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Low Gas Prices, Lack of Production Stymie Rice in 3Q

In its third conference call to discuss quarterly earnings since going public in January, Rice Energy Inc.’s management team on Wednesday failed to impress, as year-over-year natural gas prices plummeted and production was held back by a lack of progress in the Marcellus Shale, where it completed only five wells during the period.

The Appalachian pure-play has three core areas in Belmont County, OH, and Washington and Greene counties in southwest Pennsylvania. The company missed its 5-10% sequential production growth target in the third quarter, reporting 247 MMcfe/d, up slightly from the 241 MMcfe/d it reported in the second quarter (see Shale Daily, Aug. 11).

While year/year production increased by 93%, and the company showed promise with new wells that came online in the Utica Shale, it missed both Wall Street's earnings and production estimates, sending its stock down by more than 6% in early afternoon trading.

"As we indicated in our second quarter call, third quarter production rates were going to be pretty nominal for a couple of reasons," said CEO Daniel J. Rice. "First, we only turned online a handful of wells and this new production was weighted toward the back half of the third quarter. And second, the production from some of these new wells was partially muted by shut-ins to some of our Marcellus wells in Greene County."

Mining operations near a Dominion sales meter in Greene County forced the company to shut-in roughly 40 MMcf/d of production flowing through the meter from July to October, Rice said. The five Marcellus wells turned to sales in Washington County were also flowing slightly below the company's 90-day average, said Wells Fargo Securities Inc. analyst Gordon Douthat.

The company has posted strong numbers since its initial public offering (see Shale DailyMay 14Jan. 31). But with its growth, the company has been testing ways in which it can maximize the value of its assets, including time-consuming pilots on 500-foot downspacing in its Marcellus acreage, which accounts for the largest share of its production. It reported producing 232 MMcfe/d in the play during the third quarter. While early tests have been encouraging, Rice said, the company plans to stick with its current 750-foot spacing.

Management also said it would not pursue development on wet gas acreage in northwest Belmont County until 2016. Rice Energy’s average natural gas price in 3Q2014 dropped to $2.97/Mcf from $4.04/Mcf in 3Q2013. That was partially offset by hedges and the sale of its unused firm transportation capacity, which helped lift its realized price to $3.40/Mcf.

The CEO said the company currently is in the midst of one of its most active quarters ever, having already turning online 17 Marcellus wells and prepping to complete five more Utica wells in Ohio.

The company should finish the fourth quarter with 40-50% more production than in the third, he said. It will need to average roughly 376 MMcfe/d to hit the low-end of its full year production guidance of 260-295 MMcfe/d.

The company flowed two new Utica wells, the Blue Thunder 10H and 12H, into sales during the third quarter with pressures comparable to its impressive Bigfoot well (see Shale Daily, June 2). The new wells have produced at a 55-day average rates of 16 MMcfe/d each on restricted choke, with shallow pressure declines.

High line pressures on the company’s gathering network are also being addressed with the build-out of its system, particularly in Pennsylvania. Earlier this month, the company said in a registration statement with the U.S. Securities and Exchange Commission that Rice Midstream Partners LP would be launched to handle 3.2 MMDth/d of gathering services across 76,000 gross acres in Washington and Greene counties (see Shale DailyNov. 7).

The master limited partnership would help free-up capital for upstream operations, and remaining midstream assets in Ohio and Pennsylvania would be funded by a new midstream credit facility, said CFO Grayson Lisenby.

Rice reported an adjusted net loss for the third quarter of $14.2 million (minus 11 cents/share), compared with an adjusted net loss of $30.3 million in 3Q2013, before it was publicly traded.

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