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Ohio Utica Shale

Stone Energy to spud first Utica shale well in West Virginia

By Bob Downing Published: May 6, 2014

From Louisiana-based Stone Energy on Monday:

LAFAYETTE, La., May 5, 2014 /PRNewswire/ -- Stone Energy Corporation (NYSE: SGY) today announced financial and operational results for the first quarter of 2014. Some of the highlights include:

  • Net income of $25.9 million or $0.52 per share
  • Production volumes at the upper end of first quarter guidance
  • Development drilling success at the Cardona South and Cardona wells in the Pompano field
  • Discovery at the Amethyst deep water exploration prospect
  • Discovery at the Tomcat deep gas prospect

Chairman, President and Chief Executive Officer David Welch stated, "We have started the year with four successful discovery wells which provide us with short and intermediate term production visibility. We expect Tomcat to commence production this June, the Cardona and Cardona South volumes to commence production by the first quarter of 2015 and Amethyst to come on line in 2016. Separately, the Mica Deep exploration well has reached total depth without encountering commercial hydrocarbons. However, importantly, we have a multi-year inventory of deep water and deep gas prospects to provide us with future exploration exposure. In Appalachia, we look forward to spudding our first Utica shale exploration well later this June with testing expected later in the year. Finally, volumes from our Marcellus shale wells are expected to grow to over 100 MMcfe per day in the second half of the year. Overall, it has been an excellent start to 2014."

 

Financial Results

For the first quarter of 2014, Stone reported net income of $25.9 million, or $0.52 per share, on oil and gas revenue of $222.6 million, compared to net income of $40.8 million, or $0.82 per share, on oil and gas revenue of $232.9 million in the first quarter of 2013. Discretionary cash flow totaled $138.0 million during the first quarter of 2014, as compared to $159.1 million during the first quarter of 2013. Please see "Non-GAAP Financial Measures" and the accompanying financial statements for a reconciliation of discretionary cash flow, a non-GAAP financial measure, to net cash flow provided by operating activities.

Net daily production during the first quarter of 2014 averaged 44.8 thousand barrels of oil equivalent (MBoe) per day (269 million cubic feet of gas equivalent (MMcfe) per day), compared with daily production of 50.0 MBoe (298 MMcfe) per day in the fourth quarter of 2013, and daily production of 40.1 MBoe (241 MMcfe) per day in the first quarter of 2013. First quarter of 2014 production was negatively impacted by the sale of some onshore properties in January 2014 and the fourth quarter 2013, weather-related logistical issues in Appalachia and extended downtime at Main Pass 288. First quarter of 2014 production mix was 35% oil, 13% natural gas liquids (NGL) and 52% natural gas.

Prices realized during the first quarter of 2014 averaged $97.52 per barrel of oil, $54.84 per barrel of NGLs and $4.46 per Mcf of natural gas. Average realized prices for the first quarter of 2013 were $112.13 per barrel of oil, $42.49 per barrel of NGLs and $3.55 per Mcf of natural gas. Effective hedging transactions decreased the average realized price of natural gas by $0.36 per Mcf and decreased the average realized price of oil by $1.75 per barrel in the first quarter of 2014. Effective hedging transactions increased the average realized price of natural gas by $0.38 per Mcf and increased the average realized price of oil by $2.72 per barrel in the first quarter of 2013.

Lease operating expenses during the first quarter of 2014 totaled $46.9 million ($11.62 per Boe or $1.94 per Mcfe), compared to $53.0 million ($14.70 per Boe or $2.45 per Mcfe), in the first quarter of 2013.

Depreciation, depletion and amortization (DD&A) on oil and gas properties for the first quarter of 2014 totaled $81.8 million ($20.27 per Boe or $3.38 per Mcfe), compared to $74.5 million ($20.65 per Boe or $3.44 per Mcfe), in the first quarter of 2013.

Salaries, general and administrative (SG&A) expenses for the first quarter of 2014 were $16.3 million ($4.05 per Boe or $0.67 per Mcfe), compared to $14.0 million ($3.87 per Boe or $0.64 per Mcfe), in the first quarter of 2013.

Capital expenditures before capitalized SG&A and interest during the first quarter of 2014 were approximately $254.1 million, which includes $9.8 million of plugging and abandonment expenditures. Additionally, $7.7 million of SG&A expenses and $12.8 million of interest were capitalized during the first quarter of 2014. In addition, in the first quarter of 2014, Stone received $54.5 million in proceeds from the sale of some onshore properties. This is compared to capital expenditures before capitalized SG&A and interest during the first quarter of 2013 of approximately $114.2 million, which includes $14.9 million of plugging and abandonment expenditures. Additionally, $6.6 million of SG&A expenses and $10.0 million of interest were capitalized during the first quarter of 2013.

As of March 31, 2014 and May 5, 2014, we had no outstanding borrowings under our bank credit facility. Stone had letters of credit totaling $21.4 million, resulting in $378.6 million available for borrowing under our bank credit facility based on a borrowing base of $400 million.

