Range 2012 Capital Plan – More Marcellus Drilling Ahead
Range Resources released its 2012 capital budget and operating plans yesterday. Range announced that Marcellus drilling is full steam ahead, especially in the liquids-rich southwestern PA area. But they also announced they are reducing dry gas drilling to just 25 percent of the total capital budget. So, more drilling in southwest PA, less drilling in northeast PA.
Here are the relevant portions from the Range announcement that touch on the Marcellus Shale:
Range Resources Corporation today announced its 2012 capital expenditure budget has been set at $1.6 billion. The capital budget includes $1.3 billion for drilling and recompletions, $215 million for leasehold, $47 million for seismic and $73 million for pipelines and facilities. Approximately 75% of the budget will be targeted toward liquids-rich and oil projects predominately in the Marcellus Shale and horizontal Mississippian plays. As a result of its capital program, Range has increased its 2012 production growth target to 30 – 35%. For 2012, all-in finding and development costs are projected to average $1.00 per mcfe or less.
In setting its 2012 capital expenditure budget, Range estimated projected drilling returns in each of its core areas, which demonstrated that at current strip prices that the 2012 capital program is expected to generate projected drilling returns ranging between 27% to 99%. Given the current natural gas price environment, capital spending for dry gas projects has been reduced to only 25% of the budget, almost all of which is associated with Marcellus Shale drilling in northeastern Pennsylvania. At current strip prices, the Marcellus Shale wells in northeastern Pennsylvania generate a projected return of 27% to 32%.
Marcellus Shale Division
Significant progress was made on multiple fronts in the Marcellus Shale during 2011. As discussed on several of its conference calls last year, Range’s development in the Marcellus Shale has stepped out into an area in southwest Pennsylvania which it now calls the super-rich area. To date, Range has drilled and completed eight wells in and on the edge of this super-rich area. The average estimated ultimate recovery ("EUR") of these eight wells is estimated to be 400 thousand barrels of liquids (95 thousand barrels of condensate and 305 thousand barrels of NGLs) and 3.9 Bcf of natural gas per well. The eight wells now have production histories ranging from 7 to 24 months. Below is information on three of our best recently drilled wells including one well drilled in the super-rich area and two drilled in the wet area that had either longer laterals or increased frac stages. We have a 100% working interest in all three wells.
The peak 24-hour test rate of the well in the super-rich area was 1,266 barrels of liquids per day (50% condensate, 50% NGLs) and 6.4 Mmcf per day of natural gas. This well had a lateral length of 4,137 feet and was completed with 19 frac stages. Assuming 85% ethane extraction, the test results would have been 1,714 barrels of liquids per day (35% condensate, 65% NGLs) and 5.6 Mmcf of natural gas per day.
The peak 24-hour test rate of the first wet well was 1,046 barrels of liquids per day (34% condensate, 66% NGLs) and 9.7 Mmcf per day of natural gas. This well had a lateral length of 2,375 feet and was completed with 14 frac stages. Assuming 85% ethane extraction, the test results would have been 1,783 barrels of liquids (20% condensate, 80% NGLs) and 8.4 Mmcf of natural gas.
The peak 24-hour test rate of the second wet well was 1,032 barrels of liquids per day (39% condensate, 61% NGLs) and 8.8 Mmcf per day of natural gas. This well had a lateral length of 3,425 feet and 22 frac stages. Assuming 85% ethane extraction, the test rate would have 1,700 barrels of liquids (24% condensate, 76% NGLs) and 7.7 Mmcf of natural gas per day.
Range believes that in a development mode the super-rich area wells will cost $4.7 million to drill and complete with a lateral length of 3,742 feet and 14 frac stages. This would develop an estimated EUR of 400 thousand barrels of liquids (95 thousand barrels of condensate and 305 thousand barrels of NGLs) and 3.9 Bcf of natural gas on approximately 80 acre spacing. The projected economics would reflect a 95% rate of return based on NYMEX "strip pricing" (as of January 31, 2012) with a NPV10 value (net present value discounted at 10% using strip pricing) of $10.7 million per well.
