Impressive 2018 Marcellus Growth Not So Impressive Because of DUCs?
Our lead story today is about Gulfport Energy which highlights some exciting news: This year (in 2018) Gulfport will fund their entire drilling budget out of the cash flow the company generates from selling gas/oil/NGLs (see Gulfport Energy Continues Focus on Utica for 2018, No Borrowing). Thing is, Gulfport isn’t the only Marcellus/Utica driller to advertise the fact that this year they are “living within their means” and not borrowing. Others include Range Resources, EQT and Antero Resources. Wow! We’re finally profitable!! Or are we? MDN spotted some analysis by a hedge fund manager. Writing on the Seeking Alpha investor’s website, Josh Young says (in our words) “hold on a minute” with respect to M-U drillers appearing to be able to grow production without borrowing. Why is Josh not convinced with this good news? Because when you dig deeper into the numbers, you find that “organic growth within cash flow is further from reach” because drillers are using DUCs to spend less on drilling, and grow production, than they otherwise would be. A DUC is a Drilled but UnCompleted well. Many times drillers will drill the initial hole in the ground, but then not “complete” (or frack) the well. Why do that? For a variety of reasons. The biggest reason is usually because the commodity price of gas (or oil, depending on the well) is not favorable. Rather than lose the lease (an expensive proposition), drillers will begin the process by drilling, and then leaving, the well, returning later to complete it when prices go up again. Josh’s thesis is that by using DUC inventory drillers aren’t really funding the entire budget from current year cash flow, because some of the money was spent in a previous year to drill the well. They are, in essence, still borrowing–from a different year. Josh estimates an average of 20% of the “new” wells coming online are DUCs and not truly new wells funded by current year dollars–meaning these companies aren’t as “profitable” as they may seem. Does he have a point? Is it all just financial mumbo jumbo? You decide…
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Yesterday Range Resources released a pair of press releases. One outlines a high level overview for what the company will spend in 2018 and beyond, for the next five years. The other release trumpets Range’s “proved reserves.” As for 2018, Range says they are reducing the amount of money they will spend to drill this year versus what they spent last year. Range previously said they would spend $1.15 billion this year. That’s now been reduced to $941 million. Last year Range spent $1.27 billion, so this year’s spending is down 26% over last year. That’s a pretty hefty decrease. The good news is that Range will spend 80% of this year’s budget on drilling in the Marcellus, mainly in southwestern Pennsylvania. Even though Range will spend and drill less this year, they predict production will grow another 25%. As for the 5-year outlook, Range says almost all growth will come in the Marcellus (not the Louisiana Haynesville, their other drilling location). Range still has some 3,200 locations where they can drill new wells. Range CEO Jeff Ventura says shale has entered a “new era” of shale development where companies (like Range) have “captured the most prolific resources” and will now switch to focus on returns for shareholders. Translation: We won’t be drilling as much as we did in the past so we can concentrate on bottom line profitability. Which explains why Range is spending less this year than last. In the release Range calls the Marcellus its “flagship asset” and clearly signals the company will keep its focus here, in our region. As for proved reserves (how much gas and oil is in the ground, retrievable with today’s technology and at today’s costs), Range says proved reserves as of December 31 increased by 26% from the prior-year, now at 15.3 trillion cubic feet equivalent (Tcfe). That’s alotta gas! We have the Range announcements below, along with an updated PowerPoint slide deck chocked full of useful information…
Yesterday MDN updated you on Eclipse Resources’ program of drilling looooong laterals–the horizontal part of shale wells (see 
Yesterday MDN received an email from subscriber Sandy R. who lives in southwestern PA. Her land is leased to Range Resources, and she recently read that Range “now has their own pipelines to carry Marcellus gas to better paying markets.” In our response to Sandy, we mentioned that although producers sometimes buy a share of a pipeline, they rarely own pipelines outright. More often they sign long-term (10-20 year) agreements with large midstream companies to reserve capacity along pipelines. We went looking for which pipelines Range might have reserved capacity on that are near where Sandy lives, and found two things that caught our attention. One is a recent statement from Range bragging (our word) about a strategy they put in place 10 years ago to get enough pipeline capacity to move Marcellus gas out of the region to better paying markets. The second thing is we located a list of major northeast pipeline projects with the pipelines Range has reserved capacity along highlighted in yellow. Cool! So below is an article mentioning some of the pipelines Range says will be a game-changer for them in the near-term, followed by that list of pipelines they have reserved capacity along…
Range Resources released its third quarter financial and operational update earlier this week. Range is one of the premier drillers in the Marcellus (and Utica) shale region. In fact, Range drilled the very first Marcellus well back in 2004. The Range update is full of interesting details. First and foremost, the company turned a profit of $112 million in 3Q17, contrasted to losing $361 million in the same period last year. That’s nearly half a billion dollar swing in one year. Impressive. Also impressive is that Range’s total production came a whisker away from 2 billion cubic feet equivalent per day–which is up 32% over the same period last year. During 3Q17 two Marcellus “super-rich” pads were brought on line. The wells on those pads had an average per well 24-hour initial production (IP) rate of 41.3 million cubic feet equivalent (Mmcfe) per day. Impressive. As part of the update, Range held a call with financial analysts to discuss company performance. As these types of calls usually do, this one had a Q&A at the end. One analyst asked if Range would be willing to sell some of it’s non-core assets in southwest PA. Range CEO Jeff Ventura said yes, the company would consider such a move, under the right kind of terms. Here’s the full update from Range…
