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Southwestern Sees Promise in Brown Dense Play Vertical Well Results

Southwestern Energy Co. executives trumpeted record results for 3Q2013 -- including nearly double the gas production in the Marcellus Shale from the previous year’s quarter -- and were excited by the success of a vertical well targeting the Lower Smackover Brown Dense formation, an emerging unconventional play in southern Arkansas and northern Louisiana.

Meanwhile, the Houston-based company has filed a lawsuit against 13 people who participated in a violent anti-shale development protest in the Canadian province of New Brunswick last month (see Shale Daily, Oct. 18). The mayhem reportedly cost the company US$650,000.

SWN reported total oil and gas production of 172.4 Bcfe in 3Q2013, a 19% increase from the 144.3 Bcfe produced in 3Q2012 (see Shale Daily, Nov. 5, 2012). The total production figure included 122.7 Bcf from the Fayetteville (a 0.7% decrease from the 123.6 Bcf produced in 3Q2012), and 44.7 Bcf from the Marcellus (up 196%, from 15.1 Bcf).

In the Brown Dense formation, SWN completed its first economic well, Sharp 22-22-1 #1 vertical, in Union Parish, LA. Drilled to a total vertical depth of 9,776 feet and completed in three stages, the Sharp well achieved a peak 24-hour production rate of 600 b/d of oil with an API gravity of 52 degrees, and 1.3 MMcf/d of 1,240-Btu gas. After 88 days in production, the Sharp well averaged 530 b/d of oil and 1.1 MMcf/d of gas on a 16/64-inch choke.

"We're excited about the work that's going on in the Brown Dense exploration program," Way said. "We're seeing it pay off, and believe that the potential value creation from this project could be substantial for us over time."

CEO Steve Mueller concurred. "We're almost ready to declare it commercial," he said during Friday's earnings call. "We're getting close to knowing the key things needed to make it commercial.

"I believe we have a new discovery, and our task for our company is to figure out how big. Today, if you asked me to guess the size, I would say it's maybe a township, [but] it could be much, much bigger when it's all done. Once we figure out how big it is, we'll need to figure out how fast we can get it into the pipeline and get it to the bottom line."

News from the Brown Dense piqued analysts' interest.

"[It was a] nice backdrop for developments that aren't about natural gas," Dan McSpirit, analyst for BMO Capital Markets Corp., said in a note Monday. "Management confirmed at the time of Friday's conference call that the play doesn't have to work on a horizontal basis to be declared a repeatable, economic success."

But McSpirit added that analysts "don't have enough information to confirm [or] challenge that claim," adding that it was uncertain what production profile and recovery assumption to use. He cited Mueller's statement that the company was hoping to lower well costs to $6 million; they are $10 million currently.

"We're in a high pressure area, but I'm not sure that is a [criterion] you have to have to make it work," Mueller said during the Q&A session Friday. "Certainly the higher the pressure, the higher the initial rates. But we just don't know enough about the whole area yet to know what works and what doesn't work. There are some things we're learning, [but] frankly I don't want to discuss them right now."

SWN has 10 operated wells in the Brown Dense formation, five of which are in the testing or production phase, one is awaiting completion and one is being drilled.

The surge in Marcellus production came from 22 wells placed into production during the quarter. Gross operated production averaged more than 600 MMcf/d of gas in August.

"We continue to be pleased with our results as we delineate our acreage in Susquehanna County, [PA]," COO William Way said. "We placed 12 wells on production in this area during the third quarter, and gross operating production was 267 MMcf/d at Sept. 30 from a total of 61 wells, up from 184 MMcf/d of gas at July 1."

SWN also added another phase of compression in northern Susquehanna County in October, allowing more than two-thirds of the company's wells in the area to produce at higher rates. Additional compression in planned for the area during 1Q2014.

"We're planning and testing more of the acreage in the county as we move north and east towards the New York border, which will begin in 2014," Way said. He added that SWN will drill its first well in Sullivan County, PA, in December, and in Tioga and Wyoming counties in early 2014.

In the Fayetteville Shale, SWN placed 89 operated horizontal wells into production during the third quarter, at a record initial production (IP) rate of 5 MMcf/d for gas. Way said the company also had "an extremely good September" in the play, adding another 31 wells into production with an average IP rate of 5.4 MMcf/d of gas.

The Fayetteville results for 3Q2013 included two of the strongest wells drilled and completed by SWN since it first entered the play in 2004. The wells -- Sneed 08-12 6-1H7 and Ledbetter 07-16 12-14H, located in Arkansas' Faulkner and Conway counties, respectively -- yielded peak 24-hour production rates of 10.1 MMcf/d and 9.2 MMcf/d, respectively.

Two additional wells, targeting the Upper Fayetteville, achieved peak 24-hour production rates of 6.6 MMcf/d and 6.7 MMcf/d.

"We're continuing to evaluate this reservoir, and believe that it could provide material additional gas resource to capture over time," Way said, adding that SWN is "seeing tangible benefits from changes we are making in our completion and flowback procedures in certain parts of the play, that are enhancing early well productivity."

According to reports, SWN has filed suit against 13 anti-shale protesters for their part in a demonstration that began on Sept. 29 near Rexton, NB, and ended on Oct. 17, when authorities enforced an injunction to remove protesters blocking a highway and the entrance to an adjacent SWN facility. Forty people were arrested.

An affidavit filed with the Court of Queen's Bench in Moncton, NB, says the incident cost the company $650,000, including $380,000 for a drilling rig burned by the protesters. Trucks, geophones and other property were also vandalized.

Reports said SWN had expected to complete its exploratory work in New Brunswick -- home of the emerging Frederick Brook Shale -- last year, but would need to return again in 2014 (see Shale Daily, Aug. 25, 2011).

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