Seneca Resources Corp., the exploration and production (E&P) subsidiary of National Fuel Gas Co. (NFG), said it plans to shift the focus of its Marcellus Shale operations from Lycoming County, PA, to three other counties in the western part of the state.

Meanwhile, the Williamsville, NY-based company said it was finalizing new firm sales agreements, including several for the long term, tied to the Atlantic Sunrise project, which is being built by the Transcontinental Gas Pipe Line Co. LLC (Transco) and will deliver Marcellus gas to the Mid-Atlantic and Southeast U.S. (see Shale Daily, April 11; Feb. 20).

In a five-page operations update released Monday, Seneca said its production totaled 40.6 Bcfe during 3Q2014, a 19% increase over the prior year's third quarter and 10% above 2Q2014. Average daily production was 446 MMcfe/d.

During 3Q2014, the company trained its Marcellus drilling activity on the greater Clermont-Rich Valley area, located across Pennsylvania's Cameron, Elk and McKean counties and within Seneca's designated Western Development Area (WDA).

"This reflects a shift in operations from [our] prior focus area in Lycoming County, in the Eastern Development Area [EDA]," Seneca said. "[We] had planned this shift after [our] delineation drilling in the WDA confirmed substantial development opportunity. Until the firm transportation capacity on the Atlantic Sunrise pipeline expansion project becomes available in late 2017, [we] will continue to focus [our] operations in the WDA."

The company said it brought online during the third quarter a nine-well pad in the WDA, the first to be completed since transitioning to full development mode. It had a 24-hour peak production rate that averaged 8.2 MMcf/d per well. The wells, located on Pad N, had an average lateral length of 5,297 feet, and each well was completed using reduced cluster spacing, averaging 35 stages per well.

Seneca, which holds a 100% net working and revenue interest in the Pad N wells, said the average capital cost to drill and complete each well was approximately $6.5 million. The wells are currently flowing into Tennessee Gas Pipeline's (TGP) 300 Line from the Clermont Gathering System, which is owned by another NFG subsidiary, the National Fuel Gas Midstream Corp. Clermont was placed into service on July 1.

"The interconnect with TGP 300 is currently being upgraded and the Clermont Gathering System will have the capability of transporting 300,000 Dth/d by mid-August, with additional capacity increases targeted for 2015," Seneca said. The company added that it expected to initiate production from an additional 22 wells during 4Q2014, including 16 wells in the EDA. Seneca said it expects these new wells to help boost its overall daily net production rate in Pennsylvania above 500 MMcfe/d.

Ronald Tanski, CEO of NFG, said the company was pleased with the results from Pad N.

"With our mineral ownership and large contiguous acreage position, we have consistently viewed this area as one of tremendous potential for National Fuel," Tanski said. "These results confirm that thesis and our near-term focus at Seneca has shifted almost entirely to this area. The challenge of persistent pricing differentials remains, but with our ability to creatively market the Atlantic Sunrise capacity and the commitment executed on the Northern Access 2016 project, we have made significant strides in securing long-term markets for a large portion of our future production."

Last January, Seneca signed a 15-year contract to supply Transco's Atlantic Sunrise pipeline with 189,405 Dth/d of firm transportation capacity. The capacity is expected to be available beginning in fall 2017. The company said it has pursued "firm sales agreements of varying duration with several counterparties" to meet obligations to Transco, through agreements that would begin in the fall of 2017 and run through at least October 2022, at an average premium of approximately 13 cents/MMBtu over the Henry Hub.

Seneca said two of its firm sales agreements associated with Atlantic Sunrise capacity will utilize strong demand to negotiate fixed-price sales beginning in November, three years ahead of the pipeline's scheduled in-service date.

"These agreements, which cover 50,000 Dth/d of production, carry a weighted-average fixed price of $3.77/MMBtu through October 2017 and then convert to a Nymex-based price for the period from November 2017 through at least October 2025, subject to an average price cap of $5.19/MMBtu," Seneca said.

The company said it had also signed precedent agreements with two additional NFG subsidiaries -- National Fuel Gas Supply Corp. and Empire Pipeline Inc. -- to transport natural gas from the WDA to markets in Canada. According to Seneca, the aforementioned subsidiaries have been making significant investments "in Appalachian pipeline expansions, along with TransCanada Pipeline and Union Gas Ltd."

Seneca said the agreements with NFG Supply Corp. and Empire will provide it with 350,000 Dth/d of firm transportation capacity, starting in late 2016, to move gas from the Clermont outlet to the Dawn market hub in Ontario, Canada. The company said the project will boost its capacity into Ontario to more than 550,000 Dth/d by November 2016.

According to Seneca's production volume update, natural gas production increased 20% in 3Q2014, to a total of 35.9 Bcf. Crude oil production totaled 783,000 bbl, up 10% from 3Q2013. The company attributed the rise in oil production to success in the East Coalinga field, which is in California.

For the full year 2014, Seneca raised its production guidance and forecast for capital expenditures (capex) to 160-168 Bcfe and $575-625 million, respectively. By comparison, the previous range for production guidance was 155-165 Bcfe while capex was $550-625 million. According to Seneca, the latter was changed to reflect "the acceleration of activities on five Marcellus Shale wells, where completion operations were originally scheduled in early fiscal 2015."

Seneca left unchanged its production guidance and capex forecast for full year 2015, leaving them at 180-220 Bcfe and $650-750 million, respectively.

The company has scheduled a conference call to discuss 3Q2014 operations and financial results for Aug. 8 at 11 a.m. ET.