Compare and contrast: Australia’s most famous natural gas project, operated by a subsidiary of Chevron Corp., is the largest single development in that country’s history. More than 90% complete, it is saddled with a budget-numbing, estimated price tag of $54 billion.

Now consider North America’s identity-challenged shale gas play known as the Burket (in West Virginia and most of Pennsylvania), the Geneseo (in northwest Pennsylvania and New York) and the Upper Devonian (for those seeking a simple description that says, “not the Marcellus.”)

Offshore Gorgon offers a hefty 35.3 trillion cubic feet (Tcf) of reserves. Appalachian Burket more than triples that, with recent estimates ranging toward 120 Tcf, or three times the accepted definition of a supergiant field.

Feel better about North America’s long-term ability to compete on a global scale?

True, low commodity prices hinder the Burket’s development over the near term.

“The downturn in the Northeast has caused a lot of companies to re-evaluate how they view the Burket Shale,” Gregory Wrightstone, Pittsburgh-based geologic consultant at Wrightstone Energy Consulting, told Midstream Business. “What we’re going to see is actually a move away from development of the Burket-Geneseo except for some selected areas and selected companies, because these companies will want to focus and get the best bang for their bucks with capex dollars and drill only the very best rates of return.

“With the Marcellus, E&P costs being about the same for the Burket,” he continued, “Marcellus has much higher estimated ultimate recoverable and rates of return than what the Burket provides.”

Imperfect, but doable

It’s tough to compete against a megaplay like the Marcellus but as recently as last spring, the Burket hosted some 85 horizontal wells, with another 99 either being drilled or awaiting completion, according to Wrightstone data. Nineteen companies were active, mostly in the southwest part of the play.

Among the advantages the Burket presents is its stacked pay potential, in which several geologic zones of varying depths offer the possibility to exploit hydrocarbon reserves. The organic-rich mudstone that makes up the Burket lies above the Tully Limestone and is between 50 feet and 800 feet above the Marcellus formation. Thickness varies from a few feet in western West Virginia to more than 150 feet in the area of its deepest deposit in central Pennsylvania. Wrightstone’s research also points to rock quality that is significantly over-pressured, a trait that should enhance production capabilities.

The geology is not perfect. Wrightstone noted that the Burket’s structural complexity, similar to the Marcellus, is a liability when it comes to maintaining production performance. The traits of the rock complicate geosteering, or the practice of quickly adjusting the borehole position to reach a target. Adding to the driller’s burden is that the Burket is much thinner than the Marcellus. Sticking to the sweet spot may force drillers to rely on rotary steerable drilling, an optimized system that is the fastest-growing segment of the directional drilling market.

A rotary steerable system (RSS), originally developed for offshore operations, places the rotation of the drill pipe closer to the bit in long laterals and horizontal wells, according to industry sources. The steerable component allows the driller to adjust the system where needed. Some versions of RSS employ a mud motor to provide more power to bit. The system utilizes instruments to determine the orientation of the bit, and it is able to provide much more control to the driller than previous technologies.

This type of advanced system enhances production efficiency but, needless to say, it’s also more costly. And cost is killing the Burket.

Pivoting away

In discussing long-term strategy with analysts during the EQT Corp. third-quarter earnings conference call, David L. Porges, chairman, president and CEO of the Pittsburgh-based company, touched on the emerging potential of the neighboring deep Utica play and the encouraging results experienced to that point. If the Utica wells succeed—that is, if they can deliver returns that beat those from core Marcellus wells—then EQT can potentially add significant resources to its inventory. That expectation, Porges said, would require natural gas prices to continue to be low.

“As a result, some of our other inventory that requires higher prices to make economic returns would be deferred possibly for many years,” he said. “So, while those of us … who have significant position in the core of the deep Utica will be the winners, if you will, the cannibalization of other opportunities will affect everyone including those of us who will net-net be much better off if the deep Utica play does work economically.”

“Other opportunities” means wells where the after-tax returns surpass investment by a relatively thin margin, Porges said, before making his intentions more direct:

“As a result, we are suspending drilling in those areas such as central Pennsylvania and Upper Devonian play that are outside that core,” he said. “This decision will affect our 2016 capital plan though we are just starting to develop the specifics of the 2016 drilling program that forms the core of that plan. The focus in 2016 will be on this more narrowly drawn notion of what the core Marcellus would be, assuming the deep Utica play works.”

The company’s forecasted $1 billion capital expenditure budget for this year—about 56% below last year’s projected $2.3 billion—covers plans to drill 72 wells in the Marcellus with an average lateral length of 7,000 feet, all on multiwell pads. By comparison, EQT expected to drill 181 wells in the Marcellus and 58 in the Burket in its 2015 operational forecast. In the Utica, EQT plans five deep wells (average of 5,200 feet) and, depending on those results, perhaps five more.

EQT is not the only Burket player to suffer a loss of enthusiasm. Pittsburgh- based Consol Energy Inc. drilled its first well in the play in mid-2013 to much fanfare in southwest Pennsylvania.

It’s now on hiatus.

“As part of our development plans moving forward, we plan to lay down all of our operated rigs starting in the third quarter of 2015 through 2016,” Tim Dugan, Consol’s COO, told analysts during a second-quarter conference call.

Consol’s strategy incorporates higher production growth targets. To reach them without benefit of drilling, the company relies on enhanced midstream technology. In its core area of the Marcellus Shale, Consol initiated a program to decrease line pressure and debottleneck the field. The company also installed looping lines. Looping refers to the construction of parallel lines in natural gas fields—less common in oil fields—to increase flow rates. Other elements to drive additional production include additional compression.

