EQT Corporation: Deep Utica Update
Summary EQT released early production results for its Deep Utica test. Early-time performance looks encouraging. On the other hand, the performance by Range Resources’ deep Utica well may be sub-economic. In its latest presentation, EQT Corporation (NYSE: EQT ) provided an update with regard to its deep Utica test in Southwestern Pennsylvania. As a reminder, in July, EQT reported results of its highly anticipated Scotts Run well in the dry gas window of the Utica/Point Pleasant play in Green County in Southwestern Pennsylvania. The well is one of the deepest exploratory wells in the Utica drilled to date and is located almost 2,000 feet downdip from the previous frontier well. Due to the considerable depth and very high reservoir pressure, the well was challenging to drill and took more than half a year from spud to completion. However, EQT’s effort was ultimately rewarded. The entire ~3,200-foot lateral length was successfully completed. The well tested with a 24-hour rate of 72.9 MMcf/d with ~8,600 psi flowing casing pressure. This represents the highest initial flow rate for any shale well brought on production in the U.S. to date. Performance Update Based on the slide presentation posted by EQT yesterday, the well has produced at a pressure-managed rate of ~30 MMcf/d. Judging by the plot, pressure drawdown appears to have stabilized at ~40-50 Psi/day rate. If this rate is sustained, the initial production plateau may last for approximately six months from the beginning of production, resulting in cumulative production during the plateau period of ~5-6 Bcf. (click to enlarge) (Source: EQT Corporation, September 2015) I must emphasize that the well is a short lateral, which results in even more impressive cumulative production metrics per foot. (click to enlarge) (Source: EQT Corporation, September 2015) Normalizing production to a 5,400-foot lateral length, cumulative production during the initial six-month plateau for a medium-length lateral could be as high as 8.5-10.3 Bcf. It is obviously premature to guess about the play’s type curve and EUR at this point, as the shape of tail production in this deep and highly overpressured formation is an uncharted territory. However, it is clear already now that the test is a success and demonstrates the deep Utica’s potential for “big” wells. Whether “big” means 15 Bcf or 30 Bcf is too early to tell, in my opinion. Of note, Range Resources’ (NYSE: RRC ) Claysville Sportsman Club #11H well, another high profile deep Utica test that came online in November 2014 and had 5,420′ of completed lateral (32 stages with 400,000 pounds of sand per stage) produced “only” 1.4 Bcf in the first 88 days. Given that Range did not include an update slide with the Sportsman production profile in its most recent presentation, the well is likely producing substantially below expectation. I would not rush to interpret the Sportsman well result as an indication of Deep Utica’s poor productivity (the Sportsman’s initial rate was 59 MMcf/d), as several other data points, including Rice Energy (NYSE: RICE ) wells in Belmont County, Ohio, which are located updip, and EQT’s Scotts Run well, which is located downdip, all appear to be holding up well, at least so far. Well Cost And Well Economics EQT encountered significant challenges when drilling the well. Due to the extreme reservoir pressures encountered, the company had to replace its drilling rig with a higher-specification unit, which resulted in a delay. As a result, the well’s cost came out at ~$30 million. However, the fact that the very first well could be completed, with the planned proppant volume loaded successfully, gives hope that technical challenges are not unsurmountable. Going forward, EQT believes it can reduce its well cost in the Deep Utica to as little as $12.5 million for 5,400-foot laterals. The high cost sets the bar for well performance quite high. Assuming a $12.5 completed well cost, the Deep Utica play would need to yield EURs in the 25-30 Bcf per well range to be economically competitive versus the existing “core of the core” sweet spots in the Marcellus, where operators currently drill wells with EURs in the ~15+ Bcf range for ~$6-$7 million per well. In the immediate term, the well’s success is unlikely to materially change operational outlook for EQT (or any of its peers, for that matter). EQT is hoping to have a total of two-three wells on production by early next year and will plan further steps based on the performance results. EQT believes that it has ~400,000 net acres prospective for dry gas Utica, including ~50,000 net acres that look geologically “identical” to the Scotts Run well. Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment, tax, legal or any other advisory capacity. This is not an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.