The US Geological Survey has released a new estimate of the amount of undiscovered natural gas in the Marcellus shale deposit. The original USGS estimate, made in 2002, projected a total of 2 trillion cubic feet of natural gas in the Marcellus. The agency raised its estimate by a factor of more than 40, but the new figures fall short of the current estimate.

Following the 2002 USGS estimate,the US Department of Energy projected that the total amount of gas in the Marcellus shale plat at 410 trillion cubic feet. The USGS now estimates about 84 trillion cubic feet of natural gas in the Marcellus shale formation that runs from Tennessee to New York. The low-to-high estimate from the USGS for the Marcellus shale is 43 to 144.1 trillion cubic feet. Anyway you look at it, these are still huge numbers.

Among the major natural gas firms working in the region are Chesapeake Energy Corp. (NYSE: CHK), Range Resources Corp. (NYSE: RRC), Cabot Oil & Gas Corp. (NYSE: COG), and Goodrich Petroleum Corp. (NYSE: GDP).

Range Resources, Cabot, and Goodrich received subpoenas last week from the Attorney General of New York seeking details on how the companies value their natural gas reserves. The issue revolves around how much gas the companies estimate that they will produce over the life of a well.

There’s little argument over the profile of a hydraulically-fractured well’s production. These wells reach peak production very quickly, usually within a year, and then rapidly decline. Conventional gas wells take longer to reach peak production and decline much more slowly.

The impact of the new USGS estimate could affect the way these companies, and others, calculate their reserves. Following a change to SEC rules on how reserves are estimate, natural gas producers are now allowed to calculate reserves based on drilling plans, not on actual well data from nearby wells. Depending on how much gas is estimated to be present in the drilling area, a company’s reserve estimate — and valuation — could rise or fall dramatically.

If a company used the 410 trillion cubic feet estimate in any of its calculations, those estimates will very likely have to be revised downward. And because oil & gas company valuations depend heavily on reserves, there could be some nasty surprises ahead for shareholders.

Shares of Chesapeake are up about 0.8% in the late afternoon today, at $29.89, in a 52-week range of $19.68-$35.95. Range Resources’ shares are up about 0.6%, at $59.57, in a 52-week range of $32.25-$67.33. Cabot’s shares are off about -0.8%, at $69.64, in a 52-week range of $26.62-$78.94. Goodrich shares are up more than 1%, at $15.10, in a 52-week range of $10.54-$23.80.

Paul Ausick