Natural gas production out of the Marcellus continues to outshine even the sunniest predictions. Already this year production from the play is up about 50% over last year. This has year-end projections totaling about 3.2 trillion cubic feet, which is the equivalent of 550 million barrels of oil. For perspective, the U.S. imports roughly 300 million barrels of oil each month. What this means is that the Marcellus' production can meaningfully reduce our need for foreign oil as the nation makes the switch to consume more of our own natural gas. Despite the past growth that has gotten us to this point, the future still looks very bright. This is why I believe that the play has the potential to really drive the future returns of the following five stocks.
With an estimated resource potential of up to 49 trillion cubic feet equivalent, or Tcfe, Range is sitting on a simply massive resource base in the Marcellus. Given what it sees, the company is confident that it can grow its production by 20%-25% per year for the next several years. Best of all, this isn't growth at all costs as its cash flow growth is expected to outpace its production growth as its low cost structure is driving returns.
While Chesapeake has been devoting a majority of its capital on its more liquids-rich plays like the Eagle Ford and the Greater Anadarko Basin, the Marcellus is still one of its core plays. In its northern dry-gas-focused area the company was able to grow its production by 58% year over year, while it also enjoyed a 56% year-over-year jump in production in its southern wet-gas portion. With a massive position in the play, Chesapeake is in the position to really benefit from the growth of the Marcellus.
Like Range, EQT believes that it too has massive resource potential in the Marcellus. While the company has just over 4.2 Tcfe of proved reserves on its books, it sees the potential for that to grow to more than 15 Tcfe of reserves as it proves what it really has on its Marcellus acreage. Also like Range, EQT uses an industry-leading cost structure to profit from the play even as natural gas prices remain low. It's these extensive reserves which, when combined with a lost cost basis, that will fuel EQT's growth for years to come.
Cabot Oil & Gas
With a more than a 25-year drilling inventory in the Marcellus, Cabot likewise has a very visible growth runway. Even better, with its super-low-cost basis, and prime position in the play, its rate of return rivals or exceeds all of the top liquids plays in the U.S. at current commodity prices. Which is truly stunning to think about. In fact, its returns are so good that it recently doubled its dividend and it sees significant free cash flow next year which it could use to either accelerate its drilling program or further reward its investors.
Coal producer CONSOL Energy also has a thriving natural gas business, which is fueled by the growth in the Marcellus. It is the growth potential in gas that has CONSOL shifting its coal business away from growth mode and into harvest mode so that it can turn its full attention on gas. Overall, it's planning to grow its gas production by 22%-30% over the next year. If there is one problem, it is that the market still isn't seeing the growth potential of its gas business, which is why the company is considering its strategic options so the market will give it credit for all this growth.
Final Foolish thoughts
The Marcellus continues to develop into a real gem for natural gas producers. Even at current natural gas prices these producers are earning fantastic returns which really bodes well if gas prices rise in the future. Best of all, the play has the potential to reduce our need for foreign oil imports.
The Marcellus is one of the plays driving the record natural gas production that is revolutionizing the United States' energy position. The problem is that not all companies will profit from this change in America's position in the world energy market. This is why the Motley Fool is offering you a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.