Seneca Resources is getting help from a Dallas investment firm to maintain gas production in the Marcellus shale despite low prices that have cut into cash flow.
Houston-based Seneca, Pennsylvania’s 12th biggest shale gas producer, on Thursday announced a joint venture with IOG Capital to develop at least 42 and possibly 80 wells in Elk, McKean and Cameron counties with the help of up to $380 million from the firm.
“During this period of lower commodity prices, where we are experiencing decreased cash flow in the upstream portion of our business, the drilling joint development agreement we announced today helps us move forward with our strategy,” said Ronald J. Tanski, CEO of Seneca parent National Fuel Gas Co. “The joint development agreement significantly reduces our upstream capital requirements, yet still allows us to increase production from our acreage that will support the continued growth in our pipeline and storage and gathering segments.”
IOG, which former Chesapeake Energy executive Marc Rowland founded in 2014, will get about 74 percent of the revenue from the initial 42 wells and have an option to partner on another 38 wells. Seneca already has drilled some of the first batch of wells.
The investment from IOG allows National Fuel to reduce its planned capital budget for gas exploration and production next year to between $200 million and $250 million.
A lack of interstate pipelines, especially leading from northeast Pennsylvania shale fields, and tepid demand have added to a glut of natural gas that kept prices at multi-year lows for much of 2015. Spot prices in Appalachia have dipped below $1 per thousand cubic feet.
Seneca is among producers that responded by choking some wells to cut supply. Other producers have slashed spending plans, halted further drilling, laid off workers and shuttered offices.
Analysts and industry leaders say they expect prices to begin rebounding in 2017 as more pipelines come online and demand increases from the power sector and exports.
This article was written by DAVID CONTI from The Pittsburgh Tribune-Review and was legally licensed through the NewsCred publisher network.