Cabot Oil begins selling natural gas from a rich vein

A new era of energy production began in northeastern Pennsylvania this week, when Cabot Oil & Gas Co. started selling natural gas from a Susquehanna County well drilled into a layer of rock known as the Marcellus shale.

The natural-gas industry has huge expectations for the Marcellus shale, a 365 million-year-old layer of rock that stretches from New York through West Virginia. It is especially promising in northeastern Pennsylvania, according to some analysts.

"This is a nice milestone to achieve being the first to have Marcellus production in northeast" Pennsylvania, Cabot's chairman and chief executive officer, Dan Dinges, said yesterday in a conference call on the Houston company's second-quarter earnings.

"The industry has ramped up activity to unprecedented levels" in the Marcellus area, Dinges said. Cabot has seen up-front payments to landowners for exploration rights rise as high as $2,500 to $3,000 per acre, he said.

An advantage to tapping Pennsylvania's natural-gas resources is the state's proximity to a large portion of the nation's population. Because of that, the gas brings a premium compared to gas produced elsewhere.

Energy executives say they expect electric utilities to build a substantial number of natural-gas-powered generation facilities in the Northeast over the next decade to meet rising demand while limiting greenhouse-gas emissions.

"There is no better place on the planet Earth to sell natural gas than the Marcellus shale," said John Pinkerton, president and chief executive officer of Range Resources Corp., of Fort Worth, Texas.

Range Resources, which has been pursuing Marcellus shale energy Pennsylvania longer than Cabot, said Thursday it planned to drill about 40 Marcellus wells this year at a cost of $3 million to $4 million each.

The company, whose Pennsylvania drilling has been concentrated in the western part of the state, had good news this week, when it updated production data.

"The production is higher than what they had been telling people," said Ken Balliet, a multicounty extension director for the Pennsylvania State University. "It's really encouraging."

Landowners stand to collect a minimum 12.5 percent royalty from the natural gas that comes from their land.

Cabot said it had drilled eight wells in Susquehanna County, "which has the biggest and richest Marcellus we are aware of," Dinges said. The company has big plans next year for its 120,000 acres there, with 80 wells on the drawing board.

The Pennsylvania Department of Environmental Protection is adding staff and opening an office in the Northeast to deal with such surges in well-drilling.