According to Scotia Waterous, an analytical firm, the breakeven natural gas price for the Marcellus is $3.25/million btu. The only lower breakeven price is for condensate- rich Eagle Ford at $2.73/million. Range Resources has managed to lower their breakeven price, probably as a function of economies of scale. But the drastic decline in shale gas drilling rig count is also a contributing factor inasmuch as labor and material costs are less now than one year ago. Natural gas prices have been firming up recently with current prices in the $5.25-5.50/million btu range. Two other plays, the Woodford and the Pearsall are clearly uneconomic at today’s prices. Barnett Tier 1 is marginal. Range Resources strong drilling campaign has taken most of the risk from their Pennsylvania holdings and with a low extraction cost structure, the company will make money even as the overall natural gas environment remains fair to poor. With the recent ExxonMobil announcement of the XTO acquisition to reinforce belief in the future of shale gas, the management of Range Resources must be satisfied with decisions in the Marcellus that have brought them to this happy situation.
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September, 2009 found Fortuna striking a deal with the ”The Friendsville Group” consisting of 600 landholders in Susquehanna and Bradford counties, Pennsylvania and the New York county of Broome. The company was to pay $5,500/acres on a five year lease with right to extend the lease for an additional three years. Royalties were to be 20% on production. The total deal amounted to $165 million for drilling rights to 30,000 acres in the three counties. C. Warren Trainor, a Philadelphia attorney, represented The Friendsville Group in the negotiation. Update, September 17, 2009: Despite The Friendsville Group having accepted Fortuna’s offer, [[Chesapeake Energy]] made a counter-offer amounting to $5,750/acre, 20% royalty and only a 5 year lease with no right to extend for another three years. A Fortuna spokes person indicated that despite the counter-offer, the company remained confident that it would still be able the to lease their minimum contingency acreage for the deal to go through which was 20,000 acres. Apparently, members of the group are at liberty to lease to whomever they choose.

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During September, 2009 a report appeared about about a pending appeal before the Pennsylvania Supreme Court in the Kilmer vs. ElexCo case. A Susquehanna County judge had ruled that ElexCo, et. al. had not been liable when the plaintiff, Kilmer, charged that defendants had failed to pay him the full 12.5 percent royalty required by Pennsylvania law. The defendants, ElexCo, et. al. argued that the lease allowed the company to deduct certain costs and expenses first before paying the royalty including assessments, taxes, and transportation. The plaintiff had appealed the lower court ruling to the Supreme Court. The report noted that the case was being closely watched by other oil and gas companies in the state who might have similar kinds of legal exposure.

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