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Range Sticking With Marcellus in 2016; Projected Utica EURs Can't Compete

While the company remains encouraged about Southwest Pennsylvania's deep, dry Utica Shale, Range Resources Corp. is not yet ready to build more wells into next year's program, calling the Utica complementary to its low-risk, high-quality Marcellus Shale assets.

Last December, the company's Claysville Sportsman’s Club Unit 11H Utica well in Washington County, PA, tested at 59 MMcf/d (see Shale Daily, Dec. 15, 2014). It was the first such well drilled in Southwest Pennsylvania, setting off the recent excitement about the play's prospects in the state.

But reservoir modeling and production history led the company on Wednesday to announce an estimated ultimate recovery (EUR) for the well of 15 Bcf, or 2.8 Bcf per 1,000 feet of lateral. For now, that appears no better than the company's Marcellus EURs, which range from 17-18 Bcf, or 2.5-3 Bcf per 1,000 feet of lateral.

Range recently brought online its second Utica well at the same pad, which is flowing to sales on restricted choke at 13 MMcf/d. It also plans to drill a third Utica well at a nearby pad and complete it early next year. While management said early indications show that the second well would likely be better than the first, it has no plans to drill anymore Utica wells next year. Its second well, COO Ray Walker said, was completed with about 100,000 more pounds of ceramic proppant than the first.

"When you look at our plan for next year, our focus is really going to be on the Marcellus. We think with those three [Utica] wells, coupled with activity around us, it'll give us a really good handle on what the Utica ultimately is," CEO Jeff Ventura told analysts on Thursday during a third quarter earnings call. "But what we know is we have 10 years worth of production history and thousands of wells that really delineate our [Marcellus] position, so that's the low-risk piece.

"We view the [Utica] as a complementary element," he added. "Speaking for Range, we're going to put our capital where we're getting the best returns."

The company's third Utica well is expected to cost $15.9 million in comparison to the $6 million it takes to complete its typical Marcellus well. Walker said that as time goes on, Range expects Utica well costs to decline by about 30%

Excitement has built in recent weeks after other Utica tests in the area from EQT Corp. and Consol Energy. Their wells tested at more than 60 MMcf/d each. Financial analysts have issued notes to investors about the play's possible ability to displace Marcellus drilling. Moreover, at an industry conference in Canonsburg, PA, on Wednesday, attendees and presenters seemed to mention those possibilities on the hour as the day progressed.

But concerns remain about the prolific wells' decline rates.

EQT, which has said it would suspend its Upper Devonian drilling program and defer some Marcellus next year to build a 10-15 Utica well program in Pennsylvania, said last week that its Scotts Run well was dropping pressure at a rate of 40 psi per day (see Shale Daily, Oct. 22). Based on current line pressures, the company issued an EUR of 13.9-18.8 Bcf, or 4.3-5.9 Bcf per 1,000 feet of lateral. Consol said this week that it's too early for an EUR at its Gaut 4IH well in Westmoreland County, PA (see Shale Daily, Oct. 27).

A Marcellus pioneer, Range has remained one of the play's leading producers. It produced 1.44 Bcfe/d in the third quarter, up 20% from the year-ago period and up slightly from 2Q2015, when it produced 1.37 Bcfe/d. Its Marcellus program accounted for 1.27 Bcfe of 3Q2015 production, and it expects those volumes to grow by 26% year-over-year in 2016.

Like others, though, Range struggled with falling commodity prices in the third quarter. While it expects prices to improve with midstream additions such as Sunoco Logistics Partners LP's Mariner East 1 natural gas liquids pipeline, which is expected to be fully operational in the fourth quarter, it has shifted to dry gas production as liquids have fallen with oil.

Given the price environment, management said, Range's drilling programs in the Midcontinent, Northeast Pennsylvania and Virginia's Nora coalbed methane field have been idled for the year. Range's third quarter results also included an asset impairment charge of $502 million, mainly related to its legacy properties in Northern Oklahoma and Northwestern Pennsylvania. Ventura said the company continues to work on noncore asset sales, with a deal or two expected to close by the end of the year.

Fourth quarter production is expected to be 1.42 Bcfe, flattish on a slowdown outside Southwest Pennsylvania, where the company has also pulled back on lower commodity prices. But production is expected to ramp back up in 1Q2016, when the company said it would add more frack crews and perhaps another rig to get a backlog of roughly 50-60 uncompleted wells finished.

Third quarter revenues fell 22% from the year-ago period to $479 million. Range's average realized price for the period, including hedges, was $2.93/Mcfe, down 30% from the same time last year and from $3.07/Mcfe in 2Q2015. Range reported a net loss of $301 million (minus $1.81/share), compared to net income of $146 million (86 cents/share) in 3Q2014.

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