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Seneca Resources Corporation (“Seneca”), the wholly owned exploration and production subsidiary of National Fuel Gas Company (NYSE: NFG) (“National Fuel” or the “Company”) today provided an update on the status of its Marcellus Shale joint venture with EOG Resources, Inc. (“EOG”), as well as anticipated changes to capital expenditures and production forecasts for its 2013 fiscal year.
Under a joint venture agreement (“JV”) between EOG and Seneca, 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. EOG has advised Seneca that it does not expect to meet the minimum drilling target for calendar 2012 specified in the JV. Should it not meet that minimum, EOG would no longer have the right to earn additional acreage from Seneca. However, both parties would retain their respective working interests in wells previously drilled and the parties could drill additional JV wells on the acreage that has been earned. As of July 21, 2012, EOG has earned a 50 percent working interest in approximately 34,000 gross acres contributed by Seneca to the joint venture.
“The joint venture with EOG has been successful in achieving the goals we identified when the agreement was signed in 2006,” said David F. Smith, Chairman and Chief Executive Officer of National Fuel. “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.”
As a result of this indicated reduction in JV activity, Seneca 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. Even though Seneca had already discussed its plans to limit participation in future JV wells to its 20 percent overriding royalty interest, the change in EOG’s JV activity will further reduce Seneca’s previously announced capital expenditure and production guidance for its 2013 fiscal year. Capital spending is expected to decrease by approximately $50 million, largely as a result of EOG’s anticipated postponement of completion activity, to a range of $400 to $500 million. Consequently, production is now expected to be in the range of 92 to 105 billion cubic feet equivalent (“Bcfe”), reduced from the previous guidance of 100 to 115 Bcfe.