Highlights from the CONSOL Energy quarterly earnings report as it touches on their operations in the Marcellus Shale:
On March 15, CONSOL Energy announced a $3.475 billion acquisition of the Appalachian gas exploration and production business of Dominion Resources. We expect to close the transaction tomorrow. The assets include approximately 1 trillion cubic feet of proved reserves and approximately 500,000 acres of Marcellus Shale. Additional assets include an overriding royalty interest from farm-outs, 300,000 acres of Huron Shale, and extensive Utica Shale acreage.
On March 22, CONSOL Energy announced its intention to acquire the approximately 25 million shares of CNX Gas that it does not already own for $38.25 per share. We commenced the tender offer on April 28. As previously announced, T.Rowe Price has already agreed to tender the 9.47 million shares held for its investment advisory clients into the offer at the offer price of $38.25 per share.
During the quarter, CNX Gas achieved record initial production from one of its latest Marcellus Shale wells. Well GH 2B CV, has averaged 5.0 MMcf per day for the first 47 days of production. It peaked at 5.7 MMcf per day. This well has a lateral of 2,300 feet.*
This section on their gas operations from subsidiary CNX Gas:
The CNX Gas results are presented throughout this section, on a 100% basis. As of March 31, however, CNX Gas was 83.3%-owned by CONSOL Energy.
CNX Gas Corporation (NYSE: CXG), a leading Appalachian producer, reported net income attributable to CNX Gas shareholders of $45.6 million, or $0.30 per diluted share, for the quarter ended March 31, 2010.
Production was 24.0 billion cubic feet (Bcf), or 267 million cubic feet (MMcf) per day, for the quarter ended March 31, 2010. This was 9% higher than the 22.0 Bcf, or 245 MMcf per day, for the year-ago quarter, but slightly lower than the 25.1 Bcf produced in the fourth quarter of 2009. Approximately 0.6 Bcf of production was deferred due to the loss of power for several days related to a severe winter storm in our Northern Appalachia producing region in the quarter ended March 31, 2010.
CNX Gas drilled its best ever horizontal Marcellus Shale wells during the first quarter. One well, GH 2B CV, averaged 5.0 MMcf per day for the first 47 days of production. It peaked at 5.7 MMcf per day. This production is remarkable when one considers that the lateral is only 2,300 feet. Based on this early production, we think it is reasonable to assume reserves for this well in excess of 5 Bcf.
A second well, GH 10 CV, has only 1,500 feet of lateral, but has a current daily production rate of 4.3 MMcf. This well is still inclining after being on line for 17 days, with an average production rate of 4.1 MMcf per day.
A third well, GH 11B CV, had its last three stages fraced, as had been anticipated in the prior earnings release. This well, with only 1,800 feet of lateral, is now producing 2.2 MMcf per day from only those three stages. As CNX Gas moves to its new drilling area on June 1, the company expects to see proportionate increases in production and reserves as the laterals are increased to 3,000 feet and beyond.
CNX Gas increased production by 9% in the first quarter of 2010, as compared with the prior year’s first quarter, while paying down about $9 million of debt. The daily production rate of 267 MMcf was down 6 MMcf from the 2009 fourth quarter, as unusually heavy snows slowed the pace of drilling.*
And this bit of news about CNX Gas’ activities in the Marcellus:
For the entire horizontal Marcellus Shale program to date, 18 horizontal wells have been drilled. The reserves associated with the first 11 wells total 35.6 Bcf, or about 3.3 Bcf per well. The laterals on these wells averaged less than 2,000 feet.
Upcoming drilling in the Marcellus Shale is expected to be predominantly horizontal and on multiple-well pads, with laterals closer to 3,000-3,500 feet. For 2010, the company expects to drill approximately two dozen horizontal wells, with a drilling budget of about $110 million.
CNX Gas successfully increased its acreage with Marcellus Shale potential by 10,000 in the quarter, to a total of 260,000. Of this, approximately 180,000 acres is considered to be Tier 1 acreage.*
Finally, this quote from CONSOL President and CEO, J. Brett Harvey:
Clearly, our future gas growth will be centered on the Marcellus Shale. Our existing acreage and the acreage acquired in the Dominion transaction complement each other in southwestern Pennsylvania and northern West Virginia. Our total Marcellus position of 760,000 acres vaults us into the top acreage holders of what may be the world’s most prolific natural gas formation.*
*CONSOL Energy Press Release (Apr 29) – CONSOL Energy Reports First Quarter Results; Dominion Gas Acquisition to Close Tomorrow