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Must-know: Highlights from CONSOL Energy's analyst day

Part 5
Must-know: Highlights from CONSOL Energy's analyst day (Part 5 of 8)

Marcellus and Utica to enhance production efficiency and reduce costs

Improved production and reduced costs

Exploration and production capex for natural gas is expected to increase to $1.1 billion in 2014 from $0.9 billion in 2013. The cost for exploration and production may decrease by 5% to 10% by 2016 as the mix shifts towards low cost Marcellus production.

CONSOL Energy (CNX) has multiple stack play opportunities in the Marcellus and Utica shale plays. Multiple stack play is the ability to drill in multiple levels of shale rock from a single well pad which increases oil and gas production, particularly in Ohio, West Virginia, and Pennsylvania regions where CNX operates.

Stack PlayEnlarge Graph

Stack play potential

CNX expects stacked pay potential at the Pittsburgh Airport drilling project, Southwest Pennsylvania, Monroe County in Ohio, and the Dominion Transmission storage field. In 2014, CNX expects the Marcellus Shale natural gas production to grow 87%, while overall gas production across the company may increase by 30%. CNX estimates that in the Marcellus, it is producing 300 million cubic feet per day equivalent of gas from ~3% of net acreage, if the gross prospective unproved locations are considered. So, a huge upside potential is present. By the same metric, CNX has less than 1% of net acreage developed in the Utica to date. CNX disclosed that the Southwest Pennsylvania has ~9 trillion cubic feet equivalent of stack pay potential.

Exploration costsEnlarge Graph

Cost efficient production process

CNX plans to expand the use of reduced cluster spacing (or RCS) and short stage lengths (or SSL) techniques to 100% of the wells by 2014. In 2013, the projects employing these techniques saw 40% improvement in the production rates. CNX expects 15% lower costs for completions per RCS and SSL stage by 2015 due to renegotiation contracts, efficiency increases, and stimulation design optimization.

Cost down from MarcellusEnlarge Graph

CNX has consistently increased drilled lateral lengths each year. It increased from 3.853 feet in 2012 to 8,000 feet per day in 2014. Longer laterals result in higher capital efficiencies and greater exploitation of the acreage. Also, the longer drilled laterals enabled the company to perform more hydraulic fracturing, or “fracking,” to complete the wells. In 2013, the average completed well had 26 “frac” stages, or a 44% increase over the 18 stages from the previous year.

SavingsEnlarge Graph

CNX projects that the Utica Shale has potential resource of ~26 trillion cubic feet equivalent. The shortened cycle time, drilling optimization, 20% reduction in rig move times and other drilling efficiencies to reduce drilling cost per 5,000 lateral from $4,500 to $3,181, or ~30% in the Utica. As a result of employing efficient technologies, costs for completions in the Utica Shale is predicted to decline 15% by 2015.

CONSOL Energy Inc. (CNX) is a producer of natural gas and coal. Other companies operating in the coal industry are Arch Coal Inc. (ACI), Alpha Natural Resources Inc. (ANR), and Cloud Peak Energy (CLD). Some of the major names in the natural gas sector are ExxonMobil (XOM), Chesapeake Energy (CHK), and Devon Energy (DVN). Some of these companies are part of the SPDR S&P Metals & Mining ETF (XME) and the Vanguard Energy ETF (VDE).

 

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