Appalachian-focused CNX Gas Corp. significantly upped its outlay on capital spending this year, escalating its exploration and production (E&P) budget 84% to $312 million to test the viability of some coalbed methane (CBM) plays. CNX is forecasting that its natural gas output will reach 64 Bcf in 2007, increasing by 15% in both 2008 and 2009.
The Pittsburgh-based independent, which spent an estimated $170 million for E&P last year, plans to concentrate its spending on two development and two exploration plays this year. About $148 million will be directed toward drilling and processing for its Virginia Operations, a CBM play in central Appalachia. Mountaineer, a CBM play in northern Appalachia, is budgeted $84 million. Another $6 million will be set aside for Nittany, an exploration CBM play in central Pennsylvania, and $12 million will be spent on Cardinal, an exploration New Albany shale play in western Kentucky.
An additional $32 million has been set aside for a more "aggressive" land effort, CNX said. Most of the remaining $30 million, aside from $9 million for Knox Energy in Tennessee, will be devoted to initial exploration work as other plays are assessed.
"The 2007 capital budget represents a major step forward for us in exploring and developing our 2.44 million gross acres," said CEO Nicholas J. DeIuliis. "In August 2005, we set a 2006 production growth target of 55.7 Bcf. For 2007 and beyond, we continue to expect at least 15% annual growth in organic production. Success in Nittany and Cardinal will move us closer to our strategic vision of eclipsing 100 Bcf of production in 2010. Achieving this would mean that CNX Gas would have more than doubled its 2005 production of 48.4 Bcf in five years without having made an acquisition."
When CNX sold some of its company shares in a private placement in August 2005, DeIuliis said, "we were basically a Virginia CBM play. In 2006 we increased Virginia drilling, proved the viability of our Mountaineer play and identified two new plays -- Nittany and Cardinal -- that have the potential to create significant shareholder value. Our goal in 2007 is to prove the viability of Nittany and Cardinal, while continuing to test our other acreage for additional opportunities. Our ultimate goal is to continue to achieve a return on capital employed in excess of 20%. We expect to achieve that with this capital budget."
CNX expects to drill 278 development wells in Virginia, 57 development wells in Mountaineer, eight exploration wells in Nittany and three exploration wells in Cardinal, for a total of 346 in its four major active areas. CNX holds a 100% working interest in these areas. Other areas could see as many as 55 net wells, for a company total of 401 wells. Virginia Operations will also perform 30 recompletions.
Drilling and completion of the wells planned is estimated to cost $160 million. Gathering and processing capital is estimated at $106 million, which includes $12 million for the Bull Creek gathering system in Virginia, a 13.5-mile line that will allow for the collection of gas from the western portion of the Oakwood and Middle Ridge fields, as well as third-party production.
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