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National Fuel’s Seneca Resources Plans More Utica Shale Tests

National Fuel Gas Co.'s exploration and production subsidiary, Seneca Resources Corp., will prioritize additional Utica Shale appraisal drilling in an undeveloped part of Northwest Pennsylvania in its Fiscal Year (FY) 2017, which started in October, after encouraging test results there.

The company's first Utica test in its Clermont/Rich Valley (CRV) area, which encompasses Elk, McKean and Cameron counties, PA, has been online for more than 120 days. COO John McGinnis said the well continues to outperform the company's initial estimates and it's increasing the estimated ultimate recovery to 1.8 Bcf per 1,000 feet of lateral from the 1.6 Bcf it previously announced. The well's 30-day initial production (IP) rate of 1.4 MMcf/d per 1,000 feet was about 60-70% better than the company's Marcellus IPs in the area.

The company plans to bring its second CRV Utica well online before the end of the year, and it recently finished drilling two additional Utica wells, one of which was drilled deeper into the upper Point Pleasant formation to compare productivity to the lower Utica.

"As a result of our first Clermont wells showing promising early results, we've prioritized additional Utica appraisal drilling in our operational schedule," McGinnis said. "Given that Utica wells take about twice as long to drill than our Marcellus wells, this will also slightly delay bringing on some new Marcellus pads."

Pennsylvania Utica development has been more common about 100 miles to the west and south of the company's first CRV well. McGinnis said the company plans to have eight Utica wells drilled by the end of FY 2017 and have five of those turned to sales by then. The company said in August that the formation could ultimately be its primary target if encouraging results continue (see Shale DailyAug. 8).

Seneca produced 39.8 Bcfe in its fiscal fourth quarter, up 6% from the year-ago period, but down 9% from the fiscal third quarter. The company continued to make voluntary price-related curtailments during the fourth quarter that totaled 6.2 Bcf in Appalachia. It curtailed 34.6 Bcf of volumes throughout the FY, but still reported record annual production of 161.1 Bcfe.

The company again recorded a $32.8 million impairment on its oil and gas properties as a result of the commodities downturn. For the entire FY, the company recorded $948.3 million in impairments, which was actually down from the $1.1 billion in impairments it recorded for FY 2015. CEO Ronald Tanski said "commodity pricing is now settled into a pattern where we think the impairment of our oil and gas properties that we recorded in the fourth quarter should be our last" for some time.

NFG has budgeted $725-835 million for all of its business segments in FY 2017, up from the $390-440 million it budgeted for 2016. That includes $180-220 million for the exploration and production segment in FY 2017, which is up from the $120-135 million budgeted for last FY. The company has plans for a one-rig program in 2017.

Including hedges, Seneca's average realized natural gas price was $3.09/Mcf in the fourth quarter, down 26 cents from the year-ago period. Revenue declined to $292.5 million during the quarter from $301 million in 4Q2015.

NFG reported consolidated net income of $37.6 million (44 cents/share), compared to a net loss of $187.7 million (minus $2.22/share) in the year-ago period. Seneca's net income was up to $16.7 million in the fourth quarter from a net loss of $207 million last FY, mainly as the result of lower recorded oil and gas property impairments during the period.

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