Liquids rich natural gas is almost heaven on those legendary West Virginian country roads. Drilling for high BTU gas remains resilient in the state even as the number of wells targeting dry gas Marcellus Shale declines. Drilling patterns during the last six months have seen activity contract into a core region in north central West Virginia centered on Harrison, Taylor, Wetzell and Marion counties followed by activity in the Panhandle counties of Brooke and Marshall. Both areas are in a narrow wet gas window of the Marcellus, which extends south and west from Pittsburgh, Pennsylvania. Those counties currently represent about 80% of all active rigs in the state.

Marcellus Shale in West Virginia

A map of the Marcellus Shale in West Virginia. To view the interactive version of this map, visit http://www.wvgs.wvnet.edu/www/datastat/devshales.htm.

Wells in the wet gas window are typically over-pressured with BTU content 20% higher than wells in the dry gas window farther west. The wet gas premium provides an economic incentive to exploit the liquids rich stream.

As drilling ramped in the wet gas window, it has simultaneously eroded along the state’s western border, which was an early focus of Marcellus efforts. Marcellus completions in West Virginia stretch back to 2002, predating by three years the highly publicized Marcellus “discovery” in Pennsylvania. If one goes by well count, then the Mountaineer State has been at the forefront of Marcellus drilling for much of the last decade, exceeding 300 wells annually in 2007 and 2008, and more than 1,200 wells total through April 2010, the last publicly available data at the West Virginia Geological and Economic Survey.

Most Marcellus drilling in West Virginia employed vertical wells with commingled production from multiple stacked formations. But operators are making the transition to horizontal drilling and multi-stage fracturing solely targeting the Marcellus. For example, Pittsburgh-based EQT Corp. reported production volumes in Doddridge County, West Virginia, rose 80% to 36 MMcfed in December after the start up of a new compressor station during its fourth quarter 2010 conference call. EQT has been drilling 3,270-foot horizontal laterals seeking EURs of 3.75 Bcf in north central West Virginia but plans to push laterals out to 5,300 feet in 2011 with EUR expectations of 6.9 Bcf.

Although West Virginia features lower IPs than Pennsylvania, decline curves are flatter, making the economics for wet gas wells similar to higher volume dry gas Marcellus wells in Pennsylvania.

Gastar Exploration Ltd. is also pursuing liquids rich Marcellus gas. In February the company teamed with Atinum Marcellus I LLC, its Korean-based joint venture partner, to acquire 3,300 gross acres at PPG Industries’ Natrium site in Marshall County, where it expects to begin drilling in the second half of 2011. In December 2010, Gastar closed on the $29.1 million purchase of 62,000 net acres in northeastern West Virginia. The two acquisitions bring Gastar’s holdings to more than 80,000 acres with more than 630 horizontal drilling locations in southwestern Pennsylvania and northeastern West Virginia.

Other operators active in the liquids rich portion of the play in West Virginia include Chesapeake, PetroEdge, Novus, Enerplus, Antero Resources, EXCO, and ExxonMobil as well as several privately held regional oil and gas companies.

But events during the last 90 days have both vexed the state’s Marcellus gas drillers while providing hope that market expansion is on the way. As for the latter, Dominion Resources, Inc. announced plans January 12 to build a 300,000 Mcf/d natural gas processing and fractionation complex at PPG Industries’ Natrium site in Marshall County with the capability to produce 38,000 bbl/d of NGLs. Dominion, which exited the E&P business in March 2010 by selling its West Virginian oil and gas holdings to CONSOL, is now the second company to pursue a West Virginia-based NGL processing facility. Dallas-based Caiman Energy announced plans in November 2010 for a $350 million fractionation complex, also on the Ohio River.

It may be putting the cart before the horse, but the Dominion and Caiman Energy gambits could presage a regional chemical complex in the wet gas window by providing feedstock to build at least one ethylene facility. Otherwise, West Virginian ethane would be shipped to the Gulf Coast.

Development of regional processing and NGL fractionation capability would significantly expand opportunity for natural gas producers who are facing soft natural gas prices.

Getting there is going to be as interesting as those fabled West Virginian county roads. Several West Virginian legislators are calling for a temporary moratorium on permits for Marcellus horizontal drilling following failure of the state’s General Assembly to pass legislation crafting a regulatory framework for horizontal drilling prior to its annual adjournment March 18th. Legislators are now seeking a special legislative session to address Marcellus regulation.

The state’s acting governor, Earl Ray Tomblin, told the Beckley West Virginia Register-Herald he has no plans for a special session and will instead direct the state’s Department of Environmental Protection to develop regulations addressing surface owner rights, well spacing, plugging and abandonment, and proper notice. There may also be an adjustment to permit filing fees, which currently run $600 per permit as the state seeks to boost its inspection staff beyond the current headcount of 17.

Lawmakers were unable to reconcile separate bills passed by West Virginia’s senate and the house prior to the end of the legislative session, frustrating the oil and gas industry, environmentalists and members of the legislature. The Marcellus legislation would have updated a regulatory regime that was developed more than 40 years ago prior to widespread adoption of horizontal drilling.

Contact the author, Richard Mason, at rmason@hartenergy.com.