The following article was written by MDN friend and prolific contributor of links and story ideas, Chris Acker. Chris splits his time between Montrose, PA (in Susquehanna County) and Savannah, GA. Here is his biography from the Seeking Alpha website:
Christopher Acker, Geological Engineer with an MBA, grew up in the oil fields of Venezuela where his father, a petroleum engineer, was a drilling contractor for all the major players, onshore and off. Chris’ interest in energy economics and policy found him working for Exxon, Petroleum Industry Research Associates and Petroleos de Venezuela. He bought a parcel of land in the PA countryside twenty-five years ago and later semi-retired to work on antique pianos. See www.PianoGrands.com. A few years ago, it was established that Chris’ property in Susquehanna County sits atop one of the Marcellus shale’s most prolific areas. He is now happily engaged once again in energy economics, with emphasis, naturally, on gas.
Here is Chris’ thoroughly researched, extensively footnoted, superb analysis of Susquehanna County’s potential Marcellus Shale natural gas yield…
Susquehanna County Resource Potential – Whole Lotta Gas Goin’ On
Last month I wrote a piece on the natural gas industry in Susquehanna County, Pennsylvania, highlighting some of the benefits accruing to the community. However, it only touched upon the magnitude of the long-term economic opportunity.
This got me thinking about the overall size of the Susquehanna “Marcellus play” and how it might be reasonably estimated. To be fully transparent, I will detail the variables involved, the sources I used and my rationale. With assumptions clearly stated, the reader can decide if my conclusions are valid. Moreover, some may wish to substitute their own inputs and calculate their own results.
Please note: this article addresses only the magnitude of the Susquehanna County Marcellus play. It does not address the merits or demerits of the industry. That is another long and complicated matter.
Estimating the scope of our local Marcellus play is somewhat analogous to the exercise cosmologists undertake to get an idea if there might be intelligent life in other parts of our Milky Way galaxy. It involves a series of multiplications based on best available information.
Similarly in our terrestrial case, we begin with hard numbers and then use historical data as a guide in the analysis. In essence, we take surface area and multiply by the number of wells drilled in that area times production times price to arrive at a dollar figure. As you shall see, Marcellus economic potential in Susquehanna County could be large, huge or gigantic. All the figures are detailed in the table toward the end of this paper.
Drilling in the area will last decades, provided future drilling activity is allowed. This is likely as Pennsylvania was the first state with a commercial oil well, Drake’s 1859 venture, and has been continuously associated with the extractive industries of natural gas, petroleum and coal.
To begin our analysis, we have three incontrovertible facts. 1) The surface area of Susquehanna County is 832 square miles. 2) The Marcellus shale underlies it all and is relatively thick, and 3) The 2010 Census tallied 43,356 inhabitants.   
To develop a range of how much total recoverable natural gas underlies Susquehanna County, we must multiply an assumed number of horizontal wells per square mile times the county’s surface area, or 832 square miles. This gives us a maximum well total. Naturally, not every inch of the county will be drilled, so this maximum will be scaled back 20 to 50% to provide a high/low range.
Royalty “units” are generally on the order of 640 acres (one square mile) and typically run one-half by two miles. This allows mile long horizontal “laterals” to be drilled in either direction extending from a centrally located pad. The number of wells per pad to develop a field usually ranges from about four to as many as ten in a densely configured program.
Each well will have an associated “estimated ultimate recovery,” or EUR in natural gas lingo. A whole science is built around this determination as gas volumes may be economically produced for twenty, thirty or more years. Production, however, is front loaded, and half a well’s EUR may be recovered in the first few years. Production over time is graphed as a “decline curve,” and it is this curve that allows long-term volumes to be estimated using a relatively short period of actual up-front data.
EUR’s are serious business in any energy company’s financial reports. They are an indication of the firm’s underlying (literally) wealth and often audited by outside engineering consultants. Intentionally misrepresenting EUR’s is a prosecutable offence, so the values companies provide can be accepted with some confidence.   
