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Consol Reports Lower NatGas Production, Expects Decline in Earnings
Consol Energy Inc. said Monday that although it reported lower natural gas production for 3Q2012 compared to one year ago, the figure was misleading because of reporting adjustments and its decision in September to idle a southern Virginia coal mine that produced associated gas.
The Canonsburg, PA-based natural gas and coal producer also said it expects to report an earnings net loss for 3Q2012 due to a combination of marketing and operational issues. It will report additional results Thursday, Oct. 25.
“While precise figures are not yet available, it is clear that the company’s previously announced planned and unplanned mine idlings took their toll on third quarter earnings,” CFO William Lyons said. “Fortunately, [we have] the balance sheet to maintain market discipline.”
Consol said it produced 39.5 Bcf of natural gas during 3Q2012, a 2.2% decrease from the 40.4 Bcf produced during 3Q2011. But the company blamed approximately 0.2 Bcf of the shortfall on its decision in September to idle the Buchanan Coal Mine, which produced associated gas, in southern Virginia.
Consol also said last year’s formation of a joint venture (JV) with Noble Energy Inc. in the Marcellus Shale affected 3Q2012 production numbers (see Shale Daily, Oct. 5, 2011). Under the terms of the deal, Noble agreed to pay Consol nearly $1 billion for a one-half interest in 628,000 net acres. In exchange, Noble acquired a 50% interest in Consol’s existing Marcellus production and infrastructure for almost $232 million. According to Consol, 3Q2011 production included some production from an overriding royalty interest owned by Antero Resources. That interest has since been sold back to Antero (see Shale Daily, Sept. 27, 2011).
“On an adjusted basis, therefore, last year’s 40.4 Bcf would have been approximately 35.9 Bcf net to Consol,” the company said. “On an apples-to-apples basis, [our] gas production would have increased by 13%, if not for these items.”
During 3Q2012, Consol said it drilled and completed 12 wells in the Marcellus and placed 22 into production. The company also drilled four wells in the Utica, completed two of them, and placed one into production. Meanwhile, Noble Energy drilled four wells in a liquids-rich area of the Marcellus, and Hess Corp. — Consol’s JV partner in the Utica — drilled one well in the Utica.
Consol’s estimate for net gas production in 2012 remains 157-159 Bcf (see Shale Daily, April 18). For the fourth quarter, it estimates net gas production of 42.5-44.5 Bcf.
Consol said its gas division was continuing to improve performance, reaching record peak 24-hour production rates in all three of its Marcellus districts — Central Pennsylvania, Southwest Pennsylvania and Northern West Virginia — while also extending completed lateral lengths. The company said that in 2011, completed laterals in the Marcellus averaged 3,300 feet. During the first three quarters of 2012, completed laterals in the play averaged 4,870 feet, with a maximum length of 8,460 feet during 3Q2012.
The company also reported progress in reducing costs per frack stage. Consol said it spent $205,000 per stage in 2011, but the costs have fallen to $181,000 per stage to date in 2012. The costs are all-in, from total depth to flowback.
Consol, which is also a major coal producer, said it continued to use water from its coal mines for fracking of its natural gas wells. During 3Q2012, the company fracked wells at the MOR 10F pad, located in Southwest Pennsylvania’s Morris Field, using 16% mine-sourced water. The pad (13 stages, 3,613-foot completed lateral) came online Aug. 6 with initial production of 10.8 MMcf/d.
The company said it was also testing 450-stage lengths in Southwest Pennsylvania, versus the normal 300-foot stages. Consol’s three-well MOR 17 pad (with completed laterals of 2,211-2,594 feet) recorded initial 24-hour flow rates of 7.0-8.0 MMcf/d.
“These are truly exceptional results from wells of such short lengths,” the company said.
