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Houston — North American producers such as EQT and BHP Billiton have had to adjust strategies to continue operating in challenging economic times, squeezing out operational efficiencies or shifting focus to concentrate on different regions or commodities, speakers said Wednesday at CERAWeek by IHS Market.

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Appalachian-focused producer EQT has concentrated on achieving efficiency gains as the company developed its assets in the Marcellus and Utica shales, Blue Jenkins, chief commercial officer of the Pittsburgh-based company, said at the energy conference.

EQT, an early entrant into the Appalachian Basin play, has seen its production in the basin increase about fivefold, to about 2.2 Bcf/d in 2017 from 500,000 Mcf/d in 2011, making it the fifth-largest US gas producer, Jenkins said.



Over that time period, the producer has achieved significant efficiency gains, he said. In December 2012, the company was drilling wells with an average 4,500-foot lateral lengths.

"We were getting 1.6 Bcf [estimated ultimate recoveries] and we paid about $6.1 million per well," he said.

Related CERAWeek blog post: White House tries to join CERAWeek party

In comparison, in a recent presentation outlining its 2017 development program, the producer noted that it had increased average lateral lengths by greater than 50% from 2011 levels.

"We increased our EURs by a significant percent and at the same time we've decreased our cost-per-foot by several hundred dollars per 1,000 feet," Jenkins said.

"These are the types of efficiencies that we've experienced. We're not alone in that the rest of basin has experienced significant step changes as well," he said.

As a result of the rapid ramp-up in production in the Appalachian Basin since the early part decade, producers such as EQT have had to look beyond the immediate neighborhood to find markets for their gas, Jenkins said.

"In the past, we didn't have to think about selling outside of region," he said.

Contrast that scenario with today, when producers in the basin are looking forward to the expansion of the interstate pipeline network to take their gas to markets in other regions of the US and beyond.

"Today, the marginal molecule is in the international market," Jenkins said.

As a result, EQT has done what it can to underwrite the construction of new pipelines, and formed a master limited partnership to build its own pipeline system, he said.

Looking toward the future, Jenkins said EQT would continue its efforts to delineate the deep Utica play, which lies to the east of the shallower Ohio Utica, in West Virginia and southwestern Pennsylvania.

"We'll drill seven wells this year," Jenkins said on the sidelines of the conference. "I think we have six or seven that we've completed. As we add those data points we'll add that to whatever public data is available."

However, Jenkins said the producer does not have a definitive timeline for delineating the play.

"We've got a very robust development plan on the Marcellus and we're taking our time on delineating the deep Utica. We'll work that over the next couple of years," he said.

The company is continuing to develop its acreage in the nearby Marcellus play.

"That continues to be a phenomenal development opportunity. We continue to add acreage," he said. "We've acquired three smaller blocks of acreage over the last 12 months and we continue to block that area up."


BHP BILLITON PUTS FOCUS ON DIVERSIFICATION


Unlike EQT, which is largely focused in the Appalachian Basin, Australian mining and energy commodities giant BHP Billiton has pursued a multi-basin and multi-commodity strategy, said Alex Archila, asset president of shale.

"Our strategy is diversification, to reduce our exposure to any one commodity or currency," Archila said.

The producer is active in wide variety of North American basins, including the Permian and Haynesville, where it has seen the rig count on the rise of late, as well as the onshore Fayetteville, Haynesville and Eagle Ford plays and its position in deepwater Gulf of Mexico.

This geographical diversity allows the producer to weather "the ups and downs in all commodities," Archila said. "Volatility is here to stay."

Archila said in response to low natural gas prices, the producer exercised fiscal discipline and decided in 2015 to suspend development in the Haynesville Shale, where it found it couldn't compete economically.

Like EQT, BHP Billiton has pursued technology-driven cost reduction, which has allowed it to reduce operating costs by about 30%, Archila said. The producer has used enhanced completion designs and reservoir-modeling technology, as well as negotiated agreements with its suppliers, all in an effort to drive down costs during the low commodity price period.

In addition, the company recently adopted a gas price hedging strategy to offset some of the risk inherent in the North American gas market, an atypical move for experienced commodity trader, Archila said.

"Shale gas is vulnerable to short-term price volatility," he said, adding that price hedging was an "essential aspect of the return to Haynesville."

--Jim Magill, jim.magill@spglobal.com
--Edited by Richard Rubin, richard.rubin@spglobal.com