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Appalachian shale driller Eclipse beats Street, will chase liquids in 2018

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Appalachian shale driller Eclipse beats Street, will chase liquids in 2018

Eclipse Resources Corp., the small Appalachian shale gas driller with the 19,000-foot "super laterals," will probably continue to use joint ventures to generate the capital it needs to get bigger in today's current environment that emphasizes restraint over growth.

Eclipse said improved NGL prices, particularly for propane, and the opening of Energy Transfer Partners LP's Rover Pipeline LLC allowing more sales outside of the basin contributed to $5.2 million, or 2 cents per share, in adjusted income in the fourth quarter of 2017, reversing $4.8 million in adjusted losses in the same period in 2016. Analysts surveyed by S&P Global Market Intelligence were expecting no income for the quarter.

Shares of Eclipse gained 3% to $1.66 by midafternoon on heavier-than-normal volume.

Eclipse reported that it increased oil, gas and liquids production 22% over the prior year's fourth quarter to 312 MMcfe/d, in line with its production numbers released Jan. 31, but a 32% rise in NGL prices to $27.55 per barrel helped provide the earnings beat.

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The company began as an Ohio Utica dry gas producer and found that it could produce NGLs and condensate, a light oil, from the Utica and the overlying Marcellus Shale. Eclipse has decided to chase more condensate, executives said on a March 1 earnings conference call. "This decision has allowed us to take advantage of the improvement in the near-term oil macro outlook, while additionally allowing us to achieve more commodity product diversification," CEO Benjamin Hulburt told analysts.

Hulburt said Eclipse needs to grow to improve its stock price and will probably keep tapping joint ventures with private equity investors to finance that expansion. "We think we could trade better by gaining additional scale," Hulburt said, but he noted that financing growth is tough. "The market at this point, obviously, there is a huge focus on drilling out of cash flow. Well, the problem is a small-cap, that's extremely difficult to do and probably means you're going to stay a small-cap forever if you restrict your activity level to that point."

"The drilling joint venture was a great way to … address that sort of issue. And that could be something that we continue to expand in the future in different areas or the same area," Hulburt said.

Another option is to sell Eclipse's gathering operations to another company and pay for service, Hulburt said, but Eclipse has not come to a firm decision. "We are looking at ways that would be better to outsource that and reduce the capital spend on that," Hulburt said. He estimated Eclipse will have to spend $10 million for gathering and processing infrastructure for its new Flat Castle Utica play in north-central Pennsylvania.

Another item that will grow in 2018 is the length of Eclipse's horizontal well laterals. Eclipse's Outlaw C 11H well in Guernsey County, Ohio, was drilled in June 2017 with a 19,500-foot lateral, thought to be the longest onshore lateral in the country. The company drilled 12 super-lateral wells out of 29 in 2017, with eight having laterals beyond 19,000 feet. In 2018, Eclipse plans to push lateral lengths out past 20,000 feet, Hulburt said. Eclipse believes that longer laterals are more productive and cheaper than more wells with shorter laterals in the long run.

For full year 2017, Eclipse exceeded expectations with adjusted profits of $1.5 million, or 1 cent per share, compared to $64.5 million, or 27 cents per share, in losses in 2016. Analysts expected an adjusted loss of 3 cents per share in 2017.