Chevron expands interest in state

| Thursday, May 5, 2011

Chevron Corp.'s deal to expand in the state's Marcellus shale natural gas reserves by buying mineral rights on 228,000 acres of land, mainly in Southwestern Pennsylvania, is a sign of strong interest despite lower gas prices, industry experts said on Wednesday.

Chevron, a global oil and gas producer based in San Ramon, Calif., purchased the mineral rights from Chief Oil & Gas LLC of Dallas and Tug Hill Inc., an investment firm in Fort Worth, Texas, for an undisclosed price. Most of that acreage is in Somerset County, with some in Maryland and West Virginia, Chevron spokeswoman Margaret J. Cooper said.

Acquisitions of natural gas companies and drilling rights in the state by multi-national energy companies is likely to continue, said energy expert Kent Moors, a Duquesne University professor and scholar-in-residence at Duquesne's Institute for Energy and the Environment.

The global energy companies are acquiring "unconventional drillers ... for the specialized skills" of horizontal drilling to tap into the Marcellus shale gas, Moors said.

Chevron, which has an operations office in Smithfield in Fayette County, has been a major player in the state's natural gas production since acquiring Atlas Energy Inc. of Moon in November for $4.3 billion. That deal gave Chevron 486,000 acres of mineral rights in the Marcellus shale.

Chevron gets 5 trillion cubic feet of natural gas reserves in the Marcellus play by acquiring the lease assets from Chief Oil & Gas.

As for additional acquisitions of natural gas rights and producers active in the Marcellus shale, "I would not rule it out that more big producers will get involved, but I would not guarantee it," said Bill Holland, associate editor for Platts Gas Daily, a trade publication.

Even though the average spot price for natural gas futures contracts dropped 12 cents to $3.97 per million BTU in March, Holland said the price of acquiring mineral rights to acreage is lower as well.

By comparison, Consol Energy Inc., the Cecil-based coal and natural gas producer, says it has 3.7 trillion cubic feet of natural gas reserves in the eastern United States.

Chevron's acquisition of lease assets from Chief Oil & Gas "makes perfect sense" and is "a very smart business move," even though the U.S. Energy Information Administration predicts the futures price for natural gas will decline for the rest of the year.

"With oil prices so high, they are flush with cash," said Louis D'Amico, executive director of the Pennsylvania Independent Oil & Gas Association, a trade group in Marshall.

Huge companies like Chevron are not worrying about a temporary drop in price because "they plan a decade in advance," D'Amico said.

Chief Oil & Gas said it will maintain its regional office in Marshall as well as one in Lycoming County. Chief Oil & Gas and Tug Hill still will have about 125,000 acres in the state's Marcellus shale reserves, mostly in Bradford, Susquehanna, Tioga, Sullivan and Wyoming counties in northern Pennsylvania.

Since 2007, Chief has drilled 131 Marcellus wells and will remain an active operator.

Additional Information:

Largest gas drillers in Pa.

Natural gas companies have either received or are awaiting approval of a total of 7,120 permits to drill Marcellus shale natural gas wells. Companies with the most permits issued as of April 1:

Chesapeake Appalachia LLC, Oklahoma City, Okla. -- 1,237

Range Resources Appalachia LLC, Cecil -- 717

Talisman Energy USA Inc., Marshall -- 598

S.W.E.P.I. USA Inc., Marshall -- 512

Altas Resources, Moon -- 440

EOG Resources, Cecil -- 282

Ultra Resources Inc., Englewood, Col. -- 277

Anadarko E&P Co. L.P., The Woodlands, Texas -- 277

Consol Energy Inc., Cecil -- 271

Cabot Oil & Gas Co., Wilkins -- 244

EQT Production Co., Downtown -- 230

Seneca Resources Inc., Williamsville, N.Y. -- 178

Chief Oil & Gas LLC, Dallas -- 169

Source: Department of Environmental Protection

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