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Eclipse Revives Drilling, Raises Capex; E&Ps Eye Rising NatGas Prices

Ohio pure-play Eclipse Resources Corp. said late Tuesday it has revived its idled drilling program and plans to take advantage of the improving natural gas strip by working down its drilled but uncompleted (DUC) inventory and ending price-related production curtailments.

During the second quarter, Eclipse said it restarted its drilling program in the dry gas area of Monroe County and worked on its DUC inventory. It now plans to spud 10-12 net wells for the year and complete 21-24 wells, of which 16-19 are currently in its backlogged inventory. Capital expenditures for the year also have been increased to $196 million from the previously announced $128 million.

Eclipse also announced a public offering of 37.5 million common shares with an offer to underwriters to purchase additional shares for about $160 million to help fund the new work through 2017.

Southwestern Energy Co., one of the nation's largest gas producers and a leading player in the Appalachian Basin, also has begun a public offering for 86 million common shares to raise $1.1 billion to repay debt and fund tender offers. Any leftover proceeds would be used to work off DUCs and finance other projects, Southwestern said.

"We think other operators are likely to raise gas guidance on 2Q2016 conference calls as regional basis improvements reduce curtailed volumes and improved Henry Hub prices incentivize drilling and completion activity," analysts at Tudor, Pickering, Holt & Co. wrote in a note on Wednesday. Wells Fargo Securities shared a similar sentiment, indicating the latest equity offerings demonstrate "firming natural gas prices" and a "more bullish long-term outlook relative to where we've been."

A decline in the gas rig count, falling production and a dwindling inventory of DUCs paired with the anticipated growth in demand from various sectors has prompted more positive outlooks in recent weeks (see Shale DailyJune 24). While state production data from Appalachia has shown a declining inventory of drilled wells waiting on production this year, nationwide DUCs dropped from about 4,000 in February to 3,100 last week, according to drillinginfo.com. U.S. onshore completion activity is expected to outpace new drilling by about 30% (see Shale Daily, June 23).

NGI recently completed an in-depth special report about how onshore producers around the country are managing DUC inventories and how the drawdown may impact future production levels.

Earlier this year, Eclipse said it would idle its drilling program and voluntarily curtail volumes across its acreage to keep production flat with 2015 levels at around 200 MMcfe/d (see Shale DailyJan. 5). But like other Appalachian producers, the company said at the end of 1Q2016 it would ramp-up its operations this summer (see Shale DailyMay 5).

On Tuesday, the company increased its full-year production guidance to 205-210 MMcfe/d and now anticipates 4Q2016 production to average 240 MMcfe/d. The company said it would end voluntarily curtailments and begin bringing its production back online at the end of the third quarter.

"Based on where current forward strip prices are, we expect to continue to complete our drilled uncompleted wells through the remainder of the year and into the first quarter of 2017, and to continue to run our operated rig continuously going forward," CEO Benjamin Hulburt said. While forwards don't show natural gas moving above $3 anytime soon, prices are firming. Eclipse said it has hedged 170,000 MMBtu, or 75% of its projected gas production next year, at $2.84/MMBtu.

The company also updated its Purple Hayes 1H well in Guernsey County (see Shale DailyMay 18). After 45 days of production on managed choke, the well has produced 583 MMcfe on "very shallow pressure declines" of 50 psi/week, Eclipse said.

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