Consol said it didn’t drill any horizontal wells in its central Pennsylvania district of the Marcellus during the third quarter because it completed the 2012 drilling program during the second quarter. But flowback operations at the four-well Gaut 4 pad in Westmoreland County were completed. One of the wells there, Gaut 4D, set a new production record of 23.7 MMcf/d during 3Q2012.
Completion operations were finished at the six-well DeArmitt 1 South pad in 3Q2012. Well 1F was used 29 stages and included the company’s longest lateral at 8,305 feet. Flowback operations were under way, with production expected to begin before the end of October and an in-service date before the end of the year.
Also in central Pennsylvania, Consol received a centralized impoundment permit for its four-well Bowers 1 pad in Jefferson County, the company’s first foray there. Completion operations are expected to begin at the pad before the year’s end.
In Southwest Pennsylvania, Consol said it was continuing to develop the North Nineveh area in Greene County. The company said drilling operations were finished at the seven-well NNV 38 pad (maximum drilled lateral length of 7,000 feet) and the eight-well NNV 41 pad (7,200 feet). Two rigs are currently drilling the six-well NNV 39 pad and the five-well NNV 42 pad. Completion operations are expected to begin at North Nineveh before the end of 2012.
The 12 wells Consol drilled and completed were also in southwest Pennsylvania, in the Morris Field. The company said 12 wells brought online there during 3Q2012 recorded “very strong results.” They were:
Like central Pennsylvania, Consol said it didn’t drill any horizontal wells in its northern West Virginia district during 3Q2012 because it completed the year’s drilling program during 2Q2012. But the company said it completed and brought into production the three-well Philippi 4 pad, with individual well peak 24-hour rates ranging from 6.5-9.2 MMcf/d, the high mark being a district record. Consol also brought online the six-well Alton 2 pad in Upshur County, with individual well peak 24-hour rates ranging from 3.5-6.7 MMcf/d, a “significant improvement” over Alton 1, which was drilled and completed in 2011.
Reporting on its JV partners, Consol said Noble has drilled 15 wells in the Marcellus so far this year, including four in 3Q2012. Noble also brought nine wells into production, all during the third quarter.
“Noble Energy has three horizontal rigs drilling [in the Marcellus],” Consol said. “[Noble] is moving to the elimination of using a separate rig for the top hole drilling as well as batch drilling on the pads. [They believe] that this method of drilling will be more efficient and result in fewer rig moves over time, eliminating a significant amount of road traffic and reducing costs.”
In the Utica, Consol said its JV with Hess turned its first well to production. The TUSC 3A well, drilled in western Tuscarawas County, produced at a peak rate of 400 b/d of light crude before being shut in for fracking fluid dissipation and an artificial lift in May. Consol said the shut-in lasted about 10 weeks, with the well brought back online in early September. Cumulative production from TUSC 3A is now more than 7,800 bbl.
The four horizontal wells Consol drilled to total depth in the Utica during 3Q2012 were:
Consol said completion operations were under way at all four of its Utica wells. The company is operating two horizontal rigs in the Utica — one in Tuscarawas County, the other in Mahoning County — and expects to drill a total of eight wells in the play before the end of the year.
Meanwhile, Consol said Hess was operating two joint rigs in Harrison County — in eastern Ohio’s portion of the Utica — with plans to complete drilling operations at two wells on the JV acreage and to have started drilling another two wells before the end of 2012.
Consol said its JV with Hess successfully drilled an exploratory well in Stock Township, in Noble County during the third quarter. The company said flowback operations were under way at the Noble 1A well, following a 30-day shut-in period for the dissipation of hydraulic fracturing (fracking) fluids.
Consol described early production results from Noble 1A as “encouraging,” with peak 24-hour flows of 9.0 MMcf/d of natural gas and about 10 b/d of condensate. Meanwhile, Consol said it is currently drilling another well, Noble 16A, in Noble County’s Seneca Township.
The Consol-Hess JV controls 200,000 acres in the play (see Shale Daily, Sept. 8, 2011).
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