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Marcellus Shale Development Heats Up

Marcellus Shale Development Heats Up
New international player enters natural gas development, portends of higher lease values.

Yesterday, India-based Reliance Industries Limited today announced that its subsidiary, Reliance Marcellus LLC, has bought into the Marcellus shale natural gas play. That's just weeks after Canada-based Enbridge Inc. announced plans to build a pipeline from southwest Pennsylvania to Chicago.

Reliance acquires a 40% share of Atlas Energy's Marcellus Shale acreage position for $339 million plus $1.36 billion in capital costs for developing shale production on close to 300,000 acres over the next seven years. The two mega-deals confirm that the Marcellus play is productive. That's a positive sign for landowners who have yet to finish lease negotiations.

The Reliance-Atlas deal, according to a corporate new statement, will be closed by April's end. The acreage will support the drilling of more than 3,000 wells with a net potential of 13.3 trillion cubic feet of gas. Low operating costs and close proximity to U.S. northeast gas markets combine to make the Marcellus one of the most economically attractive unconventional natural gas resource plays in North America.

Under the joint venture, Atlas continues acquiring leases. Reliance is expected to begin acting as development operator in certain regions in coming years. Reliance also has first option to acquire 40% share in all new acreages, including another 280,000 additional Appalachian acres currently controlled by Atlas. Reliance Industries Limited is India's largest private sector company and ranks 117th amongst the world's Top 200 companies in terms of profits.

Political troubles slow New York play

April was anticipated to be when the light for natural gas development turned to green. Now industry consultants warn that Governor David Paterson's political troubles may have slowed the rule-making process before drilling permits can be issued.

Syracuse-based Consultant David Palmerton reports that New York's Department of Environmental Conservation may be pressed to delay the process until after the election. He notes that three companies have 58 applications in for drilling permits.

Chesapeake Energy, the second-biggest producer of natural gas in the United States, is one of three companies that have filed 58 applications for drilling permits in the state. Chesapeake. Talisman Energy, Vertical Resources and others want to drill in New York.

Again, the delays may work to the advantage of landowners who have yet to finish lease negotiations. As reported recently in American Agriculturist magazine, cash upfront payments and royalty rates are on the rise as Marcellus production proves itself. 

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