 

Operational Update

Mississippi Canyon 29 – Cardona South (Deep Water). The Cardona South well (MC 29 #5 well) encountered over 275 feet of net oil pay in three separate sections of the well. The Cardona South success extends the productive zone of the Mississippi Canyon 29 TB-9 well to the adjacent fault block to the south and sets up a potential second and third well in the fault block. Plans are to flow the Cardona South well and the previously announced Cardona discovery to the Stone owned and operated Pompano platform with first production expected in early 2015. Stone holds a 65% working interest in the project and is the operator.

Mississippi Canyon 29 – Cardona (Deep Water). The Cardona well (MC 29 #4 well) was estimated to have approximately 84 feet of net pay upon initial discovery. After further evaluation of the discovery, the estimated pay zone is now expected to be approximately 96 feet, although the deeper exploration target was deemed non-commercial. The Cardona success extends the productive zone in Stone's Mississippi Canyon 29 TB-9 well to the adjacent fault block to the north. Plans are to flow the Cardona and the Cardona South wells to the Stone owned and operated Pompano platform with first production expected in early 2015. Stone holds a 65% working interest in the project and is the operator.

Mississippi Canyon 211 - Mica Deep (Deep Water). The Mica Deep exploration well has reached total depth without encountering commercial hydrocarbons. Stone holds a 50% working interest in the prospect.

Mississippi Canyon 26 – Amethyst (Deep Water). The Amethyst exploration well (100% working interest) encountered approximately 90 feet of net hydrocarbon pay in one interval which suggests a commercial discovery. Analysis of logging, coring and fluid data confirmed the existence of natural gas, condensate and natural gas liquids in the pay zone (an estimated yield of 60-80 barrels of liquids per million cubic foot of natural gas). The interval has been placed safely behind pipe for a future completion. A full evaluation, including seismic and subsurface data integration, is needed before hydrocarbon quantities can be estimated and a specific development plan is sanctioned. A single or multi-well tie-back to Stone's 100 percent owned and operated Pompano platform, located less than five miles from the discovery, is a likely development option.

 

Amberjack Development Drilling Program. Stone expects to secure a platform rig for its Amberjack (Mississippi Canyon 109) drill program. It is anticipated that the rig will become available in the fourth quarter of 2014. The program is expected to consist of four to six development wells.

Pompano Development Drilling Program. Stone expects to secure a platform rig for its Pompano (Viosca Knoll 989) drill program. It is anticipated that the rig will become available by mid-2015. The program is expected to consist of four to five development wells.

Walker Ridge 89 - Goodfellow (Deep Water). The Goodfellow exploration well targets the Lower Tertiary and is projected to spud in late 2014. Stone currently holds an approximate 13% working interest in the prospect, which is operated by Eni. The well is estimated to take five months to drill.

Mississippi Canyon 118 - Harrier (Deep Water). The Harrier exploration well targets the Miocene interval and is projected to spud in late 2014 or early 2015. Stone currently holds an approximate 37% working interest in the prospect, which is operated by ConocoPhillips. The well is estimated to take four months to drill.

West Cameron 176 - Tomcat (Deep Gas). The Tomcat exploration well (100% working interest) encountered approximately 30 feet of net hydrocarbon pay in the Camerina interval. Based on well log analysis, combined with offset Camerina production history, we believe that the zone may produce liquids rich natural gas with approximately 40-60 barrels of condensate per Mcf of natural gas as well as additional natural gas liquids volumes. The well is currently being tied back to the nearby Stone operated East Cameron 64 production platform with production estimated to commence in June 2014.

 

Cayenne (Deep Gas). The Cayenne exploration well, located in Iberia parish, is expected to spud in late 2014 or the first half of 2015. Stone holds a 50% working interest in the project and is also the operator. The well is estimated to take three months to drill.

 

Appalachian Basin - Marcellus Shale (Drilling Program Update). Stone drilled nine Marcellus shale wells and began completions on 14 wells during the first quarter of 2014. By year-end 2014, Stone expects to drill 28 to 32 wells and to complete 30 to 34 wells in the Marcellus shale.

Appalachian Basin - Marcellus Shale (Production Update). During the first quarter of 2014, Stone averaged approximately 87 MMcfe per day (62 MMcf per day of gas and 4,200 barrels per day of liquids) from Stone's Marcellus shale position. During the first quarter of 2014, two wells in the Heather field were brought online. Stone expects to bring an additional four wells in the Heather field online during the second quarter of 2014. Additionally, it is projected that 18 new wells in the Mary field will be brought on production in third quarter of 2014.

Appalachian Basin – Utica Shale Test. Stone expects to spud a Utica shale test well late in the second quarter of 2014 on its existing acreage in the Mary Field in West Virginia with the completion and testing expected later in the year.

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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.