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Ohio Utica Shale

CONSOL Energy offers an update oits 2012 shale activities

By Bob Downing Published: February 9, 2013

From the Marcellus Drilling News and CONSOL Energy:

CONSOL Energy delivered an update on 2012 Marcellus Shale drilling activity yesterday—an update full of useful and interesting factoids. Among them: Due to extensions and discoveries, CONSOL added nearly 1 trillion cubic feet of natural gas to its proven reserves in 2012; they spent $440.7 million on drilling and completion in 2012; and their “drill bit finding and development cost” is 46 cents per thousand cubic feet (Mcf) of gas—among the lowest in the industry.

CONSOL continues to transition from being one of the country’s largest coal producers to one of the country’s major shale energy producers. Just a few weeks ago CONSOL announced their plans for 2013 (see CONSOL Energy’s 2013 Plan: Spend Lots on Marcellus & Utica Shale). Below is the 2012 shale drilling wrap-up CONSOL issued yesterday, which includes numbers for the average daily output from their wells in 2012, and the average cost to drill a well:

 

During 2012, CONSOL Energy Inc. announced that it added 954 Bcfe (net to CONSOL) of proved reserves through extensions and discoveries. The company’s estimate of drilling and completion costs incurred during 2012 directly attributable to extensions and discoveries was $440.7 million. When divided by the extensions and discoveries of 954 Bcfe, this yields a drill bit finding and development cost of $0.46 per mcfe. This is the third consecutive year that CONSOL Energy has achieved sub-$0.50 per mcfe drill bit finding and development costs. The company believes this is among the lowest in the industry.

Total proved reserves, as of December 31, 2012, were a record 3.993 Tcfe, which represents a 15% increase from the 3.480 Tcfe at year-end 2011. Within the total proved reserves are approximately 88 Bcfe, or 2.2%, of oil, condensate, and liquids. Marcellus Shale reserves account for approximately 83 Bcfe, or 94%, of these heavier hydrocarbons.

CONSOL Energy replaced 611% of its 2012 gas production, when considering increases from extensions and discoveries of 954 Bcfe. Production in 2012 was 156 Bcfe (net to CONSOL).

Much of the increase in reserves through the category extensions and discoveries was due to the company’s highly successful Marcellus Shale program. As of December 31, 2012, the Marcellus Shale consisted of 1,805 Bcfe of proved reserves. This was a 105% increase from the 882 Bcfe shown at year-end 2011. Marcellus Shale proved developed reserves were 427 Bcfe, or an increase of 79% from 239 Bcfe, over the same period.

As reported on January 18, 64 CONSOL-operated horizontal wells were drilled in the Marcellus Shale in 2012 and 51 were turned on line. Total well costs averaged $6.7 million. The expected ultimate recovery (EUR) averaged 5.9 Bcfe per well. The average drilled lateral length was 5,514 feet. Maximum 24-hour production averaged 8.1 MMcf per well per day, while 30-day production averaged 4.7 MMcf per well per day. Total daily production from the Marcellus Shale grew from 77.5 MMcf per day as of December 31, 2011 to 135.0 MMcf per day (net to CONSOL) as of December 31, 2012.

The following table shows the summary of changes in reserves.

 

CONSOL Summary of Changes in Proved Reserves

Note: The proved reserve estimate for 2012 was prepared by CONSOL Energy and audited by Netherland, Sewell & Associates, Inc.

Total net revisions decreased reserves by 285 Bcfe, which include performance revisions, plan changes, and reserves lost due to price. Performance revisions increased reserves by 242 Bcfe. Plan changes resulted in lowering our 5-year drilling forecast and removing wells in non-core areas. Lower gas prices resulted in the company shifting towards higher internal rate of return projects, which led to a continued focus in the Marcellus. Price revisions and plan changes decreased reserves by 527 Bcfe. Price adjustments for 2012 year-end are based on a price of $2.76 MMBtu, which is$1.36 lower than the 2011 year-end price of $4.12 MMBtu. No reserves were added through purchases, as the company did not complete any proved property acquisitions in 2012.

