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EVEP to Sell Joint Venture Acreage In Ohio's Utica Shale

EV Energy Partners LP (EVEP) said Monday that it will begin marketing both its operated and non-operated joint venture (JV) acreage in Ohio's Utica Shale next year, where the company believes its efforts with Chesapeake Energy Corp. and Total E&P USA have made clear the asset's value for a successful sale. 

EVEP, a master limited partnership, has previously discussed monetizing some of its Utica assets. The company currently has 880,000 gross acres of overriding royalty interests in the play. CEO Mark Houser said the company will put up for sale 120,000 net acres in January, 55,000 of which are located in the play's top-producing Carroll County.

It remains unclear, though, exactly what other assets will be included in the sale. EVEP has been engaged in tests of the Utica's volatile oil window for sometime now with other industry partners, including Chesapeake, where it holds 81,000 net working interest acres and estimates that between 20-30 million bbl of oil are in place across an overwhelming majority of that land (see Shale DailyJune 27).  Calls seeking clarification from the company were not returned on Tuesday.

Despite the sale of its JV acreage, Houser said the Utica "is still EVEP's biggest lever for value creation" (see Shale DailyDec.17, 2013).

"The play is maturing and expanding with acreage being tested in all directions. With EnerVest's large acreage position, we are participating in wells as far northeast as Mercer County, PA; as far south as Washington County, OH, and as far west as Tuscarawas County, OH," he said of EVEP's controlling general partner. "This should give us even more insight into the advances of technology and the productivity of many areas of the play."

Chesapeake has drilled more than 500 wells in the JV's area of mutual interest, where EVEP said production will approach 800 MMcfe/d by year's end. In Tuscarawas County, management told financial analysts during a call to discuss third quarter earnings on Monday that it has commenced fracturing a volatile oil well with liquid butane and mineral oil in partnership with eight other industry-related companies. Production is expected to commence there in December and Houser said "this is a test of what could be EnerVest and EVEP's most valuable asset in the Utica.

"We're in the middle of the completion operations and have completed five of the 20 stages so far," Houser added. "We're excited but cautious as we are bringing new technology to bear in the process."

Earlier this year, EVEP said fracture design and reservoir quality were particularly problematic in the Utica's volatile oil window (see Shale DailyMay 13).

The company is also moving on a "substantial position" in Ohio's East Canton oilfield in Tuscarawas, Stark and Carroll counties, where more than 4,000 wells have been drilled since 1947.

"EVEP has around 30,000 net held by production acres in this play," Houser said. "Over the past year, EnerVest has undertaken an extensive study on the potential for infill horizontal wells in the Clinton play. We have recently drilled and fracked five horizontal Clinton wells."

Four of those, Houser added, have come online at about 80 b/d with associated gas. The company projects that estimated ultimate recoveries for wells in the field could be up to 150,000 boe and costs for each will be around $2.6 million.

EVEP, which also owns a 21% interest in the Utica East Ohio midstream processing complex, said it would look to monetize that asset next year, as well. Another train is scheduled to come online there this quarter, which will bring total capacity to more than 1 Bcf/d (see Shale DailyNov. 4). Monday's announcements came shortly after EVEP sold its 9% interest in Cardinal Gas Services LLC -- established in 2011 to provide low-pressure gathering services to its Chesapeake/Total JV -- for $162 million to a group of Korean companies (see Shale DailySept. 23).

It also closed on the sale of its Eagle Ford shale rights in Brazos, Burleson and Grimes counties, TX, for $30 million in October. The company has retained Eagle Ford acreage in Lee, Fayette and Washington counties, TX, which it also said would be monetized in the future after the land is de-risked along with other prospects in New Mexico's San Juan Basin.

About 66% of EVEP's proved reserves are still located in Texas' Barnett Shale, which continues to account for a large share of production and capital spending. Last quarter, EVEP produced 175.8 MMcfe/d, up 5% from the year-ago period when it produced 168 MMcfe/d.

CFO Michael Mercer said, for now, oil price headwinds don't have the company concerned, given that about 70% of its production consists of natural gas. Additionally, EVEP has more than 90% of its fourth quarter production hedged and a majority of its natural gas and liquids hedged for 2015.

The company earned $93.73/bbl of oil last quarter, down from the $102.15/bbl it earned at the same time last year, while its natural gas sold for $3.71/Mcf, up from $3.35/Mcf in 3Q2013. EVEP reported net income of $42.6 million (85 cents/share) in the third quarter, up substantially from the $12.3 million loss (29 cents/share) it reported in the year-ago period.

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