[Editor's note: A version of this story appears in the June 2018 edition of Oil and Gas Investor. Subscribe to the magazine here.]

Operators in the Utica Shale continue to advance their EURs, and type curves continue to outperform in many cases, despite low gas prices. Utica wells in Ohio and northern West Virginia yield the best economics, but some monster gas wells in southwest Pennsylvania, where the Utica has more gas in place, have garnered more investor attention.

Due to the depth and very high formation pressures there, the wells cost more to drill and complete. This means it takes a higher gas price to make the wells economic—not a sure bet when gas prices linger below $3 per thousand cubic feet (Mcf).

Longer laterals are one way to recover more gas and boost economics. When even the cost of the vertical portion of a horizontal well is increasing, longer laterals are best. Commenting on first-quarter 2018 results, several companies highlighted laterals reaching even further into the pay zone. Range Resources Corp. (NYSE: RRC) announced two 18,000-foot laterals in the Marcellus in southwest Pennsylvania. EQT Corp. (NYSE: EQT) has several wells of a similar horizontal length in its 2018 budget. Also during the quarter, Antero Resources Corp. (NYSE: AR) began completing five wells in Ohio, four of which are 17,400 feet in lateral length—the company’s longest wells drilled and completed to date.

Eclipse Resources Corp. (NYSE: ECR), meanwhile, has drilled even longer horizontal wells. “We’ve been about two years ahead of other companies on this, but they’re all starting to drill longer wells now,” president and CEO Ben Hulburt told Investor. “Ultimately, we expect to drill wells closer to 20,000 feet; that’s on the drawing board. That’s what we’re doing in Ohio.”

“In the Utica dry gas area in Monroe County, we actually TD’d our longest well in April. It was drilled to a total measured depth of 30,000 feet—that was 10,000 feet deep and 20,000 feet long. That pad now has three super laterals on it.”

Hulburt said that ever-longer laterals are contributing to the shifting definition of core acreage. Core used to mean acreage that delivered the highest EUR, he said, but increasingly, the industry defines the core as that which delivers the highest internal rate of return (IRR), instead.

“Yes, we can go longer and increase completion intensity to get more EUR, but the better IRR is to actually cut back some on proppant intensity,” he explained. “But as far as lateral lengths, we continue to see increasing benefits. We can drill 3,000 or 4,000 feet in a day now, so the incremental cost to go longer is fairly low. And, we are using the exact same completion design at the toe of the well as at the heel, regardless of horizontal length.”

Flat Castle Dry Gas

In addition to its strong Ohio dry gas program, and increasing condensate production that will help the company’s bottom line in 2018, Hulburt is excited about an acquisition made last December for about $94 million in an all-stock deal, in Pennsylvania’s Tioga County.

He calls the 44,500 acres and 87 net locations the Flat Castle. The moniker is an amalgam of the Indian Castle and Flat Creek sub-members of the Utica Shale. Whereas in Ohio the lower third of the Utica and two sub-members, the Point Pleasant and Lexington, are the company’s targets, the target in Tioga County, where these are not present, is Flat Castle.

The general formation is 500 feet shallower than in Ohio, so Hulburt thinks Eclipse will be able to drill longer laterals there “quite well,” in his words. The Indian Castle and Flat Creek’s lithology and reservoir pressure are similar to the Point Pleasant, he said, but what is exciting is that these reservoirs are about twice as thick as the sub-members in Ohio.

“We calculated the gas in place to be about 40% higher in Tioga County than in Ohio,” he said. “Our type curve is conservative and implies a lower recovery of gas than what we get in Ohio, so what we hope is that by using more modern completion designs in Tioga County, we can improve the EURs. There are not nearly as many well controls here as in Ohio, so it is early.”

At an analyst day in February, Hulburt stressed the importance of longer laterals, which Eclipse drills not in order to set any industry records (which it has), but to boost well results. To date, the company has drilled 15 super-laterals that average 18,000 feet. First-quarter production rose 36% year-over-year to 1.4 Bcfe per day.