The two largest participants in Susquehanna are Cabot and Chesapeake, followed by Southwestern, Carrizo, Chief and Williams (WPX). A fine source of current information can be found in the presentation recently made by Cabot at an energy conference. They cite 200,000 leased acres (about 300 square miles), or 38% of the county’s surface area. Moreover, they indicate a potential of 3,000 drilling locations – a tight spacing of ten wells per square mile. Importantly, average EUR’s per well have steadily increased from 5 bcf (billion cubic feet) in 2008 to 14 bcf in 2012. This remarkable growth has been due to many factors including improved drilling techniques and advancing technology.
Some industry analysts question these substantial EUR’s, especially when compared to shale gas plays in other parts of the country. Susquehanna County, however, is fortunate to sit atop a thick, prolific portion of the Marcellus, or “sweet spot.” Note, though, that most of the drilling has taken place in the southern portion of the county and there are some indications that EUR’s toward the NY border to the north may not be as large since the formation thins in this direction. Nonetheless, several years of hard production data and decline curve analyses substantiate the EUR’s stated by the companies in all county areas.
A wealth of information may also be had on www.MarcellusGas.org. For instance, about 1,200 wells are currently permitted in the county. Another 700 are started and at least 425 are producing. Recent permits are now averaging around 300 annually with 200 well starts per year. (Not all permitted wells are drilled right away.) Through 2012, 715 billion cubic feet have been cumulatively produced generating $2.4 billion in wholesale revenues. Estimated royalties paid total $300 million. This is based on a statutory minimum of
12½%. However, royalty rates have been climbing, and Cabot uses a 15% rate in its financial projections.
The table highlights three levels of potential gas production over the life of the Susquehanna Marcellus play. The “low” scenario, at 10 trillion cubic feet (tcf), is conservative and likely a floor to the resource potential. The “medium” scenario is quite achievable, yielding 30 tcf over the next 20+ years. The “high” column is the most one could reasonably anticipate under very optimistic assumptions, and moreover, would take decades to achieve. Note that 100 tcf is a gigantic amount, representing four years of total US demand which is currently around 24 tcf per year.
Also note that the Marcellus shale encompasses 96,000 square miles or so and that estimated recoverable reserves for the entire formation are controversial and vary widely. For instance, the federal Energy Information Administration pegs it at 141 tcf (revised downward from 410 tcf). This value is derided by many in industry and academia, and in point, some Penn State estimates place reserves at 400 to over 1,000 tcf. In any event, reserves in the total formation are not the concern of this analysis. We know that Susquehanna County sits upon a particularly prolific sweet spot. Current EUR data would indicate that the middle scenario is quite defensible.  
In our next step, we seek to determine the total dollar amounts that may be generated. All we need to do is predict the price of natural gas in the years to come. As a wise man once said: “To prophesy is extremely difficult – especially with regard to the future.” We are fortunate, though, that cost of production parameters can guide us to a reasonable floor and we can guesstimate a high level.
Natural gas is commonly priced in dollars per thousand cubic feet (mcf). Before increases in supply from the “shale revolution,” wholesale prices spiked at $13/mcf in July, 2008 and then plummeted to just below $2/mcf in the spring of 2012 as excess gas glutted the market after a particularly warm winter. This in turn made it uneconomical for many to drill, and the number of operating rigs dropped by half. Prices rebounded a bit and remained in the mid-3 dollar range for the second half of 2012 and recently touched $4. Most industry analysts place a pricing floor of around $3/mcf. At this level, drilling slows dramatically with subsequent lower production.
Over the longer term, however, some forecasters indicate a top price of $8/mcf could be sustained as demand increases due to: the continuing switch from coal to gas to generate electricity and conversion of trucks and train locomotives from diesel to gas; petrochemical industry growth; domestic manufacturing expansion; conversion by homes and commercial facilities to gas from fuel oil; pipeline exports to Mexico and Canada, and; tanker exports globally in the form of liquefied natural gas. 
Consensus seems to be that $4 natural gas is a good price to use for baseline forecasts. I use $8 in the “high” column since it is a plausible upper bound.        
It is a given that price prediction far into the future is at best imprecise. However, no matter what reasonable values we plug in, the cumulative revenues generated are enormous – many many billions. Multiply these gross revenues by a royalty rate and you get cash to landowners. Our middle scenario generates $18 billion in royalties, likely paid over twenty or thirty years. The upper end appears too large to fathom. Divide these distributions by population and you get a rough idea of per capita royalties over the lifetime of the play.
