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Marcellus Gifts EQT, Range With Reserves Bounty
Marcellus Shale-focused producers EQT Corp. and Range Resources Corp. both charted substantial reserves gains last year, and both had the Appalachian play to thank for much of their success.
EQT grew its proved natural gas reserves by 28% in 2010, ending the year with 5,220 Bcfe. The growth came due to drilling in the Marcellus Shale, continuing improvement in the estimated ultimate recovery of Marcellus wells, as well as an increase in the projected number of wells to be drilled in the Marcellus over the next five years, EQT said.
The net increase in reserves before production was 1,291 Bcfe, representing a 928% reserve replacement ratio, which resulted from investments of $902 million, for a finding and development cost of 70 cents/Mcfe, the company said.
EQT estimates year-end 2010 total natural gas reserves, including proved, probable and possible categories (3P), at 21.2 Tcfe, a 70% net increase over the 2009 year-end level driven mainly by the success of the company’s Marcellus and, to a lesser extent, Huron Shale horizontal drilling programs. Probable reserves increased by 52% to 8.5 Tcfe.
The only problem on the production front is the company doesn’t have enough money to get the gas and liquids out of the ground as fast as it would like, CEO David Porges conceded during a conference call with financial analysts last Thursday. To raise capital that can be turned to drilling, EQT recently announced the sale of its Langley, KY, gas processing complex to MarkWest Energy Partners LP (see NGI, Jan. 10).
Porges said the company will continue to look at opportunities to monetize noncore assets, including the possible sale of its utility unit, although the potential for that move is not at the top of the list, he said.
Last year “was a record year for EQT in that operating cash flow, sales volumes, midstream throughput and natural gas reserves were all higher than ever before,” Porges said. “At EQT Production we posted our fourth consecutive quarter of over 30% year-on-year growth in sales of produced natural gas and our first-ever quarter over 40%.
“The Marcellus continues to be our fastest growing and most important play as well as our most profitable one. Marcellus production accounted for 27% of our sales of produced natural gas in the fourth quarter. Our success in the Marcellus in 2010 also drove a 28% increase in proved reserves and a 70% increase in proved probable and possible…reserves.
“Marcellus proved reserves increased 270% to nearly 2.9 Tcfe. However, as we said throughout most of 2010, we do not have enough capital available to us to pursue all of our above-hurdle-rate investment opportunities. This has necessitated tougher capital allocation decisions than we have faced in the past, including a 2011 plan that scales back development in the Huron and CBM plays.”
Pittsburgh-based EQT reported improved earnings for 2010: $227.7 million, a 45% increase from the $156.9 million earned in 2009. Earnings per share were $1.57 last year, up from $1.19 in 2009. Operating income was $470.5 million, representing a 32% increase from 2009. The company realized higher revenues from increased production, gathering and processing volumes and natural gas liquids (NGL) prices, which were partially offset by lower realized natural gas prices and lower storage and marketing margins.
Driven by horizontal drilling in the Marcellus and Huron shale plays, EQT’s production unit achieved sales of produced natural gas of 134.6 Bcfe for 2010; representing a 34.5% increase over 2009. Approximately 48% of 2010 sales of produced gas came from horizontal shale wells, up from 30% last year.
Last year Range grew proved reserves 42% to 4.4 Tcfe and replaced 931% of its production for the year, the company said last Tuesday.
“Our 42% increase in proved reserves, 931% production replacement and 72 cents/Mcfe all-in finding cost is a direct reflection of Range owning a very large acreage position in the Marcellus Shale — a giant field that has industry-leading economics,” said Range CEO John H. Pinkerton.
“With the 2010 results now in hand, we have achieved double-digit growth in production and reserves per-share on a debt-adjusted basis for five consecutive years. Given our Marcellus Shale position, where much of our acreage has now been derisked, coupled with our other projects in the Nora field in Virginia, Midcontinent and Permian Basin, we have more than 1.4 million acres that hold tremendous resource potential.”
Overall activity in the play has picked up from year to year. In January 2010, less than 120 rigs were actively searching for oil and gas in the Marcellus Shale, according to NGI‘s Shale Daily Unconventional Rig Count. After spiking to more than 160 rigs last fall, there are currently more than 140 rigs active during January 2011.
At year-end 2010, 80% of Range’s proved reserves by volume were natural gas, compared with 84% as of year-end 2009. Year-end 2010 natural gas liquid reserves were 17% and crude oil reserves were 3% compared with 10% and 6%, respectively, in the prior year. The percentage of reserves in the proved undeveloped category was 51% at year-end 2010, versus 45% at year-end 2009.
“The increase in percentage of proved undeveloped reserves was due to the recording of additional proved undeveloped reserves in the Marcellus Shale play where Range had outstanding results in 2010,” the company said.
The company’s estimate of cash drilling and development costs and property acquisitions incurred during 2010 including exploration expenses is approximately $1.2 billion. Range estimates that it spent $165 million for acreage in 2010. Finding and development cost from all sources averaged 72 cents/Mcfe including price and performance revisions, or 74 cents/Mcfe excluding price revisions. Drillbit development cost (excluding price revisions and acreage cost) was 60 cents/Mcfe.
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