ACTION STATEMENT
Over the past several months, we have visited with most of the major (publicly traded) companies involved in the Marcellus Shale,
and have spent quite a bit of time with each companies' operating personnel, including time spent in regional Appalachia offices and
Marcellus Shale drill sites. Earlier this week, we attended the Developing Unconventional Gas East (DUG East) Conference in
Pittsburgh, which focused entirely on the Marcellus, where there was an attendance of ~1,500 industry personnel and
investors/analysts (more than triple the expected attendance). In addition, we hosted Atlas Energy, Inc. (ATLS-NASDAQ) in New
York visiting with investors for two days last week, and also went to ATLS's corporate office in Pittsburgh following the DUG East
conference, spending a great deal of time with the Company's operations team, including geologists, completions and drilling staff,
as well as environmental/regulatory personnel. All in all, we came away from our meetings and due diligence more impressed and
confident in the size of the resource potential and more importantly the economic potential of the Marcellus Shale play (and possibly
beyond in other formations). Following our numerous meetings with industry personnel and doing quite a bit of due diligence on
multiple fronts, we have put together a comprehensive report on the Marcellus Shale, including the history, geologic characteristics,
economics, broader economic impact, industry activity, challenges, and company-specific activity relating to the Marcellus, as well
as the exposure and leverage of E&P operators (both in our universe and peers).
We believe the Marcellus Shale may just turn out to be the largest and most economic natural gas field in the United States. In
August 2009, Penn State University published a report implying that the Marcellus Shale play holds technically recoverable reserves
of approximately 700 Tcf, which is 2.8x the 251 Tcf of technically recoverable reserves estimated by the DOE for the Haynesville
Shale. Assuming an average EUR of 4.0 Bcfe per well and $3.5 million drill and complete costs, our base case type curves generate
an average IRR of ~23% at $3.00/Mcf and an average IRR of ~115% at $7.00/Mcf, making the Marcellus one of the most economic
of the prominent gas shale plays (Haynesville, Barnett, Fayetteville and Woodford).
The Marcellus Shale has been a known gas reservoir for more than 75 years. However, until recently, E&P companies were unable
to produce economic quantities of gas from the shale and the industry largely ignored the resource base. Over the last several
years, technological breakthroughs in horizontal drilling, fracture stimulating and completion methods that were developed in the
Barnett and other shale plays have been applied to the Marcellus. While many in the industry are contributing to the early "new era"
development of the Marcellus, ATLS and Range Resources Corporation (RRC-NYSE) are the clear leaders in the southwest portion
of the play and Cabot Oil & Gas Corporation (COG-NYSE) is the leader in the northeast. RRC has been a first mover in the play,
and in 2004 performed a slick-water frac on the Renz Unit #1 in Washington County, Pa., establishing the first commercial
production from the new era Marcellus Shale play. Since then, a total of approximately 2,830 Marcellus wells have been permitted
and roughly 900 wells have been spud (in Pennsylvania and West Virginia). We expect activity to remain relatively steady in the
current price environment and to pick up significantly when natural gas prices strengthen.
Like any other large, emerging resource play, the Marcellus presents unique challenges. Difficulties for operators include the
infrastructure buildout, water acquisition and disposal, regulatory and environmental issues, and rough terrain. However, with the
prize so large and the expected returns on investment so compelling relative to the other plays, we expect the industry to meet and
overcome each challenge and turn the Marcellus Shale into a very significant natural gas producing play.