Eclipse Resources is consolidating its acreage position in the highest gas-inplace area to support extending lateral lengths to up to 20,000 feet.

Hulburt figures the IRR at Flat Castle on a 7,000-foot well would be about 11%—but it would jump above 70% if Eclipse drills an 18,000-foot lateral, which it is doing now.

Flat Castle is in the very earliest stages. Its first well, Painter 2-H, was just recently fracked, although at press time, the results hadn’t yet been revealed. Its lateral was 13,900 feet, or about 60% longer than other wells in the vicinity drilled by other operators.

The excitement of upside at Flat Castle also stems from the fact that most of the area well control is based on 22 wells east of Eclipse’s position that were drilled a while ago by Shell Oil Co.—but Shell didn’t use the higher amount of proppant used in a typical Eclipse slickwater frack, nor the same extended lateral lengths that Eclipse plans.

Other Considerations

Despite the promise of the Utica in Tioga County, gas prices will determine Eclipse’s 2018 action plan. For now, its $250-million budget remains heavily weighted to drilling in Ohio, with just 10% allocated to Flat Castle, where it will test various completion designs. The first well, the Painter, was to be fracked in June and turned to sales in August. A second well will spud in the fourth quarter, Hulburt said.

In 2019 the scenario may shift, depending on gas prices and well results, with more drilling at Flat Castle. Plans also depend on whether the company renews its $285-million Ohio drilling joint ventures with GSO Capital and Sequel Energy Group LLC , or with another capital investor. The companies are discussing a third program that would begin later this year and cover 20 wells. This would result in two gross (one net) operated rigs in the second half.

In the meantime, with the company’s stock trading below $2 per share, spending has been conservative, and the board has hired Jefferies & Co. to explore strategic and financial alternatives, with the goal being to apply more capital to scale up and speed up drilling on its Ohio acreage. But Hulburt said he thinks the Flat Castle asset could be the highest returning asset in the company’s portfolio.

A recent Baird study of corporate and well performance across the Utica, using IHS Markit data from thousands of wells, showed that in the Utica, Eclipse ranks first in average gross revenue per well at $3.7 million, some 65% above the median for 12 E&P companies, based on 23 wells that Eclipse drilled between October 2016 and September 2017, the study period. It also ranked first in revenue per lateral foot. First-quarter production rose 36% year-over-year to 1.4 Bcfe per day.

AI Pilot Vs. Human Analysis

Eclipse uses a proprietary model to analyze prior-well data in order to customize each new completion to the individual pad itself. “We look at every single pad: its production history, condensate yield, the fracturing and so on,” Hulburt said.

Initial type well estimates at Flat Castle indicate EURs of between 2 Bcf and 2.3 Bcf per 1,000 feet of lateral at a cost of about $1,025 per lateral foot, which Hulburt said is consistent with or better than the company’s acreage in southeast Ohio’s Utica dry gas core.

“But our type curves are just a starting point. In areas where you can’t widen the frack spacing, we’ll drop the proppant load, for example. We go up and down based on the particular pad.” In addition, Hulburt said, the company is not running artificial intelligence (AI) algorithms. “We are using human statistical analysis.”

Eclipse is, however, in the process of implementing an AI pilot on some producing wells in two areas, where most of the capital and equipment have already been spent on these wells. The hope is to predict when the company may have a problem and reduce the number of times that a human has to go to the well location to fix it. The company entered a new joint venture with a Houston AI start-up called Invatare LLC, formed by a group of data scientists with roots in Norway, to develop distributed AI and bring autonomous solutions to the oil field.

“Our industry is so data-intensive that this is a technology that will revolutionize the industry,” Hulburt said.

On the operations front, Eclipse’s latest Utica condensate well, a 15,600-foot lateral, was recently put to sales with an initial production rate of about 2,000 barrels of oil equivalent per day (37% oil, 60% liquids). Production was expected to increase 15% to 20% before hitting its peak, meaning it would be slightly above Eclipse’s type curve expectations.

Leslie Haines can be reached at lhaines@hartenergy.com.

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