November 6, 2013 —
NEW YORK STATE — While many lease-holders in New York State may be wondering why Governor Andrew Cuomo keeps delaying the adoption of new rules on hydraulic fracturing, part of the answer may be that even when the new rules are in place, New York State is not likely to see much in the way of new revenues from the famed shale play.
At a presentation at Cornell University on October 30, four analysts, all working on a volunteer basis and all with impressive credentials, made the case that because of various geological and market realities, the Marcellus Shale formation in New York is likely to return much less gas than the same formation in Pennsylvania. In fact, the returns may be so meager, that few wells are likely to be drilled.
Part of that analysis came from comparing the data from more than 15,000 wells in Pennsylvania with available data from New York, and projecting the probable yield of gas in various counties in the Empire State.
According to the presentation, among the most important factors determining whether there is gas suitable for extraction in the Marcellus Shale is the thickness of the shale deposit and the depth of the deposit. Given just those two parameters, there is the possibility of some wells being successfully drilled close to the Pennsylvania borders in some New York counties and even some in Sullivan County.
But there is another factor in the equation that is even more important than thickness or depth, called “thermal maturity,” which is an indication of the temperature the shale experienced in the past. If the temperature was too high, the shale is said to be “over mature,” and no gas will be found in the shale. Another way of saying this is that the formation is “overcooked.”
When the thermal maturity parameter is added to the equation of the shale, the area of likely productive wells in New York State shrinks considerably. In this analysis, all of Sullivan County is considered to be “over mature,” which means there will likely be no productive wells drilled here. This is in line with what Professor Terry Engleder, considered one of the foremost experts on the Marcellus Shale, has said in the past about Sullivan County—that there was almost no chance that any productive wells would be drilled here. This information also matches up with that obtained by a private individual who several years ago engaged independent expert analysts on the subject and spoke to The River Reporter about it.
The analysis presented at Cornell showed that there are very limited areas in the state that might produce productive wells, and they include parts of Broome, Tioga and Chemung counties, and a small part of Delaware County. Even in these locations, however, the wells would be below average in terms of the amount of gas produced, and they would not be profitable until the price of gas rises significantly.
Some analysts have said those wells would be profitable when the price of gas reaches $5 per 1,000 cubic feet (mcf), which is not expected to happen until at least 2020 because of the glut of natural gas in the United States. One of the analysts, Chip Northrup, an investor and former energy executive, said the real break-even price is closer to $7.00. Further, if the cost of all the dry and failed wells is added to the mix, including those drilled by other companies, the price of gas would have to rise to about $10 mcf before the New York wells could be considered profitable across the entire industry.
Even with that pessimistic forecast, however, one of the analysts, Louis Allstadt, a former executive vice president of Mobil Oil Corporation, expects that some wells will be drilled in the Southern Tier towns in New York. He said. “There are thousands of drilling companies, there are always some that just have to take a shot somewhere… So will there be drilling? Probably not a whole lot, but there will be companies that come around and try it. And unfortunately those can be the least reliable outfits because they will try to do the wells as cheaply as possible. I would worry about these test wells in the outlying areas.”