Rosetta Resources Inc. will be dropping more than 90% of its $640 million 2012 capital budget in the Eagle Ford Shale of South Texas, the Houston-based company said Monday.
About $590 million is to be spent on activities in the liquids-rich window of the Eagle Ford, which is the largest producing area in the Rosetta portfolio. Spending will be funded by cash flow and borrowings, Rosetta said.
"Our 2012 budget reflects the continuing success of our Eagle Ford program that has resulted in strong growth in production and reserves while generating significant returns on our investments," said CEO Randy Limbacher. "More than 50% of our current production is now associated with liquids, lowering our cost structure and delivering increased cash margin performance. Our primary focus remains the evaluation and development of our Eagle Ford assets, which we expect to deliver production increases of approximately 40% in 2012."
Rosetta's 2012 capital plan includes a four-rig program in the Eagle Ford and the completion of 60 new wells, located both in the Gates Ranch area as well as new sections in the liquids window of the play. During 2011 Rosetta completed 45 wells in the Eagle Ford area. The company's total exit rate for the year is expected to be 195 MMcfe/d. In January 2012 Eagle Ford firm gross wet gas capacity of 160 MMcf/d is to become available, allowing Rosetta to move 216 MMcfe/d of net Eagle Ford volumes on a firm basis. By mid-2012, the company's net Eagle Ford firm capacity is expected to increase to 263 MMcfe/d.
Marathon Oil Corp. also is emphasizing the Eagle Ford in its plans for next year (see Shale Daily, Dec. 12).
Rosetta also released the first horizontal well results from its exploratory program in the Southern Alberta Basin. "...Rosetta's exploration program [in the basin] is a complex play with limited service infrastructure that will take time for the industry to completely understand and develop," Limbacher said. "We will complete our current horizontal drilling program and adjust our exploratory efforts and spending to reflect those results and hold our position for future optionality."
The 2012 budget allocates approximately 5% of funds for evaluation of the Southern Alberta Basin.
Rosetta is continuing its seven-well horizontal drilling program to test the potential in the Banff, Bakken and Three Forks reservoirs across its approximately 300,000-net acre position in northwestern Montana. To date, the company has successfully drilled four of the seven horizontal wells with the remaining three scheduled to be drilled in early 2012. Two of the four wells drilled have been completed in the Middle Bakken and have tested at stabilized rates of 154 boe/d and 104 boe/d. Completion operations continue on the third well. The remaining four horizontal completions are to be tested during the first half of 2012.
Rosetta said expects full year 2012 production guidance of 220-240 MMcfe/d. The projected 2012 exit rate is pegged at 250-280 MMcfe/d, including liquids production of 24,000-27,000 b/d.
Wunderlich Securities Inc. analyst Irene Haas reiterated a "buy" rating on Rosetta shares with a 12-month price target of $61/share. "Assuming $80/bbl oil [West Texas Intermediate] and $4.40/Mcfe [Henry Hub natural gas], our estimated net asset value for [Rosetta] is $61 per share: $28 for proved reserves, $37 for probable and roughly $4 for debt," she wrote in a note Tuesday.
The company added hedges for 600 b/d of oil for a total of 5,600 b/d of 2012 oil production with collars at an average floor price of $79.12/bbl and an average ceiling price of $115.41/bbl. It also added 2,750 b/d of natural gas liquids (NGL) hedging for a total of 4,700 b/d of NGLs with fixed price swaps at an average price of $63.77/bbl for 2012, excluding the ethane component. Natural gas hedges for 2012 and all 2013 hedges are unchanged. Rosetta shares traded around $45 Tuesday.