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Consol Grows Marcellus Production 94%, Will Tweak Drilling in 2014

Consol Energy Inc. grew its Marcellus Shale production by about 94% during the first quarter of 2014, and executives said the company plans to expand the use of reduced cluster spacing (RCS) and short stage lengths (SSL) over the course of the year.

Pittsburgh-based Consol reported a 1Q2014 sales volume of 20.7 Bcfe of Marcellus gas, up 93.5% from the 10.7 Bcfe sold during the preceding first quarter. Meanwhile, sales of coalbed methane (CBM) fell from 20.7 Bcfe to 19.8 Bcfe during the same time frame (a decrease of 4.3%), while shallow oil and gas sales fell from 7.1 Bcfe to 5.8 Bcfe (a decrease of 18.3%).

Production from "other" sources -- which includes the Utica Shale in Ohio and the Chattanooga Shale in Tennessee -- tripled between 1Q2013 and 1Q2014, growing from 0.7 Bcfe to 2.1 Bcfe.

Consol estimates that the Marcellus will account for 48% of total production for 2014, making it the largest segment in terms of production. The company estimates that CBM will account for 35% of 2014 production, followed by shallow oil and gas (11%) and "other" sources (7%).

Total natural gas production was 172.4 Bcfe for the full-year 2013, and 48.4 Bcfe during 1Q2014. Consol said its production guidance for the full-year 2014 ranged from 215-235 Bcfe, a growth rate of 30%. It also forecast 30% growth rates for 2015 and 2016.

Consol is a joint venture (JV) partner with Noble Energy Inc. in the Marcellus Shale and with Hess Corp. in the Utica. Last year, the Consol-Noble JV drilled a well targeting the Upper Devonian Shale in Greene County, PA (see Shale Daily, July 29, 2013; Sept 8, 2011; Aug. 19, 2011).

During a conference call to discuss 1Q2014 earnings on Tuesday, Tim Dugan, Consol COO of exploration and production, said the company completed about 13 wells in southwest Pennsylvania using RCS and SSL. He said Consol would expand those techniques to 39 wells planned during the first half of 2014.

"Going forward, everything in southwest Pennsylvania will be done with RCS and SSL," Dugan said. "We're expanding that to central Pennsylvania and northern West Virginia, where we'll still be doing some testing but we expect similar results."

Dugan said Consol had about 30 wells in its inventory waiting on completion. Some of those wells are on pads where a drilling rig is drilling additional wells, he said. The company currently has nine rigs deployed in the Marcellus and four in the Utica.

"Near term in the Utica, we continue to be excited about our acreage position and the JV [with Hess]," said Consol President Nicholas Deluliis. "We've got about 30,000 net acres in the core area, in [Ohio's] Guernsey, Belmont, Harrison and Noble counties. Our focus in the [Utica] JV continues to be in Noble County. We drilled eight wells last year and we'll drill another 13 this year that we'll operate.

"We continue to feel good about that area. Over in Monroe County, OH, where we've got 11,000 net acres that we will operate solely, we'll be drilling two wells this year. That's an area where we have stacked play potential. We'll drill a dry Utica well and a wet Marcellus well."

Deluliis added that its Utica JV recently turned six wells in Noble County, OH, into production.

"They are flowing into constrained pipeline right now," Deluliis said. "We expect that to free up in June as Blue Racer [Midstream LLC] lays additional line. We don't expect to have any restrictions once they get that line in.

"When you move over into Monroe County, we're going to drill a Utica and a Marcellus well on the same pad. That pad is bookended by some nice results from a couple of our peers to both the north and the south. They were both [reported] in excess of 30 MMcf/d, so we're excited about the potential there and would expect similar results."

Dugan added that as Consol moves eastward into Pennsylvania to delineate its holdings in the Utica, the company will enter Greene and Washington counties, where Consol controls 100% of the acreage and it doesn't fall into either JV.

Consol reported net income of $116 million for 1Q2014, or 50 cents/diluted share. Its Marcellus JV drilled 35 wells, completed 23 wells and had 11 wells turned in line during the quarter. Consol's JV drilled seven wells, completed three wells and had 10 wells turned in line.

Last week, Consol secured a conditional use permit to drill up to 45 wells targeting the Marcellus Shale from six well pads at the Pittsburgh International Airport (see Shale Daily, April 25). The company said it plans to deploy a drilling rig at the airport this summer.

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