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Appalachian Basin natural gas producer Consol Energy on Tuesday posted a 12% increase in oil and gas production in the third quarter compared with Q3 2015, reflecting its return to drilling in the dry Utica play early in the quarter.

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During the quarter, the company produced 96.4 Bcfe, or 1.05 Bcfe/d, compared with 86.1 Bcfe, or 936,000 Mcfe/d, produced in the year-earlier quarter. Marcellus Shale production volumes, including liquids, in Q3 were 51.8 Bcfe, or 563,000 Mcfe/d, about 13% higher than the 45.9 Bcfe, or 499,000 Mcfe/d, produced in Q3 2015.

Meanwhile, Consol's Utica Shale production volumes, including liquids, in Q3 were 22.5 Bcfe, or 245,000 Bcfe/d, up about 47% from 15.3 Bcfe in the year-earlier quarter.

Consol had resumed drilling operations in August, adding two rigs in the Ohio dry Utica play, after calling a pause to drilling late last year, in the wake of months of rock-bottom oil and gas prices.

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The quarter's results reflected the producer's strategy of "maximizing free cash flow and using this cash to de-lever our balance sheet," President and CEO Nicholas Deluliis said during a conference call to announce the quarter's results Tuesday.

"In the quarter, we saw strong free cash flow of $103 million, our third consecutive quarter of free cash flow. Year to date we generated of free cash flow of $608 million," he said.

In addition, Deluliis said the quarter's results reflected the producer's continued efforts to transform itself from primarily a coal producer to a pure-play oil and gas exploration-and-production company.

"Over the course of the past two years, Consol has adopted a startup mentality, transforming a 152-year-old institution by reinventing itself into an agile, data-driven premier natural gas company with a steadfast commitment to allocation of capital," he said.

Broken down by commodity, Consol produced 82.7 Bcf, or 898,000 Mcf/d, of natural gas and 13.7 Bcfe, or 149,000 Mcfe/d, of liquids in the quarter. That compares with gas production of 74 Bcf, or 804,000 Mcf/d, and liquids production of 12.1 Bcfe, or 132,000 Mcfe/d in Q3 2015.

The bulk of Consol's Q3 gas production came from its producing assets in the Marcellus play, which saw output of 45 Bcf, or 467,000 Mcf/d, a 10% increase from Q3 2015 production.

Utica gas production in Q3 totaled 17.7 Bcf, a 73.5% increase from the year-ago quarter, reflecting the company's increased attention to the dry Utica play.

Consol recorded 12.4 Bcfe, or 135,000 Mcfe/d, of natural gas liquids production in the quarter, an increase of more than 29% compared with Q3 2015.

The company said in a statement it expects production volumes to grow to approximately 390-395 Bcfe in 2016, with 10 Bcfe of that growth pegged to the unwinding of a Marcellus Shale joint venture with Noble Energy, which the two companies announced Monday.

Tim Dugan, Consol chief operations officer, said on the conference call that the producer used the period when it took a break from drilling to "refine our database and our model-centered approach" to delineate the dry Utica play for further development.

"Not only did we pick up where we left off a year ago, but we are exceeding our goals as our rapid rate of improvement continues," he said. "We added two rigs in August, which started drilling dry Utica wells in Consol's 100% owned acreage Monroe County, Ohio."

Consol drilled two wells in the quarter, with an average lateral length of 8,600 feet, and after the close of the quarter started a third well.

"Over the course of three wells our drilling cost and days to drill exceeded our previous expectations, which we stated last quarter," Dugan said.

In the previous quarter Consol had estimated its total drilling cost goals at $1,060/foot of lateral.

"Over the course of drilling the first two wells, our cost improved to $1,040 per foot of lateral and our cost further improved in the third well to $950 per foot of lateral," he said.

In terms of estimated drilling times, "Our original expectation was 26 days, spud to [total depth], which was accomplished on the second well. On the third well, we exceeded our goal by three days."

--Jim Magill,

--Edited by Jason Lindquist,