Gastar Exploration Ltd. said Wednesday net production from its Marcellus Shale assets have increased more than 34-fold in a year, a result of ramped up drilling activity in the liquids-rich portion of the play during the second quarter of 2012.
Houston-based Gastar said net production from the Marcellus averaged 20.7 MMcfe/d during 2Q2012, compared with 0.6 MMcfe/d for the same quarter one year prior, a 3,350% increase. The latest net production figure is also a substantial increase, about 2,233%, from the 14.0 MMcfe/d realized in 1Q2012.
Additionally, every MMcf of natural gas produced in the Marcellus in the second quarter yielded about 24 bbl of condensate and 47 bbl of natural gas liquids (NGL), Gastar noted.
Higher production totals were expected after the company announced in January that it would devote most of its 2012 capital expenditures (capex), $88.9 million, toward its liquids-rich holdings in the Marcellus (see Shale Daily, Feb. 1). Gastar holds about 79,700 net acres in northern West Virginia and southwestern Pennsylvania, primarily in the wet-gas corridor of the Marcellus.
“Since the beginning of the year, we have continued to make tremendous progress in developing our liquids-rich Marcellus Shale acreage and have achieved significant production and reserve growth,” said Gaster CEO J. Russell Porter. “During the first half of the year, we have been able to increase our production by 57%, our proved reserve volumes by 40% and the percentage of those reserves that are liquids to 27% of total proved reserves.”
Gastar said it began 2Q2012 with 12 gross (5.2 net) operated wells producing in Marshall County, WV, and it purchased another eight gross (3.5 net) wells there during the quarter. Two of the acquired wells — Wengerd Nos. 1H and 7H — were temporarily shut-in to accommodate the additional drilling of five gross (2.2 net) horizontal wells on the Wengerd pad.
The company said at the end of 2Q2012 it had a 43.5% combined average working interest in 18 gross (7.8 net) operated wells in production. Five of the 18 gross wells have been drilled on the Hendrickson wellpad, followed by four on the Corley wellpad and three wells each on the Accettolo, Simms and Hall wellpads.
Gastar said it also began hydraulic fracturing (fracking) on four gross (1.6 net) wells on the Wayne wellpad, and one gross (0.5 net) well on the Burch Ridge wellpad, with average well lateral lengths measuring 5,400 and 5,550 feet, respectively.
“We also had drilling operations underway on two gross operated Wengerd wells with an average working interest of 44.5% and average lateral length of approximately 5,000 feet,” Gastar said. “The two Wengerd wells and three additional Wengerd wells should be completed by December, with all seven Wengerd wells being turned to production at that time.”
In Marshall County, Gastar began top-hole drilling in the latest quarter on eight gross (four net) wells on the Shields wellpad, and four gross (two net) wells on the Lily wellpad.
“We will resume drilling operations on the Shields wells later this year, and all 10 Shields wells are scheduled for production by August 2013,” company officials stated. “Our average working interest in the Shields wells is approximately 50%, and the average well lateral length is targeted to be approximately 2,800 feet.” By comparison, Gastar has a 50% average working interest in the Lily wells, which will be drilled to an average lateral length of about 5,200 feet. “The Lily wells are scheduled to begin production by first quarter 2013.”
Gastar’s nonoperated assets include seven wells in Butler County, PA, and four wells in Marshall County, WV, with an average working interest of 19.2% and 21.4%, respectively.
The company said capex in the Marcellus totaled $29.2 million during 2Q2012. For the rest of the year, the company has allocated $51.1 million for drilling costs. Most of the capex, $46.9 million, is to be devoted to drilling.
The dramatic increase in net production in the Marcellus helped offset a slight decline in East Texas, where the Hilltop area averaged 13.7 MMcfe/d, a 17.5% decrease from 2Q2011 (16.6 MMcfe/d) and nearly 3% lower from 1Q2011 (14.1 MMcfe/d).
“The lower volumes reflect natural declines in field production that were not offset by additional drilling due to low natural gas prices,” Gastar officials said. East Texas capex during the second quarter totaled $375,000. “While natural gas prices remain depressed, we intend to continue to limit our expenditures in East Texas to a minimum level of lease renewals and recompletions, with $1.5 million budgeted for the remainder of 2012.
“We will also continue to monitor activity of other operators on nearby and adjacent acreage as they work to identify and develop various oil formations that may potentially underlie our acreage in East Texas.”
In the Midcontinent, Gastar said it has acquired 20,300 gross (9,900 net) acres for oil targets and it began drilling operations for the first of three horizontal, nonoperated wells in late July. The first well is expected to be completed by September, with the other wells drilled by the end of the year. Drilling and completion costs for the first well is expected to cost $4.3 million gross.
Capex in the Midcontinent totaled $3.4 million during 2Q2012. The company has budgeted another $10.5 million for the remainder of the year for drilling, completion and lease acquisitions there.
Gastar said adjusted net losses totaled $4.1 million (minus 6 cents/diluted share) during 2Q2012, excluding noncash impairment charges and unrealized hedging gains. In the year-ago period Gastar lost $377,000 (minus 1 cent). Net cash from operating activities before working capital changes totaled $5.5 million (9 cents/share) in 2Q2012, up from $2.9 million (5 cents) from 2Q2011.
Revenue from natural gas, oil and NGLs increased 31%, to $11.1 million, during 2Q2012, up from $8.5 million earned during the same quarter one year earlier. The increase is revenue came from an 87% increase in production, minus 30% from lower commodity prices. Average daily production totaled 34.8 MMcfe/d for the second quarter, compared to 18.6 MMcfe/d in 2Q2011.
Gastar said revenue from liquids, which includes oil, condensate and NGLs, represented about 40% of total revenues during the quarter, compared to 12% in 2Q2011.
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