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Eclipse Sets Sights on Two-Rig Program, More 'Super Laterals' As Outlook Improves

After reviving its idled drilling program, increasing this year's capital expenditures and starting work again on its drilled but uncompleted (DUC) wells during the second quarter, Ohio pure-play Eclipse Resources Corp. said Wednesday its recovery could gain significant speed by mid-year 2017.

The company is currently running one rig on its dry gas Utica Shale acreage and working down its 20-well DUC inventory in the condensate window. After increasing its full-year guidance in June to 205-210 MMcfe/d, Eclipse again raised its exit rate on Wednesday to 225-230 MMcfe/d (see Shale Daily, June 29). Even with a one-rig program, the company is targeting year/year 2017 production growth of 30%. But if gas prices continue to move higher, and the company has adequate liquidity, management said it could add another rig by mid-2017.

"We would very much like to be going to two rigs next year, however, I think there's two triggers for that to happen," said CEO Benjamin Hulburt. "One is the financing of that rig so that we don't have to draw our revolver or the balance sheet. It would require either a noncore acreage sale or some other type of joint venture. At this point, we aren't looking at the traditional joint venture-type capital. We're really more focused on the noncore acreage sale."

Adding a second rig next year, Hulburt said, would also depend on stronger forward gas prices in 2017 and 2018, as well as the company's ability to hedge.

While Hulburt said the company is open to a farm-in across some of its acreage, Eclipse is currently working to divest 8,000-10,000 noncore acres to boost its liquidity. It has 102,000 net acres in the Utica and another 13,000 net acres prospective for the Marcellus Shale. An equity offering during the second quarter raised $123 million. Those funds, combined with increased revenue from more production at higher prices, are expected to fully fund next year's drilling program.

In the first quarter, the company turned inline its Purple Hayes 1H well in the Utica condensate window in Guernsey County (see Shale Daily, May 5). Completed with an 18,544 foot lateral and 124 stages, that well has produced 1.2 Bcfe and shown modest pressure declines of 45 psi/week. Based on those results, the estimated type curve is 19.7-22.2 Bcfe.

"Moving forward, we are continuing to design our drilling program to extend our lateral reach across all our units on our acreage position," Hulburt said. "As a result, our current expectation is that our average lateral in 2017 will be approximately 14,000 feet, which will focus predominantly in the dry gas portion of our Utica Shale acreage."

Management has said it drilled the Purple Hayes to test the limits of its acreage, reduce drilling and completion costs per foot and improve well economics. The company expects to ultimately drill longer wells and has said the techniques employed on the Purple Hayes could translate to other wells.

The company has plans for two similar "super laterals" next year in the condensate window if oil prices permit them. It also plans to test more Marcellus wells in the dry gas window this year. COO Thomas Liberatore said the company is testing some of what it learned from the Purple Hayes as it works down its DUCs, using higher proppant loads and tighter stage spacing.

Eclipse produced 236.1 MMcfe/d in the second quarter, up from 201.1 MMcfe/d in 1Q2016 and 198.6 MMcfe/d in the year-ago period. Second quarter production moved higher on a revision to nonoperated volumes that added 24 MMcfe/d. Before it restarted drilling in the second quarter, Eclipse had curtailed its volumes to keep full-year production flat with 2015 levels at around 200 MMcfe/d (see Shale Daily, Jan. 5).

Firming gas prices did not catch up with Eclipse during the quarter. Its average realized price, including hedges, was $2.42/Mcfe, compared with $3.82/Mcfe it reported a year earlier. Revenue was down as a result to $47.1 million from $74.5 million.

Eclipse reported a net loss of $73 million (minus 33 cents/share), compared to a net loss of $42 million (minus 19 cents) in 2Q2015. Stay up to date on 2Q2016 earnings and projections for the remainder of the year with NGI's Earnings Call and Coverage sheet.

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