Seneca Resources Corp. has reduced its outlook in the Marcellus Shale after long-time joint venture (JV) partner EOG Resources Inc. said it didn’t expect to drill the minimum number of wells that were defined under an area of mutual interest (AMI).

In late 2006 EOG and Seneca, the exploration arm of National Fuel Gas Co.m agreed to partner in the Marcellus. National Fuel initially provided 200,000 net acres in northern Pennsylvania in exchange for EOG’s capital. EOG, which at the time had about 130,000 net acres in Pennsylvania and New York, was to earn a half-stake in the wells drilled in the AMI.

However, EOG “has advised Seneca that it does not expect to meet the minimum drilling target for calendar 2012 specified in the JV. Should it not meet that minimum, EOG would no longer have the right to earn additional acreage from Seneca.” However, the partners would retain their respective working interests in wells already drilled and they could drill additional JV wells on the acreage that has been earned, Seneca said.

“The joint venture with EOG has been successful in achieving the goals we identified when the agreement was signed in 2006,” said National Fuel CEO David F. Smith. “With a minimal initial investment, we evaluated our acreage and learned from an experienced shale gas operator, simultaneously developing a talented Marcellus Shale operations team that has grown our Marcellus production substantially from the program’s inception.

“While we expect a modest impact to our near-term growth outlook, having full control of our largely royalty-free, contiguous acreage position unencumbered by a JV further enhances the long-term value of our Appalachian assets,” Smith said.

As of July 21, EOG had earned a 50% stake in close to 34,000 gross acres contributed by Seneca to the JV, according to National Fuel. Seneca’s total net Marcellus production currently is 200 MMcf/d, of which 44 MMcf/d is from 65 gross horizontal wells within the JV.

Because of the reduced JV activity, Seneca “anticipates very little drilling or completion activity on JV acreage in fiscal 2013,” said National Fuel. “This will lead to an inventory of previously drilled wells that likely will remain uncompleted until natural gas prices reach an acceptable level.

“Even though Seneca had already discussed its plans to limit participation in future JV wells to its 20% overriding royalty interest, the change in EOG’s JV activity will further reduce Seneca’s previously announced capital expenditure and production guidance for its 2013 fiscal year.”

Seneca’s capital spending is expected to be cut by about $50 million, “largely as a result of EOG’s anticipated postponement of completion activity, to a range of $400 million to $500 million. Consequently, production is now expected to be in the range of 92 Bcfe to 105 Bcfe, reduced from the previous guidance of 100-115 Bcfe.”

In Seneca’s owned Marcellus program, it said production has ramped up on the first three wells of a six-well pad located on its DCNR 595 tract in Tioga County, PA. The three wells had peak 24-hour production rates that averaged 7.9 MMcf/d, “with the best well achieving a rate of 9.3 MMcf/d.”