Is West Virginia’s Sweet Spot Getting Sweeter?

It’s that time of year again, when the fog clears briefly over West Virginia production data and we get a better look at what is going on in the state. Last week the West Virginia Office of Oil and Gas released a lagged data set of monthly production for all oil and gas wells with production in 2015. With this data, we now get a peek at results of what some think is the true sweet spot in western Appalachia and results just might give some credence to those true believers.

The graphic below compares 2014 and 2015 30-day IP rates by county, showing us how strong new wells are coming on. Tyler county, in northwest West Virginia, shows the most improved results, more than doubling the average IP rate between 2014 and 2015.

On the other side of the spectrum, Doddridge and Harrison counties have shown apparent weakness. However, this is most likely from wells being choked back due to gathering and takeaway constraints  rather than a severe degradation in outright well performance. A similar argument might be used to help explain away some of the upside gains as well; takeaway projects such as Tallgrass Energy’s (NYSE: TEP) Rockies Express expansion in the summer of 2015, as well as Antero Resources’ (NYSE: AR) Stonewall gathering system coupled with Kinder Morgan’s (NYSE: KMI) Broad Run Expansion, helped to relieve takeaway constraints in 2015. The map below shows a map of 30-day IP rate percent changes between 2014 and 2015, as well as drilling activity in each county represented by the number of horizontal wells drilled since 2015.

The graphic below shows how different operators have fared in 2015 compared to 2014. While, EQT (NYSE: EQT), one of the most active operators surveyed, showed declines, this is likely due to gathering and takeaway constraints. To alleviate constraints, their Ohio Valley Connector project is expected to come on in the next month or two, adding local takeaway capacity to their West Virginia producing areas.

Some of the operators above, such as Antero and EQT, have been actively developing Dry Utica assets in the area recently, however any production from the Dry Utica plays a minor role, at most, in this new tranche of data since Dry Utica activity was just beginning to emerge in 2015. Moving forward, however, Antero, who has shown continuing strong well performance, has taken actions to make the Dry Utica an increasingly important part of their investments, most recently through the acquisition of 55,000 net acres from Southwestern (NYSE: SWN) in the western part of the state, of which over 40,000 acres contain Dry Utica rights. But Dry Utica aside, tying the above data together (strong results in Tyler and Wetzel counties) bodes well for Antero’s acquisition as they strive to meet their portfolio of firm commitments.

With this acquisition, Antero has made a big bet on West Virginia, so far for them and other operators that call West Virginia home, it seems to be a good one. What impact does strong West Virginia data have going forward on Marcellus and Utica production and what operators in the area will fare the best? See our upcoming North American Upstream Outlook for a complete forecast of West Virginia, Ohio, and Pennsylvania natural gas production.

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Matthew is a Manager of Energy Analysis for BTU Analytics. He oversees product development and the publication of BTU Analytics’ product offerings which cover the oil, gas, and NGL markets for the US and Canada. He also leads research on the downstream markets for natural gas, natural gas midstream, and natural gas pricing dynamics across the US. He holds a M.S. in Finance from the Simon Graduate School of Business at the University of Rochester and B.S. in Physics from Florida State University.

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