PITTSBURGH—For Rice Energy Inc. (RICE), the Marcellus Shale has and will continue to be the company’s workhorse, while the Utica Shale presents ample opportunities for future growth, according to Derek Rice, the company’s executive vice president of exploration.

Speaking at Hart Energy’s DUG East conference in June, Rice shared the remarkable story of how three brothers from Boston with big aspirations built a successful oil and gas company with little money. When the company came on the scene in 2008, it held a net acreage of 800 acres in Washington County, Pa. That acreage has increased significantly over time.

In the Marcellus, Rice said the company is developing about 150,000 net acres in Washington, Greene and Belmont counties. “Today, we are a top 25 producer of natural gas in the United States. That's saying a lot coming from literally zero production just six years ago. We also have a significant midstream system that we are actively developing today,” he said.

That rapid growth can be attributed to the company’s strategy of being tight, aggressive, disciplined and smart with how and where it allocated its dollars. It is a strategy that works well at the poker tables, too, Rice said.

“If you think about the fundamentals of poker and gas exploration, it comes down to knowing your odds. That’s number one,” he said.

Understanding different combinations of cards, how those cards play out and what are the best chances of winning with those cards is similar to exploration in that a lot of different variables—like finding the best rock or best well design—have to be combined for success, he explained.

Getting in early and playing every hand dealt, with the goal of winning enough big pots to make up for the losses, is a strategy that has had success on the exploration side.

“People had an idea, a geologic model, and went out there and acquired as much acreage as possible,” he said. “We have Continental Resources, which has a large position in the Bakken Shale that they acquired early; Devon Energy in the Barnett; and EOG Resources in the Eagle Ford. And, there’s the Marcellus Shale where Range Resources figured it out before everybody. They had a great geological model; they executed it and launched this play to where it is today. So, those are the success stories.”

But the risk in applying this type of strategy was one that a young company like Rice Energy could not afford to take, he said.

“Take the Marcellus, it spans across five states, 30 million acres, but when you really dig into it only around 20% of that fairway is economical. If you go into any shale play and acquire 100,000 acres of the upcoming shale play, there is an 80% chance you'll completely miss the economic fairway, especially if there is no geologic control. There is a very small window within these shale plays that actually works,” he said. “If you go into a play that oil is priced at $100 a barrel and the oil price is subsequently crashed to $60, your project could be uneconomical.”

The Rice Energy strategy is to focus on purely the core areas, making them perhaps the “least fun poker players” at the table because these players set a very high threshold of what hands they want to play, only exposing their chips to those opportunities they stand the best chance of winning, he explained. Those opportunities for Rice Energy are found in a play’s core areas.

For example, he noted that the counties that make up the core areas for the Permian, Eagle Ford, Bakken and Niobrara shale plays are prolific producers.

“If you take the top 16 counties in the U.S. on the oil shale side, those 16 counties alone are producing 3.3 million barrels per day. To put that into perspective, the U.S. is producing 9.4 million barrels per day, so these 16 counties are producing 35% of the total U.S. production. These are core counties. These are the counties that have actually put these shale plays into our vocabulary.

“We see it again on the gas side. Core counties in Marcellus are producing 78% of the play’s total production. The Utica is at 76%. We actually think over time, the next five to 10 years, that's likely going to shift to 90%, solely focused in just a couple counties in the southern part of the play.”

Being selective meant that the company held its chips until 2009, when it acquired the 800 acres in Washington County. Before drilling that well, Smith said the company did its homework and went to work absorbing every data point it could. It was an effort rewarded with success.

“We wanted to learn from the industry what they had done before us on the Marcellus. So we evolved into being a data collector. We absorbed everything that everybody is doing in the industry,” he said. “Our first well was a 2,400 foot lateral in Washington County that tested at 8.6 million a day. We tweaked our well designs. Our second and third wells tested at 14 and 16. Our fourth well tested at 20. Our fifth well tested at 28. Our sixth well tested at 36. And the last few wells that we actually tested as a private company were over 40 million per day.”

From that first well test to today, the company has grown to hold 90,000 net acres in the Marcellus, all of it in Washington and Greene counties.

In its Utica position, the company holds roughly 60,000 acres, with 98% of it concentrated in Belmont County, Ohio, according to Rice. The Utica is the next leg of the company’s growth, having “drilled 25 horizontal wells, with 16 of those wells being completed, and eight wells currently into sales. Those eight wells have been producing at 130 million a day,” he said.

Contact the author, Jennifer Presley, at jpresley@hartenergy.com.