Natural Gas Prices Spark Drilling Frenzy in Penn.

At first, Raymond Gregoire did not want to listen to the raspy voice on his answering machine offering him money for rights to drill on his land. They want to ruin my land, he thought. But he called back anyway a week later to hear more.

By the end of February, he had a contract in hand for $62,000, and he pulled together a group of 75 neighbors who signed $3 million in deals.

“It’s a modern-day gold rush in our own backyard,” Mr. Gregoire said.

Not just his backyard either — a frenzy unlike any seen in decades is unfolding here in rural Pennsylvania, and it eventually could encompass a huge chunk of the East, stretching from upstate New York to eastern Ohio and as far south as West Virginia. Companies are risking big money on a bet that this area could produce billions of dollars worth of natural gas.

A layer of rock here called the Marcellus Shale has been known for more than a century to contain gas, but it was generally not seen as economical to extract. Now, improved recovery technology, sharply higher natural gas prices and strong drilling results in a similar shale formation in north Texas are changing the calculus. A result is that a part of the country where energy supplies were long thought to be largely tapped out is suddenly ripe for gas prospecting.

Pennsylvania, where the Marcellus Shale appears to be thickest, is the heart of the action so far. Leasing agents from Texas and Oklahoma are knocking on doors, leaving voice mail messages and playing host at catered buffets to woo dairy farmers and retirees. They are rifling through stacks of dusty deeds in courthouse basements to see who has underground mineral rights to the deepest gas formations.

Thomas B. Murphy, a Pennsylvania State University educator who runs a program to instruct landowners on their rights, estimated that more than 20 oil and gas companies will invest $700 million this year developing the Marcellus Shale. Up to one half of that will be invested in Pennsylvania, he estimated.

The cost to companies for leasing mineral rights jumped from $300 an acre in mid-February to $2,100 now. “It shows you the pace this is going,” Mr. Murphy said. “I would call it breakneck.”

Dale A. Tice, a lawyer representing landowners in lease negotiations, said companies were on a “feeding frenzy.”

Industry experts say in the last three years companies like Anadarko Petroleum, Chesapeake Energy and Cabot Oil and Gas have leased up to two million acres for drilling in the region, half of that in the last nine months.

Whether their bets will pay off is by no means a sure thing.

Researchers at Penn State and the State University of New York at Fredonia estimate that the Marcellus has 50 trillion cubic feet of recoverable natural gas, roughly twice the amount of natural gas consumed in the United States last year. But government estimates of the amount of gas recoverable from the Marcellus are relatively modest.

Early test results have encouraged companies to keep drilling, but most are holding details of their test wells close to the vest.

The company that has done the most work is Range Resources of Fort Worth, which says it plans to invest at least $426 million in the Appalachia region this year.

The company has reported promising results from the first 12 wells that it has drilled horizontally, the technique considered by most experts to be the most effective in the Marcellus. The most recent six have each produced more than three million cubic feet of production a day in recent months, and company executives say that is better than the average for wells recovering natural gas in the Barnett Shale in north Texas.

“The Marcellus is important to Range and it could be important to the country but it really is still early,” said Rodney L. Waller, a senior vice president at Range. “I can build you a scenario where it can be significantly better than the Barnett but it’s a function of economics.”

Energy experts say the Marcellus, along with other smaller shale formations being developed around the country, is coming under scrutiny at an opportune moment, just when conventional domestic natural gas production and imports from Canada are diminishing. With easy-to-find gas fields in decline, the country will need to explore in deeper waters in the Gulf of Mexico and penetrate deeper under the surface on land.

CONTINUED : Farmers ambivalent...then checks arrive

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