Seneca Resources Wednesday said EOG Resources does not expect to meet 2012's minimum drilling target under the 2006 Marcellus Shale joint venture between the two companies.
The Williamsville, New York-based exploration and production subsidiary of National Fuel Gas said that under the JV, EOG has the opportunity to earn an interest in Seneca acreage by drilling a minimum number of wells per year in "a defined area of mutual interest."
Seneca in a statement said EOG has advised it that it does not expect to meet the minimum drilling target for calendar 2012 specified in the JV.
If EOG does not meet that minimum, then it would no longer have the right to earn additional acreage from Seneca, the company said. Both companies, however, would retain their respective working interest in wells drilled earlier and both could drill additional JV wells on acreage that has already been earned.
Seneca said that as of July 21, EOG has earned a 50% working interest in about 34,000 gross acres that Seneca contributed to the JV.
"The joint venture with EOG has been successful in achieving the goals we identified when the agreement was signed in 2006," National Fuel Chairman and CEO David Smith said in a statement. "With a minimal initial investment, we evaluated our acreage and learned from an experienced shale gas operator, simultaneously developing a talented Marcellus Shale operations team that has grown our Marcellus production substantially from the program's inception. While we expect a modest impact to our near-term growth outlook, having full control of our largely royalty-free, contiguous acreage position unencumbered by a JV further enhances the long-term value of our Appalachian assets."
Because of EOG's decision, Seneca said it "anticipates very little drilling or completion activity on JV acreage in fiscal 2013. This will lead to an inventory of previously drilled wells that likely will remain uncompleted until natural gas prices reach an acceptable level."
In addition, Seneca said the change in EOG's JV activity will further reduce Seneca's previously announced capital expenditure and production guidance for its 2013 fiscal year that begins October 1 by about $50 million to a range of $400 million to $500 million.
As a result, production is now expected to be in the range of 92 to 105 Bcf of natural gas equivalent from the previous guidance of 100 to 115 Bcfe.
As of July 23, 2012, Seneca's net Marcellus production was 200,000 Mcf/d, of which about 44,000 Mcf/d comes from 65 gross horizontal wells within the JV.
