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Rice Production Up 84%, Announces MLP for Midstream Assets in PA

Rice Energy Inc. turned 10 gross (9.1 net) wells targeting the Marcellus Shale, as well as its first in the Utica, into production during the second quarter of 2014, all of which helped boost the company's production by 84% as it simultaneously tacked on acreage in Ohio and Pennsylvania.

Meanwhile, the Canonsburg, PA-based company said it plans to form a midstream master limited partnership (MLP) that will include Rice's gas gathering and water sourcing and distribution assets in Pennsylvania.

Rice reported net production of 241 MMcfe/d for 2Q2014, an 84% increase over 2Q2013 (131 MMcfe/d) and 15% above 1Q2014. Total production volumes were 21,969 MMcfe, which includes 21.9 Bcf of natural gas and 550 bbl of crude oil and natural gas liquids (NGL).

In Pennsylvania, Rice's 2Q2014 net production averaged 240 MMcfe/d, which was also 84% above pro forma production for 2Q2013. The 10 new aforementioned wells targeting the Marcellus -- six in eastern Washington County and four in western Greene County -- were drilled with an average 8,400-foot lateral. The company said the 10 wells averaged 132 MMcf/d gross for the month of June and "continue to perform in line with management's expectations."

Rice exited 2Q2014 with 51 producing wells targeting the Marcellus and three targeting the Upper Devonian Shale. The company said it has another 51 wells in progress and expects to have them turned into production over the next 12 months.

The company's big news out of Ohio for the quarter was its Bigfoot 9H well in Belmont County (see Shale DailyJune 2). The well stabilized at a rate of 41.69 MMcf/d of gas on a 33/64" choke, with flowing casing pressures of 5,850 psi, making it the largest producing well in the Utica to date. Rice said that after 49 days of production, the Bigfoot well had cumulatively produced 676 MMcf of natural gas and was continuing to flow at a restricted rate of 14 MMcf/d.

"Of note, we are extremely encouraged by the lower than expected pressure decline during the first two months of production," Rice said Monday. "The well is currently still flowing with casing pressures over 5,650 psi and given the consistent and predictable pressure decline, we expect Bigfoot 9H to flow at a restricted rate of 14 MMcf/d for at least 365 days. The expected one year cumulative production is now anticipated to be approximately 5.1 Bcf, a 35% increase over our original estimate of 3.8 Bcf."

Rice said it was in the process of completing its second and third wells to target the Utica, Blue Thunder 10H and 12H. Both have lateral lengths of 9,000 feet and will each be completed with 52 stages. The company said the final stages would be completed within days and the wells would be entered into production in September.

"Our drilling operations are moving forward with one horizontal rig and two new fit for purpose top hole rigs," Rice said. "These top hole rigs will be used to drill down to kickoff point on all wells, which we believe will result in significant time and costs savings during our 2015 pad drilling campaign.

"We initiated drilling operations in the second quarter on a three-well pad and an adjacent two-well pad with lateral lengths of 9,000 feet.  These two pads are part of a 'tandem completion' pilot project, where both sets of wells will be completed simultaneously to test our planned full scale development strategy."

Rice said it closed on approximately 13,928 net acres of leasehold during 2Q2014, including approximately 9,856 net acres in Washington and Greene counties, and 4,072 net acres in Belmont County. The company's leasehold stood at 104,606 net acres as of June 30, which includes approximately 53,834 net acres in Pennsylvania and 50,772 net acres in Ohio.

Outside of 2Q2014, Rice closed on an agreement to acquire 22,000 net acres in Greene County from a subsidiary of Chesapeake Energy Corp. on Aug. 1 (see Shale DailyJuly 7).

Production guidance for the full-year 2014 ranged from 260-295 MMcfe/d with a target midpoint of 278 MMcfe/d. The company said it expects to turn 34 net Marcellus and five net Utica wells into sales in 2014. Capital expenditures (capex) was updated to $570-580 million, the company said, "to incorporate timing adjustments to our drilling schedule."

Adjusted net income for 2Q2014 was $4.02 million ($0.03/share), compared to $4.31 million ($0.05/share) during 2Q2013.

In a separate announcement Monday, Rice said it intends to confidentially submit a draft registration statement on Form S-1 to the U.S. Securities and Exchange Commission for an initial public offering (IPO) of common units for the proposed MLP. The offering is expected to be completed during the first half of 2015. After the closing of the IPO, Rice will control the general partner of the MLP and will own 100% of the incentive distribution rights and a majority of the MLP limited partnership units.

In a note Monday, Gordon Douthat, analyst for Wells Fargo Securities LLC, said Rice stock had a neutral outlook.

"Earnings per share and production guidance [were] slightly lower, likely overshadowed in our view by [the] announcement of plans to do an MLP covering midstream assets," Douthat said. "[The] timing is ahead of our expectations, though not entirely unanticipated in our view."

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