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Drillers backed by private equity race to thick layer of southwest Pa. shale


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Drillers backed by private equity race to thick layer of southwest Pa. shale

CNX Resources Corp., a gas producer based near Pittsburgh, presented big 2019 plans to analysts in March for its acreage in nearby Westmoreland County, but two drillers with private equity backing could be racing to get there first, according to an analysis of Pennsylvania permitting data.

Apex Energy (PA) LLC and Huntley & Huntley Energy Exploration LLC pulled a combined 23 permits to drill in Westmoreland in July alone, according to the state Department of Environmental Protection's database. No other producer pulled a permit in the county that month. Together, the two private drillers account for 60% of the permits issued to drill in Westmoreland this year. CNX has been issued two Westmoreland County permits so far in 2018.

Apex is backed by private equity giant Apollo Global Management LLC, while Huntley & Huntley is the Blackstone Group LP private equity group's shale gas spin-off of local conventional driller Huntley & Huntley Inc., according to the drillers' websites.

What makes Westmoreland so special that it saw a huge uptick in permitting activity, a leading indicator of exploration and production activity, compared to July 2017? Three sections of the Utica formation are stacked together, making a thick 300-foot target for the drillbit, according to CNX executives.

"Not only is stacked pay the basin disruptor, what everyone thought was going on in the Utica and CPA [CNX's central Pennsylvania area] is actually wrong," Vice President for Development Andrea Passman said at the company's March 13 analyst day.

"We're getting contribution in our wells in this region across 300 feet of pay within the Utica, Point Pleasant and Lexington. Now, what this leads to is that we can potentially inter-stack laterals within the same pay. That's right. Start to think about the Permian, Wolfberry type of model," Passman said, connecting Appalachia to Texas' red-hot Permian Basin.

Supermajor Chevron Corp. also has a big leasehold in the county and has been issued 33 permits there in 2018. Chevron, Apex and Huntley & Huntley account for almost all the permits issued in Westmoreland in 2018.

There is very little overlap in the areas of Westmoreland County that the companies are targeting, Apex drills along the eastern edge of the county, with Chevron focused on the south and southwest, according to the permitting data. CNX, on the other hand, has its drilling around Bell Township in the northwest portion of Westmoreland, while Huntley & Huntley's permits are for towns in the center of the county, which is shaped roughly like a parallelogram.

Westmoreland County's latest production total, 197 MMcf/d in May, is dwarfed by the billions of cubic feet per day produced in the traditional powerhouse counties of Washington, south and west of Pittsburgh, and Susquehanna, in the northeast corner of the state. According to the state's May production report, CNX produced roughly one-third of Westmoreland County's gas, followed by Chevron and Apex. Huntley & Huntley had no reported production from the county in May.

Statewide, the number of drilling permits dropped 16% year over year in July, to 112. Three historically productive Marcellus Shale counties in the northeast and southwest Pennsylvania continued to be among the most active. Elk County in north-central Pennsylvania issued nine permits, compared to zero in July 2017, as National Fuel Gas Co.'s Seneca Resources Corp. restarts activity there.

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