For more than 100 years, Cabot Oil & Gas Corp., Houston, has been drilling natural gas wells in Appalachia, where conventional gas sands have long been depleted. As a result, the Appalachia basin now is dominated by tight gas sands "that need to be fracture-stimulated in all cases," said Michael B. Walen, senior vice-president of exploration and production.
Fifty years ago, Cabot didn't have modern fracturing techniques.
"People would shoot the wells with nitroglycerin in the best attempt to get a good stimulation of these tight sands," Walen said.
Today, he said, "It's one of our core areas, and we have a relatively large operation up there with over 2,400 wells. This past year, we drilled about 170 wells. In 2005, we plan to drill about 200 more wells."
Cabot also operates in the Rockies, Midcontinent, Canada, Gulf Coast, and Gulf of Mexico. Walen said, "70% of our drilling is tight-sand-oriented. We're going to drill 300 gross wells this year and about 250 of those wells are more or less tight-sand type reservoirs."
Devonian shale
Of the 200 wells that Cabot plans to drill in Appalachia, a quarter will be drilled in Devonian shale. While the Devonian shale "doesn't match the quality of Barnett shale," said Walen, the wells aren't particularly hard to drill.
"You just drill down and find where you think the natural fractures are, and then you put a fracture stimulation on those like you would a tight sand," he explained. "In our wells, which is typical of most tight sands, we'll frac and get an initial rate, and that rate will decline rapidly for the first year or so. Then it will turn the corner and flatten out and produce at a very stable rate for many, many years."
The problems? "We're having a hard time getting rigs, which is probably the story all over the industry," he said. "We're seeing very significant [price] increases for tubulars and services. We're also finding it hard to find people to do the work and to retain people. Those are the main challenges we see in Appalachia, but that's typical over every place we operate and for the industry."
Meanwhile, said Walen, "If gas prices stay robust—and we think there is a good long-term outlook for gas pricing—I think that the Appalachia gas play has a pretty rosy future."
Cabot holds about 1 million acres under lease in Appalachia, "and only a portion of that is developed," Walen said. The company has "a large acreage position and a very robust prospect inventory up there, so we see of years of drilling ahead of us."
What price level for natural gas is necessary to develop those prospects? "Probably around $3.50[/Mcf], in my opinion, would be kind of the low end of where we'd feel comfortable with the current level of rig costs and pipe costs and so on," Walen said.
Close to the Northeast US market, "Appalachia is probably the premier market in the US as far as the gas price. We have a positive basis differential over Henry Hub, which makes the gas price even more attractive," Walen said. "One of our strengths in the East is that we own our own pipeline system and our own compression, and we're able to drill our wells and get those wells hooked up and flowing very quickly compared with other operators." He said, "We have 2,400-plus miles of pipeline in that area."