Seneca Resources Corp., the exploration and production (E&P) arm of National Fuel Gas Co., has curtailed some Marcellus Shale production, is delaying some well completion activities there and possibly may not participate in some joint venture wells with partner EOG Resources Inc. because of low natural gas prices, the company said Monday.
Seneca plans to curtail a total of 15 MMcf/d in total. The E&P unit currently produces about 115 MMcf/d in the Marcellus across a total of 745,00 net acres; it has an estimated 5,387 well locations. EOG, which participates with Seneca in a portion of the acreage, now operates about 168,500 of the net acreage. Seneca and EOG together have completed 122 wells.
National Fuel officials said they were "curtailing production in excess of firm sales" into Tennessee Gas Pipeline Co.'s TGP Line 300. Beginning Sunday (April 1), production into TGP would be 132.5 MMcf/d, said the company. In addition, some Marcellus well completions may be delayed by as long as six months. And it may consider "nonparticipation" in some EOG JV wells. Seneca would maintain a 20% interest in the wells drilled by EOG on acreage where Seneca owns the mineral rights.
"National Fuel and its subsidiaries have always focused on maximizing the long term value of assets, and today is no different," said CEO David Smith. "Despite the headwinds we face in the current natural gas price environment, the quality of our assets and the strength of our balance sheet provide us with the flexibility to make decisions that are beneficial to the company in the long run.
"By curtailing a modest amount of current natural gas production and delaying some Marcellus completions, we are still able to increase production and achieve growth across many of our businesses while preserving the value of our assets for the future when we anticipate higher natural gas prices."
In February Seneca dropped two of its six drilling rigs in the Marcellus play to cope with lower gas prices (see Shale Daily, Feb. 8). At that time, Seneca President Matthew Cabel said the Marcellus JV with EOG was not expected to change substantially but if natural gas prices were to remain low, the company would "have the option of not participating in the EOG wells" in fiscal year (FY) 2013, "while still maintaining the 20% royalty interest in wells drilled on our fee acreage" (see Shale Daily, Jan. 11, 2011).
National Fuel also has revised its FY2012 production forecast to 81-90 Bcfe, which is down from a previous forecast of 85-95 Bcfe. "This reduction is a result of the company's response to a significant decline in natural gas prices, in combination with lower-than-anticipated production from Seneca's nonoperated joint venture in the Marcellus Shale," officials said. The company also updated its FY2013 production forecast to 112-126 Bcfe, which includes anticipated output of 88-98 Bcfe from the Marcellus Shale and 19-21 Bcfe from California crude oil properties.
In FY2012 total capital spending is forecast to be $900 million to $1.05 billion, which is cut from a previous forecast of $950 million to $1.09 billion, "largely a result of the company's response to the significant decline in natural gas prices." Capital spending in FY2013 now is set at $685-860 million.
The rig count in the Marcellus Shale has declined as of late. The number of rigs actively drilling for oil and gas in the Marcellus for the week ending March 23 dropped four rigs from the previous week to 151, according to NGI's Shale Daily Unconventional Rig Count. That's also four rigs fewer than last month, but a 6% increase compared with 143 rigs last year.