The management team behind Tug Hill, which helped pioneer the Marcellus shale more than a decade ago, now says it has cracked the code to economic development of the dry gas Utica in West Virginia. The Fort Worth company’s upstream business, THQ Appalachia I LLC, has been quietly building a highly contiguous acreage position in the state’s Panhandle region and deploying innovative technologies for co-development of the Marcellus and Utica, with backing from private equity firm Quantum Energy Partners. These advancements have made THQA the first operator east of the Ohio River to move beyond appraisal into full pad development of the Utica, with “the lowest-breakeven dry gas in the entire Appalachian Basin,” COO Evan Radler told Drillinginfo.

At the same time, Tug Hill’s midstream business, XcL Midstream, has been working with Quantum over the last two years to build a greenfield system to link southwest Appalachian gas production to every major long-haul pipeline in the region. It has now brought online its Appalachia Connector system, which will connect with East Coast, Midwest, Midcontinent, Gulf Coast, and West Coast markets. Radler said in an interview that the pipeline offers significant market price optionality and premium netbacks for dry gas production by providing access to nearly every major price point in the region.

Multiple companies, including Gulfport Energy, Ascent Resources and Rice Energy (before its acquisition by EQT Corp.), have established producing operations on the Ohio side of the Utica. But the shale deepens as it moves eastward into West Virginia and southwest Pennsylvania, driving typical well costs much higher. Some West Virginia operators have been able to achieve well costs of $15-18 million, but most have reported costs exceeding $20 million, according to Tug Hill.

Thus, spectacular wells like Range Resources’ 59 MMcf/d Claysville Sportsman’s Club-1 in 2014 and EQT’s 73 MMcf/d Scotts Run 591340 in 2015 have remained isolated occurrences rather than launching full-scale development programs. In contrast, THQA’s use of high-spec walking rigs to drill large multi-well pads and proprietary drilling practices have helped the company achieve well costs of $10.5 million or better, engineering and development SVP Sean Willis told Drillinginfo.

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The technical success and entrepreneural spirit of the industry is amazing.  I'd like to be more excited however the last thing that the glut of domestic natural gas supply needs is more dry gas.  Of course lower gas prices will push a number of small to mid-size shale operators to bankruptcy or a sale and at this point the only light at the end of the tunnel is consolidation.

Indeed, Skip!  The industry cannot stand much more "good news"! 


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