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EQT seeks lower costs, higher output in Utica to offset gas price woes

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EQT seeks lower costs, higher output in Utica to offset gas price woes

Appalachian gas producer EQT Corp. will strive to drive down costs and boostoutput from wells in the Utica Shale in an effort to make them cost-competitivewith the nearby Marcellus.

Given the low natural gas price environment, dropping thecost of a drilled and completed well in the deep Utica Shale to between $12.5million and $14 million is one of EQT's key objectives for 2016, StevenSchlotterbeck, president of the Pittsburgh-based company, said during an April28 earnings conference call. To make capital costs competitive with its coreMarcellus wells, the company is targeting an estimated ultimate recovery, orEUR, of about 75% more natural gas per deep Utica well.

"The higher EUR per well combined with the higherpercentage of EUR being produced in the first few years and lower expectedgathering compression costs should provide returns competitive with theMarcellus," Schlotterbeck said. "We currently have three wellsproducing, the Scotts Run and Pettit wells in Greene County, Pennsylvania andthe Big 190 well in Wetzel County, West Virginia."

Scotts Run, which became the producing well in Appalachia whenmeasured by initial production, is now in decline after flowing at a flat rateof 30 MMcf/d for a total of 244 days. Results from Pettit and Big 190 are notas strong as Scotts Run, Schlotterbeck said.

"The decline is in line with our expectations and ourEUR estimate for this well is currently 20 Bcf with approximately 6 Bcf perthousand foot of lateral," Schlotterbeck said. Pettit and Big 190 are "inline with what we are seeing from other wells in the area. It is too early tocalculate an EUR for these two wells," he said.

Part of the success of Scotts Run may be attributable to theuse of ceramic proppant, a product that is substituted for sand in thehydraulic fracturing process. Proppants are used to hold open small fissurescreated by the high-pressure fracturing of the rocks and allow gas to flow intothe well bore. Ceramic proppants are believed to be less susceptible to beingcrushed under extreme pressure than typical fracking sand. Ceramic proppant ismore expensive than sand, although Schlotterbeck said the company has been ableto overcome some of that disadvantage by negotiating a lower price for theproduct.

"We decided to use ceramic prop in the next threecompletions including the Shipman to determine if the proppant type has impacton well productivity," Schlotterbeck said. "The good news is we havenegotiated a 40% reduction in the price of ceramic prop since the Scotts Runwell. For typical 5,400-foot lateral, the incremental cost of using ceramicsversus sand is now $1.4 million per well compared to about $2.5 millionincrementally at the time we drilled the Scotts Run."

EQT, which formed EQTMidstream Partners LP to own and operate midstream assets inAppalachia, said it anticipates a drop down of assets valued at approximately$300 million to be completed in the second half of the year. EQT is workingthrough the necessary accounting, legal and commercial work to complete thetransaction, CFO Robert McNally said.

"We expect the drop-down to occur in the second half ofthe year," McNally said. "As we've mentioned in the past there'sabout $40 million of EBITDA to be dropped down."