Seneca Enters Agreement to Sell GOM Properties
Seneca has entered into an agreement to sell its offshore Gulf of Mexico oil and natural gas producing properties for $70 million. The sale has an effective date of Jan. 1, 2011, and is expected to close by the end of April. In accordance with full cost accounting rules, the sale proceeds will be applied against the company's full cost pool so as to reduce Seneca's capitalized costs, and no gain or loss will result from the transaction.
"Over the last few years, Seneca's exploration and development efforts have increasingly focused on our Appalachian and California assets," said David F. Smith, Chairman and Chief Executive Officer of National Fuel. "Seneca has not made substantial investments in the Gulf Coast for a number of years. This sale allows us to recover the remainder of Seneca's investment quickly. We look forward to redeploying these proceeds to Seneca's long-term growth opportunities in the Marcellus Shale."
Also, Seneca recently reached a major milestone with a daily net production rate of more than 100 million cubic feet (MMcf) per day from the Marcellus Shale. As of March 7, 2011, Marcellus net production was approximately 120 MMcf per day from 32 operated and 27 non-operated Marcellus Shale wells. Seneca is one of the industry-leading operators in terms of Marcellus production per well.
"Longer laterals and more frac stages have allowed us to achieve outstanding results," said Matt Cabell, President of Seneca. "While our well costs have increased as a result of additional frac stages and increased service company charges, this has been offset by higher anticipated estimated ultimate recovery (EUR) factors. We are now anticipating well costs of $5.0 - $6.4 million for wells with up to 20 frac stages and lateral lengths reaching over 6,000 feet. Taking these factors into account, we expect to see results continue to improve over time, with some of our best wells achieving EURs of 8 Bcf. At a natural gas price of $4.00 per MMBtu, the pre-tax internal rates of return are still exceptional, ranging from 20 percent to better than 65 percent."
"Achieving a 100 MMcf per day production rate also reflects the talent of our operating team in the East division," added Mr. Smith. "With our vast acreage position in the Marcellus, we are well positioned to continue to grow production for years to come."
As a result of the above, the Company's production forecast for the entire 2011 fiscal year has been adjusted due to the sale of the Gulf and due to increased production from the Marcellus to a new range between 64 and 71 billion cubic feet equivalent (Bcfe), as compared to the previous range of 65 to 75 Bcfe. This range includes 33 to 37 Bcfe from the Marcellus Shale. In addition, the Company's capital spending in the Exploration and Production segment for fiscal 2011 is now expected to be in the range of $600 to $655 million, up from the previously announced range of $485 to $560 million.
The Company is also revising its consolidated GAAP earnings guidance range for fiscal 2011 to a range of $2.70 to $2.95 per share. The previous earnings guidance had been a range of $2.75 to $3.00 per share, which assumed a non-recurring gain on the sale of landfill gas electric generation assets. The sale of these assets closed on Feb. 14, 2011, and remains included in our updated earnings guidance.