale) FieldDiscovery Date -10-15-1981.

As of February 25, 2010 tbere are a total of gas"'ells 3,740 entered on R R C ~records.In addition, there a re ~ 7 3permitted ocations(represents pending oil or gas \vells. \vhere eitherthe operator has not ) C t -filed cotnplctionpapenvork vvith the Cnn11nission=- or thecon1pletcd vvell has not yet been set up " 'ith aCom1nission identification number).

In 2009there were

atotal

of 136 injection \Veilsand commercial saltwater disposal \veJis on ourrecords, and 24 disposal perm its \ve . e ssued.

This field produces in twenty three (23) counties:...

r c h e r ,Bosq e, Clay, Comanche, Cooke, Coryel,Dallas, Denton, Eastland, Ellis, Erath, Hill, Hood,.Jack, Johnson, J\llontague, Palo Pinto, Parker,

S hackelford, Somervell, Stephens, Tarrant, andWise. In addition, drilling permits have beenissued for wells in Hamilton.


23/25

Exhibit D-2

Gas Well Gas _Production-January 2004 through Decem bet 200 = 380 BcfJanuary 2005 thtougb Decentber 2005 = 503 BcfJanuary 2006 through December 2006 = 712 Bcf

January 2007 thro gh December 2007 = 1,082 BcfJanuary 2008 through Decembe1 2008 = 1 ~ 5 6 3BcfJanuary 2009 through December 2009 = 1, 764 Bcf

For January through December 2009 productionaccounts for 26/o of Texas Production

Drilling Permits Issued -J a n u a t ~ y2004 through December 2004 = 1,112January 2005 through December 2005 = I t629January 2006 through Decen1 ber 2006 = 2,503January 2007 through December 2007 = 3,643January 2008 through _December 2008 = 4,145January 2009 through December 2009 = 1, 755

There are a total of 246 operators in theNewark , East (Barnett Shale) Field.


24/25

15, 0 UU -r1 . 011\l -i

13,00ll

IZ,OUH -

11,0011

lti,HUH I

~l , l l f l l l

L;. !l,OUO -w= 7 IIIIU

(,,OliO

!) 111)1}

I.OOU -

J.onu _ .

2,tHJfl

I

1,011:: l.....

~-

Exhib it D-3

Newark, East (Barn ett Shale)WeU Count1993 through 2009

- ~ - - - - -- - - - - - - - - - - - - - -- - - - - -

~ - - - ------

;C\C\

..,""\

~

~c;o~

~:;--

"'g~

.....,,.. ,

~i'1

'' lgt"l

I()0~

1"-00(" I

.a0=-1

~=; ;


25/25

Petro Enterprises is an international oil and gas consulting fum founded by David W .Keefe . The firm has been active in consulting work with major and independent oil andgas firms in the US and in Europe , Africa , South America , the Middle East and in Japan ,Indonesia and Australia .

Mr . Keefe is a Petroleum Engineer with a degree from the University of Pittsburgh,

Magna Cum Laude and an MBA degree from New York University. After graduationfrom the University of Pittsburgh he was employed by what is now the E xx onMobilCorporation . After earning his retirement from Mobil , he founded Petro Enterprises . M r .Keefe has more than 50 years of experience in the Petroleum Industry . He owns acreagein Ne w York State and is active in the formation and administration of acreage coalitionsin the State.

economic uplift from marcellus - utica development in new york state

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