Encouraged by the Marcellus shale’s production potential and well economics, E&P companies are finding creative ways to accelerate drilling and expand their footprint in the play. At the IPAA’s 2010 Oil and Gas Investment Symposium in New York, attendees eagerly crowded into ballrooms to hear executives’ plans for making the most of the Marcellus.

Atlas Energy Inc., based in Moon Township, Pennsylvania, recently opted to sell a 40% undivided working interest in 300,000 Marcellus acres to an affiliate of India’s Reliance Industries Ltd. for $1.7 billion. Reliance will fund 75% of Atlas’ share of well costs until the $1.36-billion drilling carry has been fully utilized.

“We fit well culturally, and appreciated the way the structure of the joint venture fit what we were trying to do,” Rich Weber, Atlas’ chief executive, told the audience.

Most of the JV acreage is in southwestern Pennsylvania and nearly 3,150 horizontal drilling locations have already been identified. This year, the joint venture expects to complete 45 horizontal wells. This number should climb to more than 100 wells in 2011 and close to 300 by 2013 and beyond.

“This joint venture is going to allow us to really accelerate our Marcellus drilling in a whole different way. Plus, the up-front portion of the consideration will de-lever our balance sheet and increase liquidity. And, after taking the drilling carry into account, our finding and development costs could fall to $0.20 per thousand cubic feet equivalent (Mcfe) or lower.”

Ultra Petroleum Corp., Houston, is another E&P with the Marcellus on its radar. In 2009 the company invested $140 million in the play. That year, the company drilled 33 horizontal wells with initial production rates of 3.3- to 10.4 million cubic feet (MMcf) per day. Ultra also completed three pipeline tie-ins and had 190 MMcf per day of pipeline interconnect capacity in the Marcellus.
To date, the company has 225,000 net acres in the play.

“We’re experts in the Pinedale (Field in Wyoming), and we’re quickly coming up the learning curve in Pennsylvania and the Marcellus,” Mike Watford, Ultra’s president and chief executive, said at the conference. “After our first 13 wells in the area we learned what we needed to do to change the dynamics. In our first six wells the 30-day production average was 3 MMcf per day. For the next seven wells it was 5.7 million a day. We’re pretty happy with the way we see production improving.”

Watford said with a $6 per Mcf gas price and wells costing about $3.25 million, the company is seeing an internal rate of return of 100% and finding and development costs of about $1.03 per Mcfe in the play. In looking at how rates of return differ in a $4-gas environment versus a $5-gas environment, Watford says drilling in the play today makes good sense economically.

“The important thing to understand is why we’re here. Why did we leave the Pinedale? Because the returns are better. F&D costs are actually a little higher per individual well, but we’re talking pennies. We should be drilling in a $4-gas-price environment. I’m not sure if anybody else should be doing it, but I’m confident that we should be.”

This year Ultra has budgeted $440 million for Marcellus development. The company plans to add 80 square miles of 3-D seismic, four pipeline tie-ins and 340 million cubic feet per day of pipeline interconnect capacity. The company is also planning to drill 150-160 Marcellus wells by year-end 2010.