The promise of production from seven “exceptional” wells brought online in January in Pennsylvania’s Marcellus Shale and continuing additions to its pipeline business paint an expanding future for National Fuel Gas Co. (NFG) in 2013, CEO Dave Smith said during a conference call with analysts.

Seneca Resources Corp., NFG’s exploration and production subsidiary, reported 24.5 Bcfe of crude oil and natural gas production in the final three months of 2012, a 34% (6.3 Bcfe) increase compared with the same period in 2011. Appalachian production increased approximately 48% to 19.5 Bcfe, including production from the Marcellus Shale of 17.8 Bcfe, the company said.

Those numbers don’t include production from six wells that Seneca last month said are among the most productive ever drilled in Pennsylvania’s Marcellus Shale. Since its announcement last month, a seventh well has been brought on. “Those wells were tied into sales in late January and obviously will have a big impact” on volumes reported next quarter, Smith said.

“These wells represent some of the most productive wells ever drilled in the Marcellus by any operator,” Smith said at the time. “We anticipate this acreage will be a key driver of Seneca’s production growth over the next two to three years”(see Shale Daily, Jan. 23).

Seneca reported the seven Lycoming County wells drilled on a pad within its DCNR 100 tract registered initial production rates averaging 18.2 MMcf/d. Four of the wells produced at rates over 20 MMcf/d and all seven wells are currently flowing at a combined rate of approximately 85 MMcf/d.

“It’s a bit early to estimate ultimate recovery for these wells, but I’m confident the EURs will be higher than the 11.5 Bcf we estimated for the previous two pads. Finding and development costs here will be in the $0.50 to $0.80 per Mcf range, making for attractive economics even at a gas price of $3.00,” said Matt Cabell, president of Seneca Resources.

Strong results from the wells prompted NFG to raise its production guidance for 2013 by 6 Bcfe to 102-112 Bcfe, a 30% increase from 2012.

And early results from recent delineation efforts in the Western Development Area “make us increasingly optimistic about this acreage,” Smith said. “Several new prospect wells have been added to our program and we will maintain at least one rig focused on these efforts for the remainder of the year.”

In the fourth quarter, NFG saw a significant increase in natural gas production — 20.24 Bcf, up 6.31 Bcf from 13.93 Bcf in 4Q2011 — while oil production slipped to 714,000 bbl, down from 719,000 bbl in 4Q2011.

A year ago low natural gas prices forced Seneca to scale back capital expenditures on exploration and production, including dropping two drilling rigs in the Marcellus Shale (see Shale Daily, Feb. 8, 2012).

In November, Seneca said it was encouraged by test results from a Utica Shale well in Forest County, PA (see Shale Daily, Nov. 29, 2012). On Friday, Cabell said he expects typical wells there to achieve initial production rates of 10-15 MMcf/d. “Our plan is to return to this area later this year,” he said.

On the pipeline side, National Fuel is continuing its expansionary ways. Company executives said they have received customer commitments necessary to move forward on three different projects that combined are designed to add another 230 MMcf/d of capacity to the system. Some of that will involve increased deliveries into eastern Canada.

NFG’s pipeline business has completed five expansion projects since late 2011, including the Northern Access Project, which increased capacity from the company’s interconnection with Tennessee Gas Pipeline at Ellisburg, PA, to the TransCanada Pipeline near Niagara Falls, NY, and its Line N 2012 Expansion Project, which increased the takeaway capacity from the Marcellus to serve Northeast markets (see Shale Daily, April 20, 2012). Those projects and the Tioga Extension project, which was placed in service in fall 2011, boosted the segment’s earnings about 70% above 4Q2011, Smith said.

“As you know, this is a business that we’ve been excited about for a long time, and given the central location of our pipeline, gathering and storage assets in and around the prolific Marcellus and in between the Marcellus and growing markets in Canada and the northeastern United States, and given our proven track record of bringing projects in on time and on budget, we expect continuing significant growth from these midstream businesses.”

NFG reported earnings of $67.9 million (81 cents/share) for the final three months of 2012, compared with $60.7 million (73 cents) for the same period in 2011.