Three Distinct Strategies

Top executives from three private-eq­uity-funded companies offered rare public insights into their business strategies at Hart Energy’s DUG East Con­ference, held in Pittsburgh in late June. These firms are alike in their appreciation of the charms of the Appalachian Basin plays, but each is focused on different portions of the Marcellus and Utica reservoirs, includ­ing preferences for phases of the busi­ness cycles and phases of production.

Slim-holes; dry-gas Utica

EdgeMarc Energy Hold­ings LLC, based in Can­onsburg, Pennsylvania, has been in business since 2012. It is backed by significant invest­ments from Goldman Sachs’ Merchant Bank­ing Division and the Ontario Teachers’ Pen­sion Plan, said Callum M. Streeter, COO. Initially, the firm concentrated on devel­oping a 25,000-acre Marcel­lus and Upper Devonian position in Butler County, Penn­sylvania. To date, it has drilled 52 wells (of which 22 are com­pleted) on that asset.

As part of an effort to reduce well costs, EdgeMarc has been experimenting with slim-hole wells in Butler County. “This is an old idea that we are reinventing, downsizing the entire wellbore,” said Streeter. “We like to think of ourselves as cut­ting edge, not leading edge.” In Butler County, EdgeMarc saw that it was treating in the 6,000- to 7,000-psi range, while its wells were sized for 10,000 psi pressures. “We saw we had all kinds of bandwidth on pressures, so we said, ‘Why don’t we try downsizing the well?’”

It has drilled seven such tests to date, which Streeter called “Ecowells.” The approach uses 7-inch casing in place of the usual 9 5/8-inch casing, with subsequent strings sized accord­ingly. Savings in pipe and cement are signif­icant, and the one Ecowell completed to date by EdgeMarc is performing in line with the traditionally drilled offsets, said Streeter. He estimates that the approach cuts 10% to 15% off total drilling costs.

Recently, EdgeMarc has been looking hard at the Utica play. It holds two posi­tions in Ohio—one in the dry-gas win­dow in Monroe County and one in the wet-gas window in Washington County. On its 12,000-acre Monroe asset, it has drilled four wells and completed one, and on its 16,000-acre Washington asset, it has drilled and com­pleted one.

Its star Utica well is its Moonraker #2PPH, in Monroe County, which it treated with white sand and ceramic prop­pants. The 32-stage frack job targeted a production rate of 2 million cubic feet of gas per day per 1,000 feet of lateral. “It’s not a particu­larly long lateral— about 4,800 feet. But we are very pleased with its results,” said Streeter.

Going forward, Edge­Marc plans to focus on its Monroe County acreage. “We were drilling up until about six weeks ago in Monroe County; our plan is to get active again in Monroe County later this year. We like the economics on dry gas bet­ter at present,” said Streeter. For the balance of 2016, the company also plans to complete three DUC wells in its inventory.

“Right now, we’re about building sustain­ability and recoveries, and we will be ramp­ing accordingly as commodity prices allow,” he said.

Westmoreland County Marcellus

A different strategy is being pursued by Apex Energy LLC. The Wexford, Penn­sylvania-based entity, backed by Apollo Global Management, is headed by CEO Mark Rothenberg.

“When we came to the Appalachian Basin in 2013, we were focused on finding where the high-quality reservoirs were,” said Rothenberg. “We felt very confident that the Marcellus was going to be the driving force of the supply—it is the low-cost producer in the U.S., and that is where we wanted to be.

“We felt like we had to specialize in one of the phases of development. Most com­panies fill the full-field development space; we were interested in focusing on the early phases of project development. We wanted to figure out what the market was missing.”

Its target area is in western Westmore­land County, Pennsylvania, in the dry-gas Marcellus. Apex saw this area as geolog­ically comparable to the areas already recognized as the best-of-the-best in the Marcellus—Susquehanna, Washington and Greene counties, Pennsylvania. Apex began to build a position, wholly focused on the initial project-build phase of its asset. “We are striving to build the most economic inventory of drill-ready laterals in the Appa­lachian Basin.”

To do that, it is consolidating acreage, proving well performance, establishing take­away capacity and building an inventory of locations. It has accumulated some 30,000 acres to date, and drilled and completed mul­tiple wells.

“We’re extremely pleased with the well results,” said Rothenberg. Apex real­ized estimated ultimate recoveries (EURs) of 1.7 to 2.4 billion cubic feet (Bcf) per 1,000 feet of lateral. The economics of its wells are second only to those in the very strongest Marcellus wells in Susquehanna County, Pennsylvania.

“We are able to show that our EURs are as good as the wells in Washington and Greene counties,” Rothenberg said. Apex’s exten­sive horizontal inventory averages 10,000- foot laterals, in contrast to the often typical 5,000-foot lengths of wells in those areas.

“Our Westmoreland project is ready for full-field economics, and it has more superior well economics and superior inven­tory than what everyone else is advertising,” said Rothenberg.

North of Pittsburgh

Rick Weber, the chairman and CEO of PennEnergy Resources, has a long history of working in the Marcellus. Prior to founding PennEnergy in 2011, Weber led Atlas Energy Inc., which was merged in 2010 with Chevron in a $4.4-billion deal.

PennEnergy, based in Pittsburgh, is backed by more than $450 million of equity commitments from EnCap Investments and Wells Fargo, with stakes also contributed by PER management.

“We integrate geology, reservoir character­istics, actual production and drilling econom­ics to find the core of the plays,” said Weber. It has put its stake in the ground in Beaver, Butler and Armstrong counties, north of Pittsburgh. Beaver County is in the wet-gas window of the Marcellus, and the Butler/Armstrong acreage is in the dry-gas portion of the play.

Its chosen area offers that promised land of resource plays—stacked reservoirs. “The Marcellus is clearly our big get, and that’s our target, but we love the stacked reserves in this region,” said Weber. The core of the Marcellus extends across PennEnergy’s acreage, the core of the Upper Devonian play extends through its Beaver County posi t ion, and geologic and geophy s i c a l data indicate that increased porosity is pres­ent in the Point Pleasant across the central and southern portions.

To date, Penn- Energy has accu­mulated 74,000 net acres. It has 36 hori­zontal producing wells currently making 100 mil­lion cubic feet of gas equiva­lent per day. Production histories on PennEnergy’s wells show steady, consistent rates with low declines, said Weber.

“Nothing res­onates more than actual p r o d u c ­tion,” said Weber. In its dry-gas acreage, its wells aver­age EURs of 2.7 Bcf per 1,000 feet of lateral, and in its Marcellus and Upper Devonian wet gas area, its average is 2.3 Bcfe per 1,000 feet. The com­pany has built an inventory of some 900 actual horizontal locations that average 7,000-foot projected lateral lengths.

“When it is all said and done, we are a rate-of-return company,” said Weber.

“We are always looking at expected ROR for drilling new wells. Our current inter­nal RORs are in the 30% to 40% range at strip prices, which exceeds our internal ROR hurdles. We do intend to put a rig back out this fall.”