About the Natural Gas Industry

The U.S. Geological Service, Mineral Management Service and U.S. Energy Information Administration (the "EIA") estimate that, in 2010, the U.S. possessed over 2,000 Tcf of technically recoverable natural gas resources, representing a 92-year reserve life based on current production levels, an increase of approximately 30% from 2008 estimates of technically recoverable natural gas resources, which is primarily driven by shale gas and other unconventional sources. As total energy consumption increases and the depletion of onshore and offshore conventional resources continues, natural gas from unconventional resources is forecasted to continue to gain market share from higher-cost conventional sources of natural gas.

According to the EIA's Annual Energy Outlook 2011 released in April 2011("AEO2011"), the EIA predicts that shale gas production will continue to increase strongly through 2035, growing almost fourfold from 2009 to 2035. Dry gas production in the Northeast region, the majority of which comes from the Marcellus Shale gas play, increases in the Reference Case nearly five-fold from 2009 to 2035. The report notes that while coal continues to account for the largest share of electricity generation through 2035, the role of natural gas grows due to low natural gas prices and relatively low capital construction costs that make it more attractive than coal. While total domestic natural gas production grows from 21.0 Tcf in 2009 to 26.3 Tcf in 2035, shale gas production grows to 12.2 Tcf in 2035, when it makes up 47 percent of total U.S. production, as compared to only 16 percent in 2009.

Named for the town of Marcellus, New York, where the shale reaches the surface, the Marcellus Shale is a Devonian age (roughly 390 million years old) member of a geological formation known as the Hamilton group. The commercially developable area of the Marcellus Shale, also known as the "fairway," spans approximately 15 million acres across four states (Maryland, West Virginia, Pennsylvania, and New York) at depths ranging from 4,000 to 9,000 feet below the surface. In terms of reserves, Pennsylvania State University’s Terry Engelder, considered by many as the most authoritative figure on Appalachia Basin oil & gas, estimated in 2009 that there may be as much as 2,445 Tcf of reserves in place in the Marcellus Shale. According to the AEO2011, the Marcellus Shale gas play has an estimated technically recoverable resource base of about 400 Tcf. Accordingly, the Marcellus alone could meet the natural gas need of the United States for more than 20 years.

The first commercial Marcellus Shale well was drilled and completed in 2004 in Washington County, Pennsylvania. From 2005 to June 3, 2011, 7,413 Marcellus Shall well permit applications have been issued in Pennsylvania and 3,248 of the approved wells have been drilled. In 2007, 2008, 2009 and 2010, the number of Marcellus Shale wells drilled in Pennsylvania was 27, 161, 785 and 1,386, respectively. According to the Pennsylvania Department of Environmental Protection - Bureau of Oil and Gas Management, as of June 3, 2011, 664 Marcellus Shale wells had been drilled in Pennsylvania year-to-date (as reported by operators). As of April 1, 2011, there were 80 operators active in the Marcellus Shale play.