Appalachia
The Appalachian Basin includes the states of Kentucky, Maryland, New York, Ohio, Pennsylvania, Virginia, West Virginia and Tennessee. The Company’s affiliated drilling partnerships operate, drill, and develop its wells primarily in Pennsylvania, Ohio, New York and Tennessee.
The Appalachian Basin is the most mature oil and gas producing region in the United States, having established the first oil production in 1860. Because it is located near the high energy-consuming regions of the mid-Atlantic and northeastern United States, Appalachian producers have historically sold their natural gas at a premium to the benchmark price for natural gas on the NYMEX. In addition, most of our natural gas production has a high Btu content, resulting in an additional premium to NYMEX natural gas prices. We further believe that natural gas is becoming America’s fuel of choice due to the Federal Clean Air Act Amendments of 1990 and subsequent environmental legislation, which have spurred the increased use of efficient, clean-burning natural gas.
During the first several years of production, Appalachian Basin wells generally experience higher initial production rates and decline rates which are followed by an extended period of significantly lower production rates and decline rates.
Shallow reserves in the Appalachian Basin are typically in blanket formations and have a high degree of step-out development success. This means that as development progresses, reserves from newly completed wells are reclassified from the "proved undeveloped" to the "proved developed" category and additional adjacent locations are added to "proved undeveloped" reserves. As a result, the cumulative amount of total proved reserves tends to increase as development progresses. Wells in the Appalachian Basin generally produce little or no water, contributing to a low cost of operation. In addition, most wells produce dry natural gas, which does not require processing.
Atlas Energy is well positioned in the Marcellus Shale play, which is a black, organic rich blanket shale formation found located throughout most of Pennsylvania, West Virginia and New York. To take advantage of this play, Atlas Energy employs a number of fracturing (fracing) techniques. The Company has drilled approximately 180 vertical wells and 18 horizontal wells through December 31, 2009. The Company controls approximately 519,000 Marcellus acres, of which 266,000 are in core drilling areas.
Almost all of Atlas Energy’s acreage in southwestern Pennsylvania has ample pipeline capacity through Laurel Mountain Midstream, LLC, a joint venture between Atlas Energy’s affiliate, Atlas Pipeline Partners, L.P. (NYSE: APL) and the Williams Companies, Inc. (NYSE: WMB). Laurel Mountain Midstream operates more than 1,800 miles of pipeline in the Appalachian Basin, which is one of the largest active gas-gathering systems in the northeast United States. The Company transports its natural gas in Appalachia through gathering lines operated by Laurel Mountain Midstream, which are situated throughout the areas in which the Company drills. They are readily accessible and are connected to major regional and interstate utility pipelines. Atlas Energy’s relationship with Laurel Mountain Midstream allows the Company to have reliable access to the natural gas markets the Company serves and significantly reduces the capital the Company would otherwise expend to connect its wells to an outside pipeline system.
