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Rosetta's Revamped Completions Paying Off

Rosetta Resources Inc. turned in record production during the second quarter thanks in part to new well completion techniques. Eagle Ford production was up sharply, and the company is seeing its "best wells to date" in the Permian Basin.

Meanwhile, testing in the Upper Eagle Ford shows that the region holds promise. Production and spending forecasts for this year were both raised.

Production averaged a record 61,500 boe/d, an increase of 26% from the same period in 2013 and 13% from the first quarter of 2014. All-time highs were also achieved in both oil and natural gas liquids (NGL) volumes. Oil production averaged 19,000 b/d, an increase of 56% from the 2013 period. NGL production increased by 16% to 21,200 b/d compared to the prior year second quarter. Rosetta exited the quarter producing an average of 62,700 boe/d in June, and current production indicates a continued growth trend, the company said.

"Rosetta has accelerated the momentum of our Delaware Basin horizontal delineation program," said CEO Jim Craddock. "We made significant gains in our technical understanding of the Reeves County [TX] core area and are seeing our best well results to date. We are very pleased with our progress in the Delaware Basin. As a result of the success we are achieving in our Eagle Ford and Permian programs, we are increasing our 2014 production target. Our momentum has been strong so far this year and we are increasing our 2014 capital guidance to maintain that momentum into next year."

Daily production from the Eagle Ford was 56,900 boe/d in the second quarter, an increase of 21% from the prior year and 14% versus the prior quarter. Rosetta operated four rigs in the Eagle Ford area during the second quarter. Capital spending included $217.5 million for drilling and completions. During the quarter, 21 wells were drilled, 28 wells were completed, and 31 were brought online. At the end of the quarter, 50 drilled wells were awaiting completion, down from 57 in the prior quarter.

"This is one of the best quarters that we have seen [from Rosetta]," enthused Wunderlich Securities analyst Irene Haas in a note Wednesday. "We believe that Rosetta is back to doing what it does best: drilling and completing wells, profitably and efficiently."

Haas has a "buy" rating on Rosetta shares, as does Topeka Capital Markets analyst Gabriele Sorbara. Wells Fargo Securities rates the shares at "outperform," and BMO Capital Markets has a "market perform" rating on Rosetta. At midday Wednesday, Rosetta shares were up by more than 2%.

Since starting up in the Eagle Ford, Rosetta has completed 272 gross horizontal wells through June 30. During the third quarter the company expects to complete 20-25 Eagle Ford wells and operate four rigs in the play, including two rigs in the Gates Ranch area.

Rosetta revised the completion design in certain Eagle Ford activity areas resulting in total well cost savings of about $500,000 per well. Updated well cost guidance for the Gates Ranch, Briscoe Ranch, L&E, Vivion, and Tom Hanks areas is $5.5-6.0 million per well, down from $6.0-6.5 million. Lower costs reflect a change in proppant from ceramic to sand. Rosetta is pumping more of the less expensive sand proppant and achieving better results.

"This significant completion design change was a result of the company's 12 test case wells at Gates Ranch where sand was pumped and well performance compared over a three to four-year period against the performance of wells completed with ceramic proppant," Rosetta said.

The company is continuing testing in the Upper Eagle Ford in areas where the overall reservoir is thickest. After six months of production on the previously reported Upper Eagle Ford pilot on the L&E lease, the upper well continues to produce at similar rates as its lower Eagle Ford counterparts. "On the latest and largest pilot to date, an 11-well pilot on the easternmost side of the Gates Ranch, the Upper Eagle Ford pilot wells that intentionally targeted a landing interval lower in the upper section are performing comparable to their lower Eagle Ford counterparts after an initial three months of production," Rosetta said.

Production from the Permian Basin averaged 4,500 boe/d, an increase of 5% from the prior quarter. Rosetta ran five rigs in the Delaware Basin during the quarter. Capital spending included $91.6 million for drilling and completion work in Reeves County; 13 gross operated wells were drilled, including eight horizontals and five verticals. A total of nine gross operated wells were completed, five of which were horizontals. During the third quarter, Rosetta plans to run five rigs in the play, including four dedicated to horizontal drilling. The company expects to complete six to eight operated gross horizontal wells, including a third Bone Spring test and an upper Wolfcamp horizontal well with a 7,500-foot length.

COO John Clayton told analysts during an earnings conference call Tuesday that the company is seeing its best Permian wells to date. "I would also say that we have modified our completion design, and we are definitely seeing the benefits of those changes," he said.

In the Wolfcamp A bench, Clayton highlighted the Calamity Jane 22 No. 1H well. "This Wolfcamp A well is our best horizontal well to date and one of the best wells in Reeves County," he said. "The well produced 1,966 boe/d for its seven-day average. Of that production, 69% is crude oil. The well has a 4,000-foot lateral and was completed with 15 stages using a slickwater-based frack fluid to give us a more complex fracture initiation.

"It's early, but we really like the results we are seeing with our change to a more complex frack design and using slickwater to initiate it."

Pioneer Natural Resources Co. also has been optimizing its completions in the Wolfcamp (see Shale DailyAug. 5).

Rosetta raised full-year production guidance to 63,000-66,000 boe/d from 60,000-65,000 boe/d. The new target range midpoint represents approximately 30% year-over-year production growth. The average oil ratio is expected to be 30% in 2014 with total liquids estimated at 63%.

The company also raised 2014 capital spending guidance to $1.2 billion from $1.1 billion, excluding acquisitions. This year's program is based on a four- to five-rig Eagle Ford program and a Delaware Basin program averaging five to six rigs during the year.

Spending also includes $130 million for central facilities projects to support 2014 and 2015 well programs. About $790 million will be spent for development activities, mainly in the liquids-rich window of the Eagle Ford. About $320 million will be allocated to operated and nonoperated development in the Delaware Basin. The remaining $90 million includes allocations for new ventures activity, capitalized interest and other corporate capital.

Second quarter net income was $14.4 million (23 cents/share) versus $75.4 million ($1.27/share) for the same period in 2013. Adjusted net income was $50.5 million (82 cents/share) versus $52.3 million (88 cents/share) in the year-ago quarter. Revenues were $220.9 million compared to $236.5 million for the same period in 2013. Excluding unrealized derivatives, revenues were $264.6 million in 2Q 2014 and $193.8 million in 2Q 2013.

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