Tim Dugan, executive vice president and COO of CNX Resources Corp. (NYSE: CNX), sees disruption in the Appalachian Basin in the form of stacked pay potential.
“Stacked pays are and will be a basin disruptor,” Dugan told a crowd gathered for Hart Energy’s recent DUG East conference and exhibition in Pittsburgh. Unlike some other stacked plays in the U.S., he said, the Marcellus and Utica don’t require concurrent development. “This strategy allows us to optimize value based on well count without sacrificing performance or experiencing interruptions in production.”
CNX, which changed its name from CONSOL Energy after becoming a standalone E&P company in November 2017, has amassed a vast amount of acreage throughout its 150-plus-year history. The Pennsylvania-headquartered company is eyeing opportunities across its stacked acreage portfolio, which includes about 542,000 net Marcellus acres and 656,000 net Utica areas with a combined 1,352 undeveloped locations in southwest Pennsylvania.
To help drive results as natural gas prices increase along with rising global demand, CNX is relying on technology. This includes seismic to derisk stacked pay development and improve NAV by $60 million.
“Drilling deep dry Utica wells in southwest Pa. presents many challenges, but we’ve been able to mitigate the risk with the use of 3-D seismic,” Dugan said. “We used the data to identify natural fractures in the path of the drillbit and adjust our plans accordingly. We’re able to minimize drilling time and learn what it takes to reliably drill economic deep dry Utica wells in the near term. These deep dry Utica wells are key to the stacked pay strategy and employing 3-D seismic is accelerating the transition from delineation to the full-blown stacked pay factory.”
CNX is already seeing higher returns at its Richhill Field in southwest Pennsylvania, where Dugan said stacked pay is driving a 2.5x uplift in rate of return.
“Capital intensity decreases year over year in stacked pay development as you’re reusing existing assets like pads, production equipment and midstream and water infrastructure. You can see it in the LOE and gathering costs as they decline over time and you extend the life of your infrastructure,” Dugan said. “More specifically with Marcellus development only you get three to four years optimal use of that infrastructure. With stacked pays, managed pressures, you get 8 to 9 years of optimal use out of those assets, more than doubling their lives.”
With 96 Marcellus and 144 Utica locations to take advantage of the asset reuse savings, Dugan said CNX is looking at a nearly $1.5 billion opportunity when it comes to stacked pay potential in the Marcellus and Utica. He pointed to a Richhill case study, which compared the net present value (NPV) of the Marcellus and Utica single-pay developments to a stacked pay. The results indicated a 30% NPV uplift due to the stacked pay development.
Shared infrastructure increased returns for both formations while shaving off capex, opex and cycle times.
But a critical component of the stacked pay development is the company’s blending strategy, which is in the early stages of development in southwest Pennsylvania. The strategy involves blending damp Marcellus gas with dry Utica gas to improve economics.
Dugan called the strategy low risk considering only one Utica well is needed to blend down three to four Marcellus wells to levels that meet BTU specifications. Plus, it’s all within the same gathering system, he said, making it much more economic than separate wet and dry systems.
“This makes our two-pipe system ideal for compression phasing and it eliminates the need for increased horsepower. This strategy delivers 15% more energy value to market for the same or less operational expense and increases our high-value inventory by improving economics on the damp Marcellus,” Dugan said.
Earlier this year CNX gained full control of its midstream MLP and rebranded it as CNX Midstream.
“We clearly believe this stacked pay development with the Marcellus and deep dry Utica is going to disrupt this basin,” he said.
The ‘Perfect Pad’
Dugan also foresees more economically-produced gas with a smaller environmental footprint with something CNX is calling the “perfect pad.” The company is running three rigs in the basin but plans to add another as it works toward a 100% electric natural gas fueled fracturing fleet, having recently partnered with Evolution Well Services. The fuel savings alone justifies the opportunity, Dugan said during a Q&A session following his presentation.
For CNX, the perfect pad could include up to 24 wells, reusing more infrastructure to recover more resources and having a smaller footprint, which means less impact on the environment and communities, according to Dugan. “We call it a perfect pad because it benefits every aspect of what we do when we talk about our responsibility, being a good corporate citizen, being safe, being environmentally compliant.”
As CNX moves toward the perfect pad and fulfilling its blending strategy, the company is:
- Using an earth model to help identify new fields and direct field development;
- Optimizing designs that utilize a combination of machine learning tools and historical data for improved completions and managed pressure drawdown production methods;
- Utilizing data analytics to help inform decisions for not only the Marcellus and Utica but also the Upper Devonian Formation and the Point Pleasant; and
- Using predictive analytics is being used to predict non-productive time with the help of Pittsburgh-based Internet of Things and data science companies.
“Our basin level model has revealed to us that there are three, maybe four, very different areas of the Utica and work continues to further delineate each of these areas,” Dugan said. “We’ve employed techniques to describe the reservoir variability, use neural nets [networks] to identify productivity indicators. These are all used to create ranking for each well in the field. We do this for both the Utica and the Marcellus and then determine which formation to develop first or whether to develop them concurrently and at what pace and when to return for additional wells.”
The tactics appear to be yielding favorable results.
In May, CNX reported its first-quarter 2018 Utica Shale volumes, liquids included, jumped to 43.5 Bcfe, which was about 184% higher than a year earlier. The increase was primarily driven by more activity in Monroe County, Ohio. Production also rose in the Marcellus, where shale volumes increased by 14% to 65.9 Bcfe.
CNX believes there is stacked pay potential across most of its acreage in a variety of formations.
“We firmly believe it will create an entirely new landscape. We’re getting closer and closer to that perfect pad and all the benefits that will flow from it,” Dugan said. “Disruptive shale gas technology brought about this energy revolution and when you couple that technology with the vast resources underneath our feet and the approach that I’ve outlined here today the Appalachian Basin has the opportunity to, due to the economics and the scale, displace other basins and truly become the dominant energy-producing region in the U.S., perhaps the world.”
Velda Addison can be reached at firstname.lastname@example.org.