The Appalachian Basin has a long history of gas and coal production, but much opportunity remains. The U.S. Geological Survey estimates the region has some 75 trillion cubic feet of undiscovered gas resources, and 66 billion short tons of coal resources yet to be produced.

Gas and coal lend themselves to a unique synergy between E&P and coal-mining companies. Houston-based CDX Gas LLC works toward mutual cooperation. “We are very active with joint ventures. In southern West Virginia, we have an area of mutual interest agreement with Penn Virginia,” says Michael McCown, senior vice president of operations. “We also work with other partners, including coal operators.”

CDX and Penn Virginia Corp.’s gas E&P subsidiary, Penn Virginia Oil & Gas Corp., have an area of mutual interest consisting of several hundred thousand acres of prospective coalbed-methane (CBM) leasehold rights covering 13 counties in southern West Virginia and additional acreage in Kentucky and Virginia.

When CBM drillers and coal miners work the same basin, both companies want to produce the gas fast. The driller wants to monetize the assets, and the coal miner wants to degasify the area ahead of mining operations. In the Appalachian Basin, a typical CBM well life is more than 20 years. Conversely, CDX produces out its wells in only seven to 10 years.

“If a mining operator plans to mine through an area within the next three or four years where we have wells, it behooves us to optimize our drilling plan to recover all the gas as quick as we can. The mine operators want us to extract as much methane as possible from the coal, first, for the safety of the miners, and also to minimize the amount of gas they will have to vent before mining.”

CDX also works with International Coal Group Inc. (ICG), a leading producer of coal. Its Appalachian mining operations, including 11 complexes, are in West Virginia, Kentucky and Maryland. It also mines in the Illinois Basin. Altogether, ICG owns or controls almost 900 million tons of coal reserves and another 707 million tons of coal resources.

“When we reach an agreement with a coal-mining operator like ICG, in some cases we pay them a royalty. In other cases, they are our partners in a joint venture. Once we reach an agreement with any other owners of relevant interests in the area to be developed, we can start drilling. That makes it a little complicated with CBM drilling here in West Virginia,” he says.

CBM plays in the area are fairly shallow, about 900 to 1,000 feet. “The coal operators would prefer us not to pump sand and chemicals into the coal. Also, at the depth we are drilling, the seams are not very conducive to hydraulic fracturing. We have found the most economic way to produce them is to contact them with as much wellbore as possible,” he says.

To do that, in an area where coal mining is planned or in an area where coals are too thin for mining but are economic for CBM production, CDX uses its patented Z-Pinnate system. The technology combines vertical drilling with intersecting horizontal wellbores (referred to as a dual-well configuration), underbalanced drilling techniques, a multi-lateral drainage network and other technologies that permit access of up to 1,800 acres of coalbed from a single well site. In contrast, traditional drill-and-frac recovery methods typically require one well per 20 to 80 acres of coal.

“This is different from our operations in the Cahaba Basin in Alabama, where we routinely frac. Also, in Virginia, south of where we are operating, some other operators are compelled to frac the coals because they are thinner, more lenticular-type deposits. That’s the only economic way to produce those.”

Using Z-Pinnate, CDX can produce gas faster by more contact with the targeted coalbed seam. The well has a shorter life, but for the benefit of the mine, this is a situation where “we want to recover the gas as fast as possible.” While typical well production in the CBM play where CDX operates is some 250,000 cubic feet per day, CDX is routinely producing 10 to 20 times that amount per well.

Hillman Field

CDX’s best wells are in the Hillman area of northern West Virginia. The wells have initial production of more than 500,000 cubic feet per day.

“During the past three or four years, we’ve expanded our role with our CBM drilling technology here,” says McCown. “We drill a vertical well, then use that well to accomplish underbalanced drilling with air. We can drill as much as 30,000 feet or more of lateral footage in the coal seam, from one well, to contact as much reservoir as possible without fracing the well.

“We understand a typical vertical well in this area has initial production of about 250,000 thousand cubic feet per day,” says McCown. With 20 wells online using Z-Pinnate, CDX is producing 21 million cubic feet per day from its Hillman Field. Using traditional drilling methods and conventional well spacing, hundreds of vertical wells would be required to produce that same volume of gas, says McCown

After drilling, CDX uses the vertical well to finish dewatering the coal seam with artificial lift using bottomhole pumps installed at or below the coal seam, a process unpractical in deviated wells. CDX uses the original vertical well to produce methane.

“With our horizontal drilling, we can place our drainage pattern exactly where we want it,” says Lynne Howard, CDX manager of intellectual property. “That gives us increased contact with the reservoir and the most uniform drainage possible, which is really important in this application where we are de-gassing ahead of mining, because it won’t leave any hot spots of methane.

“Pressure sinks are another reason not to frac in this area. If there is a pressure sink associated with the coal mining, the fractures could go in that direction and away from where you want to degas the coal. It is more expensive to drill the way we are, but we have better control over the placement of the lateral wellbores and exponentially better recovery from our wells.”

CDX now has 40,000 acres in Hillman Field, and nearly 500,000 acres overall in the central Appalachian Basin. Its West Virginia assets are in seven counties: Harrison, Taylor, Barbour and Upshur in northern West Virginia, and Wyoming, Raleigh and McDowell in southern West Virginia. The company plans more than 50 wells in West Virginia for 2008, which should keep four rigs busy. Each well develops about 600 acres. “That’s 30,000 acres that we will develop through 2008.”

“We have 20 producing wells in the Hillman Field,” says McCown. “We’ve got six drilling rigs contracted, three of which are with Pinpoint Drilling & Directional Services. In the whole state, we have about 80 active, company-operated wells.”

In 2007, CDX drilled 38 wells in the area, representing more than a million feet of lateral footage. “We drill an average of 20,000 feet or more per well. In drilling a typical conventional well, a rig may be on the wellsite from five to seven days. Our rigs are often on site from 30 to 45 days.”

About a year and a half ago, CDX had no production in its Hillman Field in Taylor and Barbour counties. Today, its production there is approaching 20 million cubic feet per day and the company predicts production will peak in this field at 33 million per day by year-end 2008.

“You can see the rapid increase in production. For a group of wells that had initial production of 4 million per day, that is a significant step-change that we are getting with this technology,” he says.

“The wells cost more because we are drilling a lot more footage than that of a conventional well, but we see significant increases in production and ultimate recovery. These wells cost $2.2 million and have about 1 billion cubic feet of recoverable gas,” he says.

The nature of CBM production also requires significant infrastructure, McCown says. Operators must keep wellhead pressures as low as possible. That requires significant compression and large-diameter pipelines to bring the gas to market.

CDX owns its own gathering lines, uses Penn Virginia’s pipelines, and has two gas conditioning amine units in northern West Virginia to remove inert gases. “But the gas is typically 985-Btu, almost pure methane. We do not produce any oil.”

Fine-tuning production with new horizontal drilling technology and completion methods pays off here, he says. “We are getting the Nymex gas price plus the Appalachian basis for our gas. We sell into all the major pipelines, such as Dominion, Equitable and Columbia, depending on the field’s location. Depending on the day, we are sometimes enjoying almost double the price gas producers are getting in other basins.”