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CONSOL's Well Cost Down 71%; Expects Production Bump in 2018

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   |    Thursday,August 03,2017

  CONSOL released its Q2 2017 results and defended its decrease in production from the previous quarter and highlighted its operational results.

• Capital expenditures increased in 2Q to $142.3 million from $100.8 million in the previous quarter, a 42% increase
• Production:
• Utica production volumes were 13.8 bcfe down 41% from 23.3 bcfe in Q2 2016
• Marcellus production volumes were 56.9 bcfe, 7% higher than the 53.1 bcfe from Q2 2016
• Increasing production guidance by 30 bcf

In this quarter, CONSOL operated 2 rigs and drilled 7 Utica wells, 5 in Monroe County, OH and 2 (Aikens 5J and 5M) in Westmoreland County, PA. The Aikens 5J and 5M are offsets of its previous Gaut 4IH well. From the previous design, CONSOL made significant improvements in efficiency. The Aikens wells averaged a lateral length of 7,500 on 38.5 days compared to 99 days it took to drill a 7,000 foot lateral on the Gaut well.

As a result of this increased efficiency, the Aikens 5J and 5M wells cost $5.5 million and $4.6 million respectively, which is down 71% from the cost of the Gaut well. Although the expected total capital on these wells is expected to be under $15 million, it is slightly above the previously stated guidance of $12.6 million. The company says the higher cost is related to the increased pumping cost. When asked about the difference between the Gaut and Aikens wells, CONSOL said that its better understanding of the geology combined with increased proppant and switching the blend were the main drivers behind the Aikens' results.

In 2016, a single rig at CONSOL could drill 15 wells. In 2017, however, the company is drilling 18 wells per rig, which has taken up quite a bit of the 2017 capital budget. As a result of the increased efficiency of its wells, CONSOL expects to see a significant production bump in 2018. Additionally, in 2018, CONSOL expects to add another rig. It does not, however, know where it will add the rig yet. 

CONSOL has a strong hedge position exiting 2017 and entering into 2018. Currently, the company's 2017 production is 80% hedged. In 2018, thus far, the company has 50% production hedged which it anticipates will be higher by December 2017.



The management team was questioned about its outlook regarding the recent increased cost of pressure pumping. Nicholas J. DeIuliis, CONSOL executive, responded that the company attributes most of the increase in pressure pumping price to inflation. As a result, the company has built a 2% inflation rate into its 2018 spending plan. The company, however, is confident that the increased price will not last too much longer. CONSOL has heard talk of service companies planning to bring more frac crews into the area which would help stabilize the prices.