Shale Daily / Utica / Northeast

With Production Rising, Antero Gets Pragmatic With More Takeaway; Lower Utica EURs

April 14, 2014
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Pure-play Appalachian operator Antero Resources Corp. on Monday announced several significant additions to its firm transportation portfolio and midstream infrastructure that have its forward-looking basis differentials improving and its skyrocketing production heading in more directions.

The company seems adamant to lift itself above the intractable bottleneck that continues to define the Appalachian Basin and get out ahead of prices that are expected to drop as warmer weather sets in and uncertainty surrounds operators who continue to increase production volumes there.

Just last month Antero signed an agreement to be the anchor supplier for Odebrecht Organization's proposed West Virginia cracker in a deal that will find it shipping 30,000 b/d of ethane to the facility if it's built (see Shale Daily, March 26; Nov. 14, 2013). Earlier it reported a 20,000 b/d contract on the Appalachia-to-Texas Express (ATEX) pipeline, which came online in January (see Shale Daily, Dec. 5, 2013).

But despite such reassurances and a production update on Monday that was better than average, and at the midpoint of 1Q2014 guidance, Antero gave investors a jolt by revising some of its Utica Shale type curves lower. Its Ohio acreage has been further delineated and two new compressor stations that came online early this year gave it a better look at unconstrained production in the play.

Tennessee Gas Pipeline Co. (TGP), a unit of Kinder Morgan Energy Partners LP, jointly announced with Antero on Monday that the exploration and production company was awarded 100% of the capacity offered in TGP's Broad Run Flexibility (BRF) and Broad Run Expansion (BRE) open season, which closed on Friday.

The BRF project will provide Antero with 590,000 MMbtu/d of natural gas transportation from TGP's Broad Run Lateral in West Virginia to delivery points along the Gulf Coast by 2015. The BRE project, meanwhile, will offer Antero an additional 200,000 MMbtu/d of transportation on the same path by 2017.

Antero also announced that it had secured an additional 600,000 MMbtu/d of firm gas transportation on Rockies Express (see Shale Daily, Jan. 30) and other lines that could move even more of its production south toward the Gulf Coast. That move, the company said in an eight-page operational update, will either give it the option of redirecting gas from its Midwest capacity to Gulf Coast pricing as commodity prices dictate, or allow it to utilize the capacity for transporting third-party gas and offset the costs associated with more takeaway..

Combined, the agreements will enable Antero to direct nearly half of its Appalachian production to the Gulf Coast and roughly a quarter each to the Appalachian region and the Midwest. Under current futures contracts and differentials, the capacity additions would result in a 15 cent/MMbtu basis improvement for the company's 2016 realized prices when compared to this year's.

When combined with its ATEX capacity, a recent transport and storage deal with Sunoco Logistics Partners LP on the planned Mariner East II project (see Shale Daily, Dec. 5, 2013) will give Antero access to 101,500 b/d of natural gas liquids (NGL) takeaway by 2016, as well.

"Our forward-looking integrated strategy has resulted in the accumulation of an extensive portfolio of firm takeaway capacity and firm sales both for natural gas and NGLs," said CEO Paul Rady in a statement. "This portfolio results in diversified exposure to index prices in Appalachia, the Midwest and the Gulf Coast. It also gives Antero the ability to sustain high growth well into the future."

The company said in its 4Q2013 earnings release that it was targeting an 85% production growth rate this year (see Shale Daily, Feb. 27). With the latest capacity additions, it updated its outlook for 2015 and 2016 on Monday by saying it was aiming for up to a 50% compound annual growth rate in those years.

Since entering the basin in 2009, Antero has drilled 266 wells in the Marcellus and Utica Shale formations, where it boosted its position to 354,000 and 108,000 net acres respectively, with acreage additions last quarter.

To be sure, the company will need all the firm transport it can get. Antero's estimated average daily production in the first quarter was 783-787 MMcfe, a 105% increase over the year earlier quarter. At the same time, its estimated liquids production spiked sharply to between 16,000 and 16,500 b/d, for a 580% year/year increase.

Since its last production update in January (seeShale Daily, Jan. 30), Antero said it has placed an additional nine Utica Shale wells online with eight in its condensate window, or regime as the company refers to it, producing at an average 30-day sales rate of 14.8 MMcfe/d.

The company has been dividing its Utica acreage into type curve regimes by Btu content and estimated ultimate recoveries (EUR) in each of its producing areas. As its acreage has been further delineated and midstream developments have allowed its liquids and gases to flow more freely in the play, Antero decided to add a fifth regime to its production windows and update type curves.

The company said it was revising its EUR downward in the condensate regime by 31% and its EUR in the highly-rich gas/condensate regime by 34%.

"The company had previously stated that EURs in the higher-btu areas would be less predictable due to retrograde condensate challenges. They have applied new completion/production techniques and are seeing improvements in 30-day rates, but want to ensure the improvements are sustained. " said Wells Fargo analyst David Tameron in a note to clients. "So despite the good Q1 preliminary production estimates and the growth profile through 2016, the focus today and in the shorter-term will likely center on the EUR changes as investors do not like to see these numbers moving lower."

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