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The Marcellus and Utica rock formations within the Appalachian basin continue to dominate discussion within the energy industry. Critics of hydraulic fracturing often cite environmental concerns as their primary argument. And, they may be right to some extent. But, studies continue to show that fracking doesn't release near as much methane or cause as much damage as the government anticipated. This is good news for drilling firms.

Scientific Impact
A recent study conducted by The University of Texas sponsored by the Environmental Defense Fund and nine energy companies revealed that of the 500 analyzed wells, shale gas is not as dangerous as previously thought. Indeed, the report went on to describe that natural gas is a much better, cleaner source of energy compared to coal—the nation's largest source of energy. Sure, we need to recognize that the industry helped finance the study. But, at least temporarily, some critics are staying quiet.

Political Impact
U.S. Energy Secretary Ernest Moniz affirms that the Obama Administration is attempting to reduce carbon emissions and combat global warming. But, Moniz says that "there is no war on coal," the term coined to describe the Administration's policies. Since natural gas is plentiful and because it is said to be a better energy source, Moniz and other government leaders are discussing how to move forward with legislation that will encourage the generation and consumption of gas over coal.

As a result, firms like EQT Corporation (NYSE: EQT  ) , Range Resources (NYSE: RRC  ) and Cabot Oil & Gas (NYSE: COG  ) are poised to benefit.

Natural gas production and technological investment
The following image displays data from Pennsylvania's Department of Environmental Protection and shows the unconventional gas production for the state:

  Chesapeake Cabot Range  EQT
Total Gas Production January 2013-June 2013 305,302,356 182,835,500 124,780,024 103,202,052
Data for Pennsylvania; values in thousands of cubic feet


Range Resources is the pioneer in the Marcellus Shale; it established the first drilling well in 2004. Since then, its share price has soared roughly 777%. Even though it does not produce the most natural gas, it stays competitive by investing in new technologies or opportunities, like converting its vehicles to CNG (compressed natural gas) as a fuel source. It also diversifies risk each quarter by hedging against major energy price fluctuations.

As the second largest natural gas producer in America and the largest producer in Pennsylvania, Chesapeake Energy (NYSE: CHK  ) is an entrenched market player. As seen by the below image, it operates some of the most productive natural gas well sites using a mean calculation in Pennsylvania.

  Chesapeake Cabot Range  EQT
Production per Well 566,424 689,945 203,889 579,787
Data for Pennsylvania; values in thousands of cubic feet

Source: fractracker

So, even though it's not generating a profit, Chesapeake still has opportunity to rebound as the scientific and political agendas are being determined.

  Chesapeake Cabot Range  EQT
Profit Margin -7.35% 14.06% 4.18% 13.82%
ROE -4.73% 9.48% 2.81% 7.65%

Data from Yahoo!Finance

Like Range, Chesapeake, Cabot Oil & Gas, and EQT all recognize the benefits of converting their automobile fleets to CNG. In fact, EQT and Cabot now operate CNG fueling stations. They now can fuel their vehicles or equipment while generating revenue from selling CNG.   

Additionally, EQT recently accomplished a phenomenal feat. It completed several fracturing stages utilizing pumps that were fueled by "field" gas supplied from local gas wells. Basically, EQT can now power its equipment from one of its own producing natural gas wells. Anticipate that its competitors will soon jump on the bandwagon, thereby decreasing costs and increasing the bottom line for the long term.

Scientific reports regarding the safety of the natural gas drilling process will continue to be conducted while political platforms will likely shift each election cycle. At this point in time, though, these these two external factors are not negatively impacting drilling firms. But even with negative press via a new report or government program, Cabot Oil & Gas', Range Resources', and EQT's massive production quantities and continued investment in technology lead me to think that they will be here to stay.

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Related Tickers

9/28/2016 11:44 AM
CHK $6.34 Up +0.11 +1.77%
Chesapeake Energy CAPS Rating: ***
COG $24.53 Up +0.19 +0.78%
Cabot Oil and Gas CAPS Rating: ****
EQT $68.53 Down -0.11 -0.16%
EQT CAPS Rating: ***
RRC $37.15 Up +0.18 +0.49%
Range Resources CAPS Rating: ***