CONSOL Increases 2012 Capital Spending in Marcellus/Utica

CONSOL Energy is increasing its capital projects budget by 21 percent in 2012, including a ramp-up in their commitment to both the Marcellus and Utica Shale plays. CONSOL says they will spend $395 million to drill 122 new Marcellus Shale wells in 2012 (their portion of a joint venture with Noble Energy), 39 of those wells will be in the liquids-rich portion of the Marcellus. They will invest $50 million in Utica Shale drilling for the year.

From the CONSOL press release:

CONSOL Energy Inc.’s (NYSE: CNX) Board of Directors has approved a 2012 Capital Budget of $1.7 billion, an increase from $1.4 billion invested in 2011. The budget includes $720 million for coal, $755 million for gas, $135 million for water, and $110 million for other.

"This budget reflects our desire to create shareholder value by investing in our highest rate of return projects: our organic opportunities in coal, gas, and liquids" commented J. Brett Harvey, chairman and CEO. "We are, however, entering a year with an unusual amount of uncertainty. We have the ability to adjust our investment, should circumstances warrant."

Within the coal category, CONSOL anticipates investing $310 million for maintenance-of-production projects. Another $205 million has been allocated to projects such as the BMX Mine which will result in increased production. This project is on track to add 5 million tons a year of high-quality Pittsburgh seam coal, which will be sold in either the high-vol or thermal markets. A further $155 million will go towards efficiency improvements such as the overland belt at Enlow Fork Mine, while health and safety items will require $50 million.

Within the gas category, CONSOL plans to spend $575 million on developing its extensive Marcellus Shale assets. Included in this is drilling capital of $395 million. The budget anticipates that the CONSOL/Noble Energy joint venture will drill 122 (gross) horizontal Marcellus Shale wells, including 39 (gross) wells in the liquids-rich area of the play. CONSOL expects to invest $90 million in related gathering and compression.

In the CONSOL/Hess Corporation joint venture in the Utica Shale, CONSOL expects to invest $50 million. Most of that will be drilling capital for CONSOL’s share of up to 22 (gross) wells. All of the Utica drilling is expected to occur in either the liquids-rich area or the oil window of the play.

As a result, the total drilling in the liquids-rich/oil window is expected to be the 39 (gross) wells in the Marcellus Shale, and 22 (gross) wells in the Utica Shale, for a total of 61 (gross) wells out of the 144 (gross) wells, or 42%, expected to be drilled in the two plays.

The coalbed methane program will be scaled back in 2012 with the expected drilling of only 86 wells. Total capital for the 2012 CBM program is estimated to be $65 million.

Across all of the gas plays, the $755 million includes $519 of drilling capital, $124 million of gathering and compression capital, $30 million for production equipment, $26 million for water, and $23 million for land.

As a result of the expected gas investment, CONSOL Energy projects its 2012 gas production to be 160 Bcfe. This will be an increase of nearly 12%, compared to pro forma 2011 production of 142.9 Bcf, adjusted for the partial year impact of Marcellus production sold to Noble Energy and Antero Resources.

The company is introducing a 2013 gas/liquids production target of between 200 – 220 Bcfe, which will be achieved largely from the ramp-up in drilling in 2012.*

*CONSOL Energy (Jan 10, 2012) – CONSOL Energy Announces 2012 Capital Budget of $1.7 Billion