“These improvements will occur in incremental steps over the next 18 months,” Dugan said, assuring analysts that Consol “will exit 2015 with a moderate inventory of wells in process and a strong position for rapid growth in the second half of 2016 or 2017 when market conditions warrant.”

Unhappy trend

While waiting for the market to recover, Consol cut $200 million from its 2015 capital spending and expects to spend between $400 million and $500 million on capital expenditures this year. The Upper Devonian Shale play, a natural gas supergiant, has been marginalized by the numbers.

“The focus right now, for many of these companies, is just to develop their best resources at the best margins possible, which means that it’s going to be very difficult for many companies to challenge the Marcellus and Utica in the core areas,” Wrightstone said. Publicly owned companies have little choice as a result of their responsibilities to shareholders.

EQT reallocated its capital in fourth-quarter 2015 as stubbornly low commodity prices refused to relent, but Bloomberg Intelligence analysts perceive that 15% to 20% volume growth is achievable this year. Bloomberg expects the growth of EQT’s midstream unit to bolster its upstream revenues.

Zacks Investment Research is less inclined to focus on the silver lining, though it admits that EQT’s third-quarter 2015 revenues of $577 million handily beat its estimate of $437 million. Of greater concern was the per-share loss of 33 cents, which surpassed the estimated loss of 22 cents and was well off the quarterly earnings of 51cents per share a year earlier.

Then there is the matter of the unit price, which had lost one-third of its value by the middle of the fourth quarter in the previous 12 months and skidded under $60. The market capitalization, which ascended past $13.5 billion in 2013, slipped below $9 billion near the close of last year’s trading.

The company’s stock market struggles are tied to the industry’s commodity market struggles. Despite its reigning in of costs and adoption of efficiencies in the field, EQT’s reliance on upstream operations makes its profit margin beholden to natural gas prices, hence a sharp decline in revenues and earnings year over year.

“With natural gas prices remaining weak, this trend is likely to continue,” Zacks observed.

EQT is also bound to Appalachia. While the Burket has been abandoned for a concentration on sweet spots in the Marcellus and promising new wells in the Utica, the lack of geographical diversity increases the company’s exposure to risk should the region experience disruptions.

Finally, the share price won’t grow unless the company shows that it can coax its production to grow. That depends on continued development of resources, Zacks noted, but drilling in the deeper regions of shale plays is technically challenging and therefore more capital intensive. That puts into question EQT’s ability to widen its margins while under increased financial pressures.

Reversal

If EQT has suffered, Consol has experienced a catastrophic reversal, with its stock shedding more than 80% of its value. By comparison, Swank Capital’s Cushing Upstream Energy Index, which tracks the performance of U.S. E&P companies, lost 65%.

Consol’s troubles transcend the price of gas. Zacks raised concerns that much of the company’s revenue depends on a handful of customers who purchase coal in bulk. Contracts with 30 of these customers are set to expire between now and 2028, forcing Consol to renew those contracts or endure a significant challenge to operational performance.

However, renewing those contracts links the company to coal for the foreseeable future. With 93% of Consol’s 2014 production derived from underground mines, the company is at risk from safety issues.

But it’s the Clean Power Plan announced by President Obama and the U.S. Environmental Protection Agency that poses perhaps a greater long-term threat to the company’s fortunes. The plan is designed to reduce carbon pollution from power plants and is expected to encourage a trend away from coal-fired plants toward gas-fired facilities. A company like Consol, that generates 55% of its revenues from coal mining operations, would need to adjust its business model at some point.

Analysts who follow Consol betray little confidence. The company’s market capitalization tumbled from more than $8.7 billion in 2013 to less than $1.8 billion in fourth-quarter 2015. Debt makes up about two-thirds of its enterprise value. Recommendations to hold or sell comprise 56.5% of the analysts’ total.

In late November, Bank of America Merrill Lynch lowered its price target for Consol to $6 from $7 (its price in November 2014 was over $40). The analysts project both coal and natural gas prices to decline and don’t expect an energy market recovery until late this year. The market prices of oil and gas, they believe, will remain stressed through 2017.

Complications

The outlook for the Burket remains positive because, at the end of the day, the play remains classified as a super-giant gas field. It just happens to be located atop one of the greatest concentrations of hydrocarbons on the planet.

That location has convoluted the fate of a play with more gas reserves than Iraq.

For one, it deprives the Burket of a share of the great midstream buildout. The infrastructure is already there.

“The Burket lies almost on top of the best areas of the Marcellus,” Wrightstone said. “You would use the same midstream pipelines to get the Burket to market as you would the Marcellus.”

And it establishes a timing issue: Because the Burket is geologically above the Marcellus, developing the formation below makes it harder to develop the formation above later on because of the impact from hydraulic fracturing. Economics, however, demand that producers do just that.

“There’s certainly a strong possibility that later development of the Burket may be impacted negatively by developing the Marcellus now,” Wrightstone said, adding that companies intent on restoring balance sheets and stock prices are compelled to pursue areas that promise higher margins.

But if the Burket experiences a bypass today, its prognosis for a return to health is a strong one.

“Long-term outlook for the Burket, if we’re looking at 30 years perhaps or 20 years, is still good,” Wrightstone said. “It’s an extremely significant resource.”