Rosetta Resources Inc. will spend about 90% of its 2011 capital budget of $360 million on the liquids-rich window of the Eagle Ford Shale in South Texas, the Houston-based independent said. Spending will be funded from cash flow and planned asset sales in the Denver-Julesburg Basin and California.
"Our 2011 budget completes the successful shift of our asset portfolio from natural gas to predominantly liquids-rich unconventional shale plays that is significantly boosting production volumes, creating double-digit reserve growth and, more significantly, creating tremendous returns on our investments," said Rosetta CEO Randy Limbacher. "More than 30% of our current production is now associated with liquids, reducing our exposure to weak natural gas prices and lowering our cost structure.
"[W]e are confident that Rosetta will increase current daily production to in excess of 200 MMcfe in 2012, and when we do so, the majority of our production base and revenues will be from liquids."
Rosetta's program calls for the drilling of 40 new wells in the Eagle Ford, primarily in the Gates Ranch, which was delineated in 2010. The company has secured a two-year agreement for fracture stimulation services for three weeks per month.
Last year Rosetta drilled 29 wells in the Eagle Ford area. Twenty-one completed Eagle Ford wells are currently producing 3,100 b/d of oil, 3,900 b/d of natural gas liquids (NGL) and 44 MMcf/d of residue gas for a total net 2010 exit rate of 86 MMcfe/d. The company's total exit rate for 2010 is about 159 MMcfe/d.
During the fourth quarter Rosetta resolved capacity constraint issues in the Gates Ranch area with the opening of the new Dos Hermanas pipeline. Rosetta recently made agreements that provide for gathering and processing of production from its Dimmit County, TX, properties and increase its firm capacity rights on the Dos Hermanas pipeline beginning in the third quarter. Rosetta also struck new agreements that provide for firm gathering and processing capacity on new facilities that will be available beginning in the fourth quarter.
The 2011 budget also allocates funds for continued evaluation of the Southern Alberta Basin where Rosetta holds about 300,000 net acres in the Bakken Shale that is an analog to the prolific Williston Basin, it said. Last year Rosetta drilled four exploratory wells to determine the commercial viability of the play.
The $360 million capital program reflects the impact of planned asset sales in the Denver-Julesburg Basin and the Sacramento Basin in California. "Proceeds from the divestiture of these higher-cost, natural gas producing properties will be used to fund the acceleration of the company's shale initiatives," the company said. Last year Rosetta sold about $90 million of assets in Arkansas, Oklahoma, Mississippi, Texas, Louisiana, New Mexico and Wyoming. Those dollars are being redeployed to the Eagle Ford and Southern Alberta Basin.
Production guidance for this year is difficult to determine, the company said, because it depends on the timing of the planned divestitures. Keeping the volumes of the divestment properties in for the full year, Rosetta said it expects to produce 160-170 MMcfe/d. The Denver-Julesburg Basin and California properties currently produce about 40 MMcfe/d and are expected to contribute about 35 MMcfe/d for full-year 2011.
The projected 2011 exit rate, excluding the divestment properties, is expected to be 155-165 MMcfe/d, including liquids production of 12,000-15,000 b/d, Rosetta said.
Rosetta said it has hedged 700 b/d of NGLs with fixed-price swaps at an average price of $51.74/bbl for 2011 and 450 b/d of NGLs with fixed-price swaps at an average price of $55.07/bbl for 2012, excluding the ethane component for both years. Rosetta has 50,000 MMBtu/d of natural gas hedged for 2011 including 15,000 MMBtu/d of swaps at an average price of $5.90/MMBtu and 35,000 MMBtu/d of collars with an average floor price of $5.79/MMBtu and average ceiling price of $7.27/MMBtu.
Other producers that have joined the Eagle Ford bandwagon include SM Energy Co. (see Shale Daily, Dec. 27, 2010), Targa Resources Partners (see Shale Daily, Dec. 23, 2010) and Marathon Oil Corp. (see Shale Daily, Nov. 30, 2010).