As of December 31, 2012, proved reserves were 46% proved undeveloped (PUDs), as compared to 39% at year-end 2011. This was a result of reserves previously classified as proved developed reserves (PDPs) being removed this year due to lower prices. It also reflects the booking of additional proved undeveloped reserves in 2012, as a result of the Marcellus Shale success previously mentioned. The 1,379 Bcfe of Marcellus Shale PUDs, though, represent only 38% of the total expected to be drilled in the coming five years.

As previously reported, initial Utica Shale drilling results have been very encouraging in Noble County, Ohio. Reserve bookings from the Utica Shale, however, have been minimal, so far, because the two drilled Noble County wells are not yet producing.

The company also has total proved, probable, and possible reserves (also known as “3P reserves”) of 22.2 Tcfe as of December 31, 2012. This is an increase of 2.0 Tcfe, or 10%, in 3P reserves from the 20.2 Tcfe reported at year-end 2011. The company’s 3P reserves have been determined in accordance with the guidelines of the Society of Petroleum Engineers Petroleum Resources Management System (SPE-PRMS).

The following table shows the breakdown of reserves, in Bcfe, from the company’s current development and exploration plays:

CONSOL Breakdown of Reserves (Bcfe)

The Securities and Exchange Commission (“SEC”) rules require that the proved reserve calculations be based on the prompt month average prices over the preceding twelve months. For the year-end 2012 reserve evaluation, the benchmark prices were $2.76 per MMBtu for natural gas, $52.09 per barrel for natural gas liquids, $75.77 per barrel for condensate and $94.71 per barrel for crude oil (Cushing), representing the simple average of the prices for the first day for each month of 2012. Comparative prices for year-end 2011 were $4.12 per MMBtu for natural gas, $52.90 per barrel for natural gas liquids, $76.95 per barrel for condensate and $95.61 per barrel for crude oil (Cushing). Based on these prices adjusted for energy content, quality, hedges and basis differentials ($2.81 per Mcf, $52.09 per barrel of natural gas liquids,$75.77 per barrel of condensate and $89.71 per barrel of crude oil, respectively), the pre-tax discounted (10%) present value (“PV10″) of the Company’s proved reserves was $1.24 billion for 2012 compared to $2.86 billion at year-end 2011.*

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Ohio Department of Natural Resources' Division of Oil and Gas Resources Management State agency Web site.

ODNR Division of Oil and Gas Resources Management. State drilling permits. List is updated weekly.

ODNR Division of Geological Survey.

Ohio Environmental Protection Agency.

Ohio State University Extension.

Ohio Farm Bureau.

Ohio Oil and Gas Association, a Granville-based group that represents 1,500 Ohio energy-related companies.

Ohio Oil & Gas Energy Education Program.

Energy In Depth, a trade group.

Marcellus and Utica Shale Resource Center by Ohio law firm Bricker & Eckler.

Utica Shale, a compilation of Utica shale activities.

Landman Report Card, a site that looks at companies involved in gas and oil leases.FracFocus, a compilation of chemicals used in fracking individual wells as reported voluntarily by some drillers.

Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.

Rig Count Interactive Map by Baker Hughes, an energy services company.

Shale Sheet Fracking, a Youngstown Vindicator blog.

National Geographic's The Great Shale Rush.

The Ohio Environmental Council, a statewide eco-group based in Columbus.

Buckeye Forest Council.

Earthjustice, a national eco-group.

Stop Fracking Ohio.

People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.

Concerned Citizens of Medina County, a grass-roots group.

No Frack Ohio, a Columbus-based grass-roots group.

Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.

Penn State Marcellus Center.

Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.

Allegheny Front, environmental public radio for Western Pennsylvania.