EQT Corp. is suspending its Huron Shale program "indefinitely" in light of low commodity prices, the Pittsburgh company announced in a one line statement Friday.
The company drilled 120 wells in the Huron of eastern Kentucky in 2011, compared to 100 in the Marcellus Shale, and earlier this month EQT said it planned to drill as many wells in the Kentucky play this year.
With the move, EQT continues to narrow its focus. The company restructured its midstream operations last year to focus on drilling, selling its Langley, KY, gas processing complex to MarkWest Energy Partners LP (see Shale Daily, Jan. 5, 2011) and its Big Sandy Pipeline in eastern Kentucky to Spectra Energy Partners LP (see Daily GPI, May 13, 2011). In December EQT announced plans to create a master limited partnership (MLP) this year that would own portions of Equitrans LP, its interstate pipeline subsidiary.
Alongside that recent shift from midstream to upstream, EQT has also been focusing more of its resources on the Marcellus over the past few years. While the company decreased drilling in the Huron from more than 350 wells in 2008 to 120 last year, it increased drilling in the Marcellus from around 10 wells in 2008 to plans for 132 wells this year.
That shift is capital-intensive. EQT spends an average $6.7 million for each Marcellus well, and recently unveiled a completion strategy that adds as much as $1.8 million to the cost of each well in return for production increases up to 60% (see Shale Daily, Aug. 1, 2011). EQT has said it planned to use that "30-foot cluster spacing" on as many as 49 wells this year.
The roughly 2.7 million acres EQT holds in the Huron is liquids-rich, but the reduced cash flow from the play at current commodity prices doesn't fit with the company's "determination to live within its means financially," EQT said.
The Huron wells cost about $1.5 million each and can earn a 15% internal rate of return (IRR) at $4.50/Mcf gas on the New York Mercantile Exchange, EQT said in a presentation to analysts earlier this month. By comparison, the Marcellus Shale wells can earn a 10% IRR at around $3.00/Mcf.
As of Friday, Marcellus gas in southwestern Pennsylvania and West Virginia traded for an average price of $2.26/Mcf, down 11 cents, according to NGI's Shale Price Index.
EQT is scheduled to release its year-end earnings Thursday morning.