The Marcellus and Utica shale formations offers investors growth potential that is hard to believe. Consider this:
- The combined production out of these two formations is projected to increase 34-fold from 2007 through 2035.
- The total gas reserves of the Marcellus/Utica shales is estimated as high as 480 trillion cubic feet of gas.
- The production lifespan of these formations is projected to be 110 years.
- The Energy Information Administration estimates that by September, Marcellus production will surpass Qatar's, the world's third-largest gas producer.
This article is focused on helping growth-oriented investors find some of the fastest growing oil and gas companies in America -- companies that are poised to maximize opportunity from the Marcellus/Utica shale and make long-term investors rich.
The kings of growth
| Company | Market Cap | 10-Year Projected Annual Earnings Growth | 10-Year Projected Annual Returns |
| Rice Energy | $3.24 Billion | 67.50% | 49.20% |
| Rexx Energy | $0.774 Billion | 52.50% | 50% |
| Range Resources | $12.3 Billion | 28.30% | 22.80% |
| S&P 500 | 9.20% |
Sources: S&P Capital IQ, Yahoo! Finance, Moneychimp.com.
Range Resources (RRC 0.21%) is the largest independent oil and gas producer in the Marcellus, with 1 million net acres. Range Resources has 8.2 trillion cubic feet of gas reserves, but is a master of growing those reserves. For example, in 2013, it grew its proven reserves by 26% while replacing 612% of its production, which itself grew 25%.
The potential for Range Resources is truly mind-blowing. Management believes that its potential reserves could be as high as 85 trillion cubic feet of gas, and that's without counting its Utica shale potential.
To put those figures in perspective, 85 trillion cubic feet of gas is 12.8% of estimated U.S. shale gas reserves.
More impressive is that Range Resources has been able to grow without much dilution. Since 2010, share count is up just 3.64%, while production per share has grown by 17.32% annually since 2008. Reserves per share have grown an even more impressive 22.6% annually, and production costs have declined by 34% since 2008. In fact, Range Resources is the second lowest cost producer in America, behind only Cabot Oil.
Range Resources is guiding for 20%-25% production growth in 2014. Income investors will be interested to hear that analysts are expecting Range Resources to become a dividend growth stock with 19.1% annual dividend growth expected through 2023.
Rice Energy is one of the newest independent oil and gas producers, having IPOed in January of 2014.
Rice Energy was founded in 2007 by Daniel Rice, who spent years managing energy assets for Blackrock. From 2000-2010, Rice beat 99.9% of fund managers, and those legendary skills are currently serving Rice Energy investors very well indeed.
Rice Energy owned 90,678 net acres of Marcellus/Utica shale with an estimated 769 potential drilling sites. However, on July 7, it announced it was purchasing another 22,000 net acres from Chesapeake Energy for $336 million, representing a 24% increase. The assets include 152 additional drilling locations.
Today, only 50 sites (6.5%) have been drilled, but 45 are in progress. Each well generates 70%-120% rates of return at today's gas prices.
Rice Energy has proven itself a master of controlling both costs and maximizing production per well. For example, its historical drilling costs are just $1.09/thousand cubic feet of gas and its average Marcellus well produces 2.7 billion cubic feet of gas in its first year. The decline rate past year one can be as high as 50%, however Rice Energy estimates that the present day net value of each well it drills (cumulatively over its productive life) is $8.5 million-$19.6 million.
Rice Energy's past growth is astonishing, with production growth of 147% since 2010. That growth is expected to continue, with Rice Energy guiding for 2014 production to increase 106% to 143%.
One final growth catalyst is vertical integration. In February of 2014, Rice Energy acquired $110 million of midstream assets.
Rice Energy is planning on spending $265 million to expand these assets to 1 billion cubic feet per day of capacity (bcf/d). By 2015, Rice Energy plans to expand this to 4 bcf/d to transport and store its fast-growing production.
Rexx Energy may be one of the smaller oil and gas producers in the Marcellus, but its growth is mighty indeed. From 2009 through 2013, Rexx Energy grew its production, reserves, and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) by compound annual rates of 52%, 67%, and 56%, respectively.
More impressively, Rexx Energy has been able to accomplish this growth while cutting its lease operating and general administrative expenses per thousand cubic feet of gas by 16.4% and 24% annually.
A major component of Rexx Energy's success has been downspacing, spacing wells closer together. This decreases drill time and costs while increasing production and ultimate recovery rates.
Rexx Energy increased its well concentration by 56% between 2013 and 2014 and is currently testing concentrations that are 54% higher still.
For 2014, Rexx Energy is focusing 98% of its capital expenditure budget on high-margin liquids such as oil and natural gas liquids (NGLs).
Part of this will include exploiting Rexx Energy's 62,200 net acres of Illinois basin land, which is 100% oil. Rexx Energy has been successful in using both traditional methods and enhanced oil recovery techniques to achieve production of 2,772 barrels/day and plans to increase its well count in this area by 50% in 2014.
Foolish takeaway
Few areas of investment offer long-term growth investors the kind of raw potential as the Marcellus and Utica shales. Range Resources, Rice Energy, and Rexx Energy are three of the top choices for long-term wealth creation and market-crushing total returns.
