The Marcellus Shale Has Friends in Low Places

In Pennsylvania, unconventional gas production has become so pervasive that the folks are literally turning it into a new language. For instance, Tuesday's Philadelphia Inquirer carried a story with a headline indicating that the governor had "fracked" the middle class.

The attached article had nothing to do with anyone having or needing gas. Rather, it dealt with the "first-ever budget talk" by the Commonwealth's new governor. But it turns out that the Keystone State actually is the center of an Appalachian phenomenon involving two shale plays, one directly above the other. And so the state has become a hotbed of the technique (and language) of hydraulic fracturing -- or "fracking" -- a process that was pioneered by Mitchell Energy -- now a part of Devon Energy (NYSE: DVN  ) -- for North Texas's Barnett shale.

The process was later adopted by the likes of Chesapeake Energy (NYSE: CHK  ) , which became a leader in the Barnett and other shale formations, including the Haynesville in Louisiana and Texas, Arkansas's Fayetteville, the Marcellus in much of the Northeast, and the Eagle Ford in the eastern half of Texas.

Now another northeastern formation, likely the biggest of them all, is gaining attention. The Utica Shale is actually located a few thousand feet beneath the Marcellus Shale in much of the East. However, the Utica is considerably larger, extending from New York State to Tennessee and into Canada. No one is certain of the amount of reserves held in that vast expanse, although current estimates range from 2 trillion to 69 trillion cubic feet of natural gas.

Just as it's been a leader in building positions in other shale plays, Chesapeake has already lined up more than a million acres in the Utica Shale. Other pioneers in the play include Denver-based Forest Oil (NYSE: FST  ) -- which led off drilling there in 2007 -- Range Resources (NYSE: RRC  ) , Talisman Energy (NYSE: TLM  ) and Consol Energy (NYSE: CNX  ) .

It's typical for rock formations in the Appalachian Basin to be thickest in the east and to thin out toward their western extremities. In the middle of Pennsylvania, for instance, the Utica can reach 7,000 feet below the Marcellus, while in eastern Ohio that difference may decline to 3,000 feet. And where it spreads beyond the Marcellus, the Utica sometimes rises sufficiently that it can be seen as an outcrop at the earth's surface.

Geologists think that Utica rock was deposited at least 440 million years ago. Its higher carbonate and lower clay minerals content tends to result in less fracturing than occurs in the Marcellus, given the same treatment. Indeed, its carbonate content is actually similar to that of the Eagle Ford, leading to the expectation that fracking techniques like those used in the Texas play could be effective in the Utica.

So, there you have it: one shale play residing beneath another (and even affecting the vocabulary of journalism.) If only for its size, the Utica Shale will be worth continued attention. My inclination is to monitor Chesapeake especially closely as it develops its big Utica position. 

Chesapeake Energy and Range Resources are Motley Fool Inside Value recommendations. Motley Fool Alpha owns shares of Chesapeake Energy. The Fool owns shares of Devon Energy and Range Resources. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't own shares in any of the companies named in this article. The Motley Fool has a disclosure policy.


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  • Report this Comment On March 09, 2011, at 3:56 PM, icanfixanything wrote:

    The word "frack" was used in the scifi series Battlestar Galactica and had the same meaning as the other popular "f" word.

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