Market encouraging northeast US drilling: Consol
Houston, 31 January (Argus) — Independent producer Consol Energy said fundamentals for natural gas production in the northeastern US are improving enough that the company will average three new wells each month in 2017.
During its third quarter earnings call in November Consol was still focusing on lowering expenses and remaining agile amid low natural gas prices. Prices had recovered from the 17-year settlement low in March 2016 of $1.65/mmBtu, but the company remained cautious even with prices reaching as high as $3.34/mmBtu in October.
While the producer is looking to sell somewhere between $400mn and $600mn in assets, its caution last year seemed to give way to confidence in the fourth quarter earnings call today, in which chief operating officer Tim Dugan said he was "encouraged by market conditions."
Low rig counts in 2016 have cut supply in the region and "based on storage withdrawals and a lack of strong response to prices we believe supply has finally been reduced to a level that supports pricing," Dugan said.
The company is currently operating two rigs in the dry-gas portion of the Utica shale in Monroe County, Ohio, but plans to move those units to southwest Pennsylvania to drill some new Marcellus shale wells. That will be followed by more drilling in the deep, dry-gas Utica in Westmoreland County, Pennsylvania.
In November the company plans to add a third rig in the Marcellus in Allegheny County, Pennsylvania. Along with averaging three wells drilled per month, Consol intends to complete six wells each month, drawing down its inventory of drilled-but-uncompleted wells. The company will begin turning new wells on line in late March, with more coming on line in May.
But the company is considering how regulatory challenges for pipeline expansions could be an obstacle to production growth in the coming months. Unforeseen developments at the US Federal Energy Regulatory Commission (FERC) have created some uncertainty, Dugan said, likely referring to last week's resignation of FERC chairman Norman Bay.
The company is expecting an additional 10 Bcf/d of capacity in the region to be in service by the end of 2017. Should there be further delays, however, Consol can rely on regional basis hedges to protect its basis and cash flow, Dugan said.
The company produced 1.1 Bcf/d of natural gas equivalent (Bcfe/d) during the fourth quarter, up by 6pc from the year earlier.