Economics and long-term production are driving Rice Energy Inc., the new kid on the Marcellus-Utica block, bent on making the most of its core areas.
"Our strategy wasn't necessarily to say that we wanted to pick up a million acres," CEO Daniel J. Rice IV told a Pittsburgh audience. "But what we did want to do was have a high-quality position concentrated within the core from which we could use our technically competent geological, completion and engineering teams to be able to optimally develop this stuff.
"For us, we were really looking at the economics; we're agnostic to commodity price mix," he told the crowd. "So, even within the Marcellus, and again in the Utica, we weren't chasing a liquids window, or an oil window, or even a gas window; we were chasing rate of return and PV-10. Our strategy has really been driven by cash flow and economics, and not necessarily by what the commodity is." Rice, one of three brothers who founded the company, which went public earlier this year (see Shale Daily, Dec. 17, 2013), outlined the company’s strategy in a keynote address at the DUG East Conference in Pittsburgh Wednesday.
Shortly after it was founded, Rice Energy acquired just 615 net acres in Washington County, PA, in what Rice and his brothers believed would become the the core of the prolific Marcellus Shale play. In 2010, the company completed its first horizontal Marcellus well, and by 2011, it had 21,000 net acres in Southwest Pennsylvania, which has indeed become the play's core, with a wet gas fairway that large and small operators alike have flocked to (see Shale Daily,Dec. 12, 2013). The company entered Ohio's Utica Shale in 2012, leasing with a large landowner group in central Belmont County in an area of southeast Ohio where a Utica core is shaping up.
Today, although small in comparison to some of the Appalachian Basin's major players, Rice Energy has about 90,000 net acres split evenly between the cores of Ohio's Utica and Pennsylvania's Marcellus Shale. It has 350 MMcf/d of gross operated production from 50 unconventional wells in the Marcellus.
Rice said, "100% of our Marcellus acreage is 1,050 and 1,100 Btu, so it's all pipeline-spec dry gas." The company's acreage in the Utica is nearly the same, with 75% of its acreage producing dry gas that doesn't require processing, while the rest is a mix of liquids.
"The important thing for us is everything that we're developing is pretty prolific in terms of the volume, so even with it just being dry gas, the volumes certainly make up for a lot of the lower prices we're getting for this product," Rice said in assuring the audience about the company's reserves.
He offered an example by showing that when the company reached 41 producing wells, it was turning out more than 300 MMcf/d of natural gas, which he said exceeded the production of the next 41 wells operated by large and small peers.
"We really don't look too much at IP [initial production] rates. We did early on in the testing, but we don't look at IPs as a measure of anything," Rice said. "We're really looking at longer-term production. So 35-40 MMcf/d IPs are flashy and they look really good and they indicate there's gas there, but beyond that, you don't really know if it's going to lead to a Haynesville well where you have high declines or a Marcellus-type well where you can sustain production because of a formidable pressure formation."
In the Marcellus, Rice said the company was seeing "much shallower" decline rates, adding that it does not let its wells "rip," choosing instead to choke them back to 1.8-2 MMcf per 1,000 feet of lateral length.
"What that allows us to do is control the pressure regime, control the frack we've got in the ground and have a much more stable decline rate. For us, we're not seeing these high peaks in production, but what we are seeing is a gradual step-up in production over time."
Rice delivered his presentation just two days after his company reported a record-setting IP test at its first Utica Shale well, the Bigfoot 9H (see Shale Daily, June 2). The well tested at more than 40 MMcf/d after five days.
Some financial analysts have expressed concern about the company's acreage concentration, its hydrocarbon mix and a general lack of infrastructure in the areas where it works. Like other young operators, Rice Energy has also absorbed losses in recent years, according to its prospectus.
But Rice pointed to the company's Bigfoot well in the Utica as evidence of his team's ability to learn quickly and deliver results.
"The rest of the industry I think is really caught up in this one: lateral placement," Rice said. "With us, we have a dedicated team of geosteerers led by the third Rice brother, Derek Rice, and their goal is to really place the lateral within a specified section of shale."
In southwest Pennsylvania, for example, Rice said the Marcellus is about 80-90 feet thick. Most other operators, he continued, are targeting a window of 30-40 feet for their lateral placement within the formation's sweet spot. But Rice Energy is targeting a narrow and precise window of three to four feet.
"It's easier said than done, but it requires the right tools and the right people, and the right approach at the company to make this happen."
The company's next two Utica wells will be drilled exactly the same as the Bigfoot, Rice said.