PITTSBURGH—Eclipse Resources plans to continue to diversify its production course this year, leaning more heavily on its liquids components in its Marcellus and Utica plays. Benjamin Hulburt, chairman, president and CEO of Eclipse Resources, said at Hart Energy’s DUG East Conference and Exhibition that the company plans to grow its liquids production after seeing a 5% increase year-over-year in the first quarter of the year.

“Q1 production was about 28% liquids, and that’s something we expect to continue to rise as we go throughout the year,” Hulburt said. “We’re focused on liquids because it expands our margins. If gas was $4, we probably wouldn’t have to focus on it so much.”

Despite representing less than 30 % of Eclipse’s expected 2018 production of about 335 Mcfe/d, 45% of the company’s revenue in 2018 is expected to be derived from liquids production, according to Eclipse.

Hulburt said the shift to a higher liquids production mix improved cash margins by 27% quarter-over-quarter through first-quarter 2018. The move to a more concentrated effort into producing liquids corresponds with Eclipse’s focus on what Hulbert called full-cycle well economics, designed to improve the company’s cost of capital.

“One of the things we have started doing is getting away from the terms ‘types curves’ or ‘single-well economics’ or ‘wellhead economics’ and focusing much more heavily on full-cycle economics,” Hulburt said. “That takes into account the cost we paid for land, the cost we pay for ongoing land work, [general and administrative] capital, interest expenses—all of those things to make sure that when we’re drilling wells, after all of those things are accounted for, we’re still easily beating our cost of capital.”

Hulburt said the approach has led to a cost of capital for Eclipse of about 12%.

Hulburt also illustrated the strong returns of both the economics and production of its noted super-lateral drilling program. In 2016, Eclipse first set a record and made headlines for the longest lateral ever drilled in the U.S. when the company drilled its Purple Hayes well 18,544 ft. Since then, Hulburt said, Eclipse has made long laterals the norm, rather than the exception. In fact, Eclipse has extended two laterals since then over 19,000 ft.

“We don’t just do this once in a while now,” Hulburt said. “It’s actually the exact opposite. Once in a while, we drill a short lateral usually because we want to test something from a science perspective. And on 18,000-ft laterals, you don’t want to test a lot of new ideas.”

Eclipse will continue in 2018 to push the boundaries of lateral length, averaging 17,000 ft on every well the company drills this year, several of which will exceed 20,000 ft, Hulburt said.

He explained that two 8,000-ft laterals would cost Eclipse $16.4 million, while one 16,000-ft lateral would run $13.2 million. Hulburt said EURs for both designs would both amount to about 17 Bcfe, but the internal rate of return on a longer lateral might be 61% compared to 35% on two shorter laterals.

“The rationale for super laterals, especially in Appalachia, is that the fixed costs—the pad construction, the cost of a vertical well, especially in the Utica—are quite expensive,” Hulburt said. “So, if I can get the same recovery per foot by going longer, then I can drop the cost dramatically.”

Eclipse reported that its well productivity in the Utica Shale is best among its regional peers on a gross revenue per foot and per well basis. According to the company, its average gross revenue per lateral foot is $489, best among its reported peers, while its average gross revenue per well is $4 million, also among the best.

“We have proceeded to get better and better at this process,” Hulburt said. “We call them super laterals, but before long we’ll just be calling them laterals.”

Brian Walzel can be reached at bwalzel@hartenergy.com.

Comments