Please note, royalties are now and will continue to be highly skewed in favor of large landholders, naturally, since payments are based on acreage. Moreover, a fair portion of deeded acreage belongs to folks who do not live in the County. To reemphasize, the per capita estimates are for illustrative purposes only and do not imply an even or necessarily equitable distribution.
These numbers are quite astounding at any level. Susquehanna County is already producing about 1 bcf/day and on track to produce 2 to 3 bcf/day in the next few years. This places output in the range of our middle scenario. Currently, flat-out production is limited by take-away capacity (i.e. pipelines), but necessary infrastructure is now being built or in approval phases.
It is quite likely that some youngsters in kindergarten today will see their children, and maybe even their grandchildren, involved in the Susquehanna County natural gas industry.
 Energy in Depth – NMI (Mar 4, 2013) – The Marcellus Natural Gas Revolution is More Than Just Money
 Wikipedia (accessed Apr 3, 2013) – Drake equation
 Wikipedia (accessed Apr 3, 2013) – Drake Well
 Wikipedia (accessed Apr 3, 2013) – Susquehanna County, Pennsylvania
 Wikipedia (accessed Apr 3, 2013) – Marcellus Formation
 Geology.com (accessed Apr 3, 2013) – Marcellus Shale – Appalachian Basin Natural Gas Play
 Penn State Extension (accessed Apr 3, 2013) – Marcellus Shale Thickness Map [Zoom]
 Seeking Alpha/Richard Zeits (Mar 11, 2013) – Marcellus Shale: 10 Bcf Per Day In 2013
 Seeking Alpha/Richard Zeits (Mar 12, 2013) – Paradigm Shift In Natural Gas: U.S. Exporting To Canada
 Seeking Alpha/Richard Zeits (Feb 28, 2013) – Giant Well Parade In Susquehanna: Cabot Oil & Gas’s 20 Bcf Wells
 Seeking Alpha/Richard Zeits (Jan 31, 2013) – Marcellus Shale: What Do Gas Producers Say About The Play’s Economics?
 Cabot Oil & Gas Corporation (Mar 18, 2013) – Investor Presentation – Howard Weil Energy Conference (PDF)
 U.S. Energy Information Administration (accessed Apr 3, 2013) – Natural Gas Consumption by End Use
 AP/The Scranton Times Tribune (Oct 22, 2012) – Marcellus Shale reserves larger than expected
 Penn State University – Marcellus Center for Outreach & Research (accessed Apr 3, 2013) – How Much Natural Gas Can The Marcellus Shale Produce? (PDF)
 InvestorPlace/Aaron Levitt (Nov 2, 2012) – A Far More Muscular Marcellus Shale Beckons
 Charlotte Observer (Apr 2, 2013) – European businesses flock to U.S. for cheap natural gas
 U.S. Energy Information Administration (accessed Apr 3, 2013) – Natural Gas Weekly Update
 U.S. Energy Information Administration (accessed Apr 3, 2013) – U.S. Natural Gas Wellhead Price
 Bloomberg (Mar 28, 2013) – U.S. Baker Hughes Gas Rig Count Declines to Near 14-Year Low
 Seeking Alpha/Richard Zeits (Oct 26, 2012) – Natural Gas: The Tricky Craft Of Counting Drilling Rigs – Part I
 Seeking Alpha/Richard Zeits (Nov 5, 2012) – Natural Gas: The Tricky Craft Of Counting Drilling Rigs – Part II
 U.S. Energy Information Administration (accessed Apr 3, 2013) – Short-Term Energy Outlook
 Forbes (Mar 24, 2013) – My Prediction Was Wrong: Why We Didn’t Get To $8 Natural Gas
 The Motley Fool (Mar 31, 2013) – Can the Natural Gas Rally Continue?
 Seeking Alpha/Richard Zeits (Apr 4, 2013) – Natural Gas: What A Difference A Year Makes – Analysis, Outlook, Statistics, Catalysts