Platts held their Appalachian Oil and Gas Conference in Pittsburgh earlier this week. One of the more interesting comments at the event came from Alan Farquharson, senior vice president of Range Resources. Farquharson gave an interview to a Platts reporter and said natural gas production in the Marcellus/Utica can’t continue its rapid increase indefinitely. Farquharson said drillers are going to hit “sweet spot exhaustion,” by which he means they will soon run out of Tier 1 locations to drill, requiring they branch into Tier 2 and Tier 3. As they drill in those other locations, well production will decrease, and along with it regional output will decrease. Range was the very first driller to sink a Marcellus well, back in 2004, so they know a thing or two about the play. When Range talks, everyone listens. Here’s more of Farquharson’s provocative comments from earlier this week…
Yesterday we brought you the “Top 10” drillers in southwestern Pennsylvania, as ranked by the number of permits issued (see 
Yesterday MDN brought you the news that Range Resources and the Pennsylvania Dept. of Environmental Protection (DEP) have officially “settled” something we thought was already settled–alleged methane migration from a well Range drilled in 2011 (see 
Range Resources and the Pennsylvania Dept. of Environmental Protection (DEP) have officially “settled” something we thought was already settled–alleged methane migration from a well Range drilled in 2011. In June 2015, then-Secretary of the DEP, John Quigley, slapped Range with an $8.9 million fine–the largest such fine ever levied by the DEP (see 
Findlay Township (Allegheny County, PA, west of Pittsburgh) has just signed a deal with Range Resources to allow drilling under (not on) the towns 61-acre Clinton Park. Terms of the deal: Findlay gets a $3,000 per acre signing bonus and when the gas begins to flow, an 18% royalty. That means Findlay will get a nice, fat check for $183,000 in the next 90 days. The lease has been a long time in coming. Town supervisors worked on a deal five years ago, but then drilling slowed down and the deal was “put on the shelf.” Range will actually drill under the property from the Seibel Farm, which sits just over the border in Beaver County. The board of supervisors voted unanimously to approve the deal…
Range Resources, the very first driller to sink a Marcellus (back in 2004), released its second quarter 2017 results and held a conference call yesterday to discuss it. Range had a great 2Q17, with record production of close to 2 billion cubic feet per day (up 37% from 2Q16). Range’s Marcellus/Utica gas production was up 9% year over year. Range continues to drill impressive wells. One pad with seven wells drilled in the wet gas Marcellus area saw initial production (IP) rates averaging 29.1 million cubic feet equivalent per day (MMcfe/d), while a set of four wells on another pad in the Marcellus dry gas area say IP rates of 30.0 MMcfe/d. By the end of 2017, Range plans to have drilled and turned in line (TIL) 113 new wells in the Marcellus/Utica, and 56 new wells in the Louisiana Haynesville Shale. Yes, Range continues to ramp up its Haynesville program after buying Memorial Resource for $3.3 billion last year, spending money in Louisiana rather in Pennsylvania–which is a warning to the severance taxers in PA that companies can and will leave the state. On yesterday’s conference call Range CEO Jeff Ventura was asked a question about his views on Marcellus/Utica companies merging, like EQT/Rice. He responded: “If you think about it at a very high level, fewer companies I think in the Basin drilling is probably a positive thing. It’s probably a more pace development, a more prudent and more rational development. So I think that’s a good thing for the macro.” Range CFO Roger Manny hinted that Range may be looking to unload their considerable acreage position in northeastern PA when he responded this way to a question about more asset sales: “So we still have assets in the Mid-Continent that would be deemed non-core. One can make the case that the stuff we have in Northeast Pennsylvania, although it’s high quality, is away from that core blocky stacked pay position we have in the Southwest. So there’s other assets we have that we could sell.” Sounds like Range intends to concentrate on SWPA and LA moving forward…
In early April of this year the 2017 AAPG (American Association of Petroleum Geologists) Annual Convention & Exhibition was held in Houston, TX. During one of the sessions, William Zagorski and Taylor McClain delivered a talk called “Discovery of the Utica Shale: Update on an Evolving Giant.” The interesting thing is that Zagorski and McClain work for Range Resources–the first driller in the Marcellus, not the Utica. We don’t have a transcript of that talk, but we do have an abstract and the slide deck used during the talk (below). The slide deck is fascinating. It begins with a history of the Utica. Did you know that the earliest Utica discoveries were in Ontario, Canada? And that the earliest drilling done in the play here in the U.S. was done in Upstate New York–near the Watertown area? No, we didn’t realize that either. In fact, a large swath of the Utica Shale layer underlies New York State–what a pity we can’t explore it because of a corrupt dictator by the name of Andrew Cuomo. At any rate, below is the slide deck, with slides outlining where the “wet gas” and “dry gas” zones are in the Utica. And exploring how Ohio became synonymous with the term Utica Shale…
