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Midstream Issues Cramp Gastar's Style in the Marcellus

Gastar Exploration Ltd. plans to suspend its Marcellus Shale capital program "for a short period" during the second half of the year while it monitors production results and allows time for constraints in midstream services to be worked out, CEO Russ Porter said Tuesday.

The company has been significantly ramping up Marcellus net production, to 30 MMcfe/d during the fourth quarter from 5.2 MMcfe/d during the fourth quarter of 2011.

"During 2012, we achieved a 92% increase in [overall] production rates in the fourth quarter of 2012 compared to the fourth quarter of 2011, and we achieved a 51% increase in proved reserves and a higher ratio of liquids production while lowering drilling costs," Porter said. "These accomplishments were driven by the successful development of a small portion of Gastar's assets in the liquids-rich gas window in Marshall County, WV."

However, Gastar has found itself stymied by an infrastructure buildout by Williams that has not kept pace with output growth, Porter said. These issues are estimated to have reduced average daily production by about 5.5 MMcfe/d during the fourth quarter, the company said.

A central receipt point (CRP) that was expected to come online in Burch Ridge, WV, in December is just now entering start-up, he said. "This facility will have 70 MMcf/d of dehydration capacity, bringing our total dehydration capacity in the field to 110 MMcf/d," Porter said. "Additional compression at Burch Ridge should be in place by April 15 to ensure line pressures are maintained at approximately 550 psi. Once fully operational, this CRP should enable us to begin producing our Marcellus assets at more normalized rates and hopefully with reduced downtime."

He said he hoped that the addition of the Burch Ridge CRP "will result in a majority of the Williams issues being behind us." However, when asked later by an analyst about Marcellus infrastructure, Porter expressed his frustration.

"We're pretty frustrated with the third-party, i.e., Williams, issues that we've continued to experience," he said. "We've put a lot of capital in place; we've drilled the wells. The wells are very productive, and it's pretty frustrating that we're held back by issues that are a bit out of our control.

"Going forward, we have the right to construct future CRPs, which puts that timing in our hands and not in someone else's. We still will need Williams to perform as far as the processing assets that they have in place, fractionation and the other assets that they're required to have in place contractually. We're [hoping] that they're true to their word and that they're working through these problems and that they'll be resolved. The problems get easier for us to handle as our production volumes get higher and higher because they have less and less of an overall impact. But it's been a very frustrating experience for us to perform so well on our side of the equation and be held back by issues that are not really in our control."

Contacted by NGI's Shale Daily about Porter's remarks, Frank Billings, Williams Northeast Gathering & Processing senior vice president, also expressed frustration with infrastructure development progress in Marshall County.

"We have proven that we can be a catalyst for great producer success in the Northeast and we will achieve the same outcomes in this very productive area," Billings said in an email. "Right now, it is frustrating for us and it is frustrating for our producer customers. We are deploying all the resources available -- people, equipment and materials -- to solve problems and get the consistent asset performance that we all desire.

"We are striving to make progress every day to solve problems in Marshall County and get assets in place that best match the productive capacity of the wells, the gas and condensate composition, the gas quality, and operating environment. We've seen these situations vary from one production area to another many times in recent years and each time we've met challenges head on for the benefit of our customers and ourselves."

Porter was asked by an analyst during the conference call about competing midstream services providers competing with Williams.

"You've got MarkWest [Energy Partners] over further to the east, but they don't have any pipe into our area," he said. "You've got Dominion over in that area, but they don't appear to be on any faster track than anyone else from what we've seen.

"And we've dedicated our acreage to Williams, and unless they don't perform to the point of us deciding that they're in breach of the contracts and trying to get out of that dedication, we're pretty well, you know. We're married to them, and we've got to figure out a way to work out the marriage."

As a result of delays in the start-up of the CRP at the company's Burch Ridge pad and other pipeline system maintenance-related downtime, Gastar cut its first quarter average daily production guidance to 38-41 MMcfe/d from 41-43 MMcfe/d.

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