How Vulnerable Are U.S. Natural Gas Producers To A Slowdown?-------------------

Many of this year’s top-performing oil and gas producers share one commonality: Significant exposure to the Marcellus Shale, a prolific play whose core has emerged as one of the nation’s lowest-cost gas-producing regions.

Wells in certain parts of this formation remain profitable when gas prices hover around $3 per million British thermal units. Producers that hold the best acreage have consistently surprised investors by posting better-than-expected revenue and output growth in 2011.

For example, EQT Corp.’s (EQT) Marcellus leasehold comprises 520,000 acres. That amounts to about 3.5 acres per every 1,000 shares. The firm will drill about 100 wells in the play in 2011 - 10 wells in northern Pennsylvania, 57 in western Pennsylvania and 33 wells in West Virginia.

Each well costs about $6 million and allows EQT to book reserves of 7.3 billion cubic feet of gas. With natural gas prices at $5 per million BTUs, EQT delivers returns of 72% after taxes, gathering, transmission and drilling costs are subtracted.

When natural gas dips below $4 per million BTUs, EQT still earns a positive return.Cabot Oil & Gas (COG) - one of the top-performing E&P stocks in 2011 - also generates a significant amount of its revenue from the Marcellus Shale. The firm’s acreage in northeastern Pennsylvania produces primarily dry natural gas with little to no NGL content to boost wellhead economics.

But Cabot Oil & Gas’ production costs are so low that management estimates it earns about a 60% return on wells when natural gas trades at $3 per million BTUs. The company’s average well yields an initial production rate of 16.9 million cubic feet per day and an average 30-day production rate of 13.6 million cubic feet per day.

With a number of new pipelines slated for completion by the end of 2012, the Marcellus operator will be able to ramp up its production and drilling activity significantly.---

from: bouligny on SH