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Rice, Magnum Hunter Slash Spending in Appalachia

Two more Appalachian operators announced significant cuts to their 2015 budgets this week, adding to a growing list of companies in the region planning to slash year-over-year spending by roughly 40% or more and try to remain flexible as commodities prices remain low.

Appalachian pure-play operator Rice Energy Inc. has cut this year's drilling and completion budget by 40% from 2014 levels. The company said it would spend $890 million overall and estimates it would produce 450-470 MMcfe/d for a 64-72% increase over 2014 net production.

Rice has 84% of its forecasted 2015 gas production hedged at an average of $3.60/MMBtu. The company plans to drill 39 Marcellus wells and bring 26 online. It also plans to drill 12 Utica wells and bring 7 into production.

Rice said it would invest $210 million to continue the build-out of its Ohio gas gathering system and expand its fresh water distribution system there as well. Rice Midstream Partners LP, which holds a majority of the gathering assets in Pennsylvania, has a capital budget of $180 million (see Shale DailyDec. 8, 2014).

In one of the largest spending cuts thus far announced in the region, Magnum Hunter Resources Corp. said it would reduce capital expenditures this year by 75% from 2014 levels. The company said it would spend $100 million this year, with most going toward the Marcellus and Utica shales of Ohio and West Virginia, down from the $400 million in 2014.

"This budget is flexible in that we are limiting capital spending at this time to allow upstream service costs to catch up with the drop in benchmark commodity prices that has occurred over the past several months," Magnum CEO Gary Evans said. "Therefore, we expect that most of this capital will be spent during the second half of the year."

The company has been impacted by various issues for months, which Evans highlighted last month, including an attempt to sell assets in North Dakota, Canada and Texas (see Shale Daily, Jan. 23Aug. 11, 2014). The company has struggled with production setbacks and infrastructure issues that have dented its growth (see Shale DailyDec. 15, 2014Dec. 20, 2013).

Magnum said it would spend $70 million on exploration and production in Appalachia; $20 million on leasehold acquisitions and $10 million on its nonoperated assets in North Dakota. Magnum plans to bring online three Marcellus wells and eight Utica wells this year. The company didn't specify, but it said "a number" of those wells have already been drilled. Plans for the new wells, combined with recent production additions, have Magnum aiming to produce between 29,000-33,000 boe/d this year, up from the estimated 12,000-15,000 boe/d it produced in 2014. 

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