Range increased its EUR estimates to 5.9 Bcfe from the previous 5.7 Bcfe for wells drilled in the traditional wet area where Range has historically drilled. Estimating the EUR from this traditional wet area, drilling would develop 5.9 Bcfe per well on approximately 80 acre spacing (24 thousand barrels of condensate, 257 thousand barrels of NGLs and 4.2 Bcf of natural gas). The projected economics for this area would reflect a 73% rate of return based on strip pricing with a NPV10 value of $7.9 million per well.
Range has included a map of where its current 570,000 net acre position is located in the southwestern Pennsylvania area in the Company’s current presentation on its website. The number of acres associated with each of the prospective areas in the southwest are: 125,000 acres in the super-rich area, 210,000 acres in the wet area and 235,000 acres in the dry gas area. From both industry and Range’s drilling activity since 2004, Range believes that all the acreage in the southwest is prospective for Marcellus Shale development. Most of the acreage in the southwest associated with the dry gas portion of the play is already held by production allowing Range to focus its drilling in the super-rich and wet areas which are expected to generate substantially higher rates of return.
Range also announced the results in Lycoming County in the northeast portion of the play from its first well with a longer lateral. This well was drilled with a lateral of 5,000 feet and was completed with 17 frac stages. The initial 30-day average production rate was in excess of 8 Mmcf per day gross (7 net). The estimated EUR for this well is 10 Bcf. In a development mode, Range expects the wells with a 4,900 foot lateral length to cost $6.2 million and generate a projected rate of return of 32% and a NPV10 value of $6.6 million based on strip pricing. Just over the weekend, a new well was brought on line to sales with a 2,400 foot lateral and completed with eight frac stages at a 24-hour rate of 23 Mmcf per day gross (20 net). Acreage in the northeastern portion of the play is composed of 180,000 net acres. A map showing where the acreage is located can be found in the Company’s current presentation on its website. Currently Range is running four rigs in the northeast area but has the option in late 2012 to reduce the number of rigs to 1 – 2 rigs per year without reducing its expected resource potential.
In southwest Pennsylvania, Range drilled 39 wells during the fourth quarter, and a total of 32 wells were turned to sales bringing the total horizontal wells producing in southwest Marcellus to 246 wells. At the end of the fourth quarter, there were 16 wells waiting on pipeline and 77 wells waiting on completion in southwest Pennsylvania. In northeast Pennsylvania, Range drilled 21 (11.3 net) wells during the fourth quarter, five in Lycoming County, two in Clinton County, one in Centre County and 13 (3.3 net) in Bradford County. A total of 24 horizontal wells were turned to sales during the fourth quarter as considerable progress was made on the expansion of the gathering system and a new compression station was commissioned. Recently another phase of the northeast gathering system was commissioned and put into service along with one additional compressor station. Seven (1.4 net) horizontal wells were turned on line in Bradford County. At the end of the fourth quarter, there were 10 wells waiting on pipeline and 14 wells waiting on completion in northeast Lycoming area.
As previously announced, Range has made significant progress on marketing future ethane production by signing an agreement to ship up to 20,000 barrels of ethane per day on Enterprise’s ATEX Express pipeline which is expected to commence deliveries in 2014. This is in addition to the 15,000 barrels of ethane that will be delivered to Sarnia, Canada via the Mariner West project which is expected to commence in late 2013. At year-end 2011, the Company was capable of producing 20,000 barrels of ethane per day (17,000 net). The Company expects to complete additional ethane sales contracts in the future to cover its growing ethane capabilities.
During the year, Range has helped to pioneer a number of best practices in the super-rich and wet gas producing areas in Appalachia working with stakeholders in the industry, academia, conservation and the regulatory community. This includes enhanced measures to reduce and eliminate potential impacts on health and safety, including air and water resources. Many of these efforts are aimed at reducing potential emissions and stray gas during all phases of development including drilling, completion, flow back and final production; including vapor recovery units, workplace and first responder training, increased set backs from hydrocarbons on location and enhanced equipment and facilities. Several steps have also been taken to protect water resources including advancements in spill containment and prevention plans, equipment and training.
*Range Resources (Feb 21, 2012) – Range Announces 2012 Capital Plan and Provides Operations Update