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Consol's Marcellus-Weighted 3P Reserves Jump 41%

Appalachian Basin producer Consol Energy Inc. said Monday its estimated proved, probable and possible (3P) reserves totaled 20.2 Tcf at the end of 2011, which was 41% higher than in 2010.

The year-end reserves numbers were audited by Netherland, Sewell & Associates.

"This increase is even more impressive when one considers that the company sold one-half of its Marcellus position during 2011," said Consol. "There could be further upside, too, because the 3P reserves are not assuming any contribution from the Utica Shale."

The 3P reserves by type include 9.88 Tcf in the Marcellus Shale; 6.4 Tcf in conventional gas and oil; 2.796 Tcf in coalbed methane (CBM); and 1.138 Tcf in "other" shales.

Drillbit finding and development costs totaled 47 cents/Mcf in 2011, which Consol attributed to held-by-production (HBP) acreage in the Marcellus Shale, as well as "continued refinement" of drilling and completion technology.

Proved reserve adds from extensions and discoveries totaled 517 Bcf at the end of December, while estimated drilling and completion costs were $237.4 million. When divided by the proved reserves number, Consol said finding and development costs totaled 47 cents/Mcf in 2011. The HBP costs enabled the company to "achieve economies of scale by drilling multiple wells from the same pad."

For instance, the Pittsburgh-based producer now is drilling 10 natural gas wells from the Hutchinson pad in northwestern Pennsylvania's Westmoreland County, which it said may be an "industry first."

Consol also replaced 528% of its gas production year/year "when considering all increases from extensions and discoveries (517 Bcf), as well as performance (306 Bcf) and price (minus 10 Bcf) revisions." Net production in 2011 was 154 Bcf.

Total proved reserves rose to 3.48 Tcf in 2011, which was 7% lower than the 3.73 Tcf at the end of 2010. The decline resulted from the sale of 531 Bcf to Antero Resources (see Shale Daily, Sept. 27, 2011); a joint venture with Noble Energy Corp. (see Shale Daily, Aug. 29, 2011); and the elimination of 380 Bcf of proved undeveloped (PUD) reserves that were "no longer expected to be developed within the next five years" because capital is being redirected from conventional and CBM resources to unconventionals.

"In the future, if Consol decides to drill the conventional and CBM formations at a faster pace, these PUDs could return to the proved reserves," it noted.

Consol also reported that proved developed producing reserves rose 306 Bcf on "performance revisions" because wells drilled before 2011 "proved above earlier expectations." Year-end 2011 proved reserves were 39% proved undeveloped, as compared with 48% at year-end 2010.

When Consol issued its 4Q2011 and full-year 2011 earnings report in January, it said it would reduce capital spending plans and defer some Marcellus drilling for this year because of low gas prices (see Shale Daily, Jan. 27). Almost 100% of Consol's reserves are natural gas. However, once prices gain strength, the company will have a cupboard full of prospects.

Last year in the Marcellus Shale, Consol drilled 78 horizontal wells and put 57 online. Total well costs in the play averaged $5 million each, with expected ultimate recovery at about 5.2 Bcf/well. The average drilled lateral was 3,850 feet; the average treated portion was 3,367 feet. Maximum 24-hour production averaged 5 Mcf/d per well, while 30-day rates were around 3.5 MMcf/d.

"Total daily production from the Marcellus Shale grew from 40 MMcf/d as of Dec. 31, 2010 to 77.5 MMcf/d (net) as of Dec. 31, 2010," Consol noted. "The reserves from our 2011 Marcellus Shale program averaged 5.2 Bcf/well. When one considers that Consol's treated laterals averaged 3,367 feet, this means that the company booked about 1.55 Bcf of reserves for every 1,000 feet of lateral."

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