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Ramping up is a different formula for each driller

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Article Written by: Anya Litvak

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Oil and gas companies are ramping up again.

It’s not a feverish pace. The handful of Marcellus Shale drillers that discussed their plans with analysts last week described a cautious return to the fields of Pennsylvania, Ohio and West Virginia predicated on the recent rise in natural gas prices, the long-awaited dip in oil and gas production, and the promise of rising demand from industrial projects and exports.

They all vowed to be swayed not by growth targets but by economics; as the market is finding its footing, they’ll drill where it’s the biggest bang for the buck.

The “where” isn’t necessarily a place but a bucket of conditions unique to each company.

For Downtown-based EQT Corp., it’s in the Marcellus and Upper Devonian shales in Greene, Southern Allegheny and eastern Washington counties.

For Consol Energy Inc., it’s mostly in the dry Utica Shale in Monroe County, Ohio, and some in the Marcellus in Washington County.

For Texas-based Southwestern Energy Corp., it’s split among West Virginia, northeastern Pennsylvania and the Fayetteville Shale in Arkansas.

When an analyst asked Southwestern’s CEO why the company isn’t steering all of its activity to West Virginia, where, all things being equal, Southwestern has many more economic locations at current gas prices, Bill Way replied, essentially, that all things aren’t equal.

First, there’s natural gas liquids prices to consider. Southwestern’s wells in northeastern Pennsylvania and Arkansas yield dry gas while its West Virginia holdings have wet gas — rich with ethane, propane, butane, and other heavier hydrocarbons. When natural gas liquids prices are good, it justifies the cost of processing them and selling them separately. Today they’re showing some signs of improvement, Mr. Way said, but don’t warrant all of the company’s attention.

And, there’s the practical matter of where the company currently has the permits to drill.

On its call with analysts last week, Texas-based Range Resources Corp. said it has permits to drill 42 horizontal wells from pads it has already built, which allows the company to cut down on time and costs when choosing its next targets.

“Consider in Pennsylvania the cycle time for a grassroots multi-well pad and all the permitting that goes with it — civil engineering, environmental permitting and title can take a long time,” said Ray Walker, Range’s chief operating officer.

Until recently, Range’s decisions were also guided by the task of securing certain leases. Gas leases are typically valid for as long as a well is producing, so many companies factor lease expirations into the development schedules.

Range, however, will be mostly free from those concerns at the end of this year, Mr. Walker said.

“We’re always trying to allocate our capital to the very highest return wells,” he said last week. But the company also considers if there are enough gathering pipelines to get that gas to market, and whether there is space on interstate transmission lines to get Range’s gas out of Pennsylvania and into markets where prices are better.

When Cecil-based Consol announced it would be starting two rigs in the second half of the year, COO Tim Dugan said the company ranks opportunities by their rates of return, the infrastructure available to service them and the end markets.

It also considers how it will split its capital between areas where Consol is drilling alone versus where it has joint venture partners. The company has two partnerships. One is with Texas-based Noble Energy in the Marcellus in Pennsylvania and West Virginia. The second is with Hess Corp. in the Utica in Ohio. In areas covered by these joint venture agreements, Consol and its partners share the cost of drilling, although its agreement with Noble is structured so that Noble doesn’t have to pay its obligation until U.S. natural gas prices are above $4.

The company also looks at the balance between dry gas and wet gas, he said.

“There’s not necessarily a hard split or percentage that we try to maintain, but we do prefer diversification,” Mr. Dugan said.

For EQT, the decision to add 30 new Upper Devonian wells along 33 new Marcellus wells in Pennsylvania stems from the company’s belief that the Upper Devonian is “basically a use it or lose it play,” said Steve Schlotterbeck, president of exploration and production.

“If we don’t co-develop it at roughly the same time as the Marcellus, we think that reserve will effectively be lost,” he said.

The two layers are so close to each other that fracking the Marcellus will, overtime, suck enough gas out of the Upper Devonian to make drilling into it uneconomic, the company believes.

Deciding where to drill next can even be as simple as where you left your rig.

Some of Southwestern’s new wells will pick up where the company left off when it halted drilling and completions in the winter. Where rigs were left on pads that grew quiet, expect some noise as the industry ramps up again.

Tags: oil, natural gas, gas, energy

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Article Written by: Anya Litvak

Click HERE to Read the Article by the Original Publisher.

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