EQT Corp. started the year strong, once again turning in record natural gas production and gathering volumes as it continued to navigate through the commodities downturn during the first quarter.
Higher than expected production and lower operating expenses also helped the company report a profit for the period, albeit one that was far lower than last year's first quarter financial performance, with net income dented by lower realized oil and natural gas prices.
The company finished the quarter at the high end of its guidance, beating Wall Street's expectations by reporting 180 Bcfe of production during the first quarter, up 24% from the year-ago period when it produced 145.2 Bcfe and up from the fourth quarter when it churned out 154.5 Bcfe (see Shale Daily, Feb. 4). The performance prompted the company to increase its full-year guidance by about 1% to 710-730 Bcfe from its initial 2016 target of 700-720 Bcfe.
Management said Thursday during a conference call to discuss its results that it would aim to stay at the midpoint of its guidance for the remainder of the year, which is likely to keep sequential production flat going forward. While the Marcellus Shale continued to drive production results -- the company spud 16 wells during the quarter, 15 of which were in the Marcellus -- the deep, dry Utica continued to dominate the company's focus on development.
Since the 72.9 MMcf/d test of its Scotts Run Utica well in Greene County, PA, last year, it has turned inline two other deep Utica wells, the Pettit in Greene County and the Big 190 in Wetzel County, WV (see Shale Daily, July 23, 2015). Its fourth well, the Shipman, also in Greene County, is currently being fracked, while a fifth well, the West Run, was spud in April. The company plans to drill another deep Utica in West Virginia later this year.
President of Exploration and Production Steve Schlotterbeck said the focus continues to be reducing the costs of those wells and achieving consistent results at each. EQT's first three wells cost between $15.4 and $30 million. The company hopes to reduce its Utica well costs to between $12.5 and $14 million. It is also focused on nailing down the proper drilling and completion methods in the play.
"For the Utica to compete with the Marcellus for capital, we are targeting estimated ultimate recoveries (EUR) of approximately 75% higher than our core Marcellus wells," Schlotterbeck said. "The higher EUR per well, combined with the higher percentage of the EUR being produced in the first few years and lower gathering and compression costs, should provide returns that are competitive with the Marcellus."
The Scotts Run well, he added, began declining at the end of March after producing at a sustained rate of 30 MMcf/d since July 2015. That was in line with expectations, and Schlotterbeck said the well's EUR now stands at a whopping 20 Bcf, or 6 Bcf per 1,000 feet of lateral. The company's core Marcellus wells have an average EUR of 14.5 Bcfe, or about 2 Bcfe per 1,000 feet of lateral.
"The Pettit and Big 190 wells, while not as strong as our Scotts Run well, are in line with what we are seeing from other wells in the area. It is too early to calculate an EUR for these two wells," he said.
The company also continues to tinker with completion methods in the deep Utica. It is still uncertain about the right spacing there, and it plans to use ceramic proppant in its next three Utica wells like it used in the Scotts Run well.
"It is not clear that the proppant explains the different results, but we have decided to use ceramic proppant in the next three completions to determine if the proppant type has an impact on well productivity," Schlotterbeck said.
The company did not use ceramic proppant in its Pettit and Big 190 wells, which underperformed the Scotts Run. While ceramic proppant is more costly, it has a higher crush threshold in the deeper wells, and management said it was recently able to negotiate a 40% reduction in the price it pays for the material.
CEO David Porges also told analysts on the call that the company continues to explore adding acreage to its core position in the southwestern Marcellus area of Pennsylvania and West Virginia. He didn't provide specifics about those discussions, but said "if you become aware of opportunities that are largely or entirely within our core, you can safely assume that we are looking, or have looked, at the opportunity...We are not interested in looking at opportunities that are outside our core area.
The company's drilling program in the Permian Basin remains idled (see Shale Daily, April 23, 2015). EQT said higher production and a 6% increase in midstream gathering revenue were offset by its average realized prices, which went from $4.06/Mcfe in the year-ago period to $2.63/Mcfe in 1Q2016. The company's revenue slid from $714.8 million to $545.1 million during the same time.
EQT reported net income of $5.6 million (4 cents/share), compared to net income of $173.4 million ($1.14/share) in 1Q2015.