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Americas CEO series: Encino Energy plans to grow operations in Utica, other basins

Highlights

Encino Energy became a major Utica player overnight

In-basin demand seen to grow for NGLs

Houston — Encino Energy, a company that became an Appalachian Basin exploration and production industry powerhouse with the acquisition of Chesapeake Energy's Utica Shale assets in July, is looking to grow its operations in the Utica and invest in other basins, the company's CEO said in an interview with S&P Global Platts.

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"We expect to be active acquirers; there are specific targets in the Utica that we're already evaluating that we hope to buy and there are probably more in the Utica that we hope to acquire over time," Encino President and CEO Hardy Murchison said Monday.

Murchison said the company is also looking to expand beyond its Utica footprint into other US onshore resource plays.

"We clearly expect to grow in the Utica and we'll probably expect to grow outside the Utica as well," he said.

Almost overnight, Encino became a major player in the Ohio Utica Shale play with the acquisition of Chesapeake's Utica assets, including more than 900,000 net acres of leasehold, spanning the condensate, liquids-rich and dry gas windows of the play. The assets include about 900 gas wells that produce more than 600 MMcf/d of gas equivalent.

The assets were acquired by Encino Acquisition Partners, a partnership formed in 2017 by Encino and the Canada Pension Plan Investment Board, for $2 billion. The CPPIB owns 98% of the partnership, and Encino Energy operates the assets as an independent exploration-and-production company.Murchison said Encino's plans in the basin call for maintaining a steady level of production from the currently producing wells, as well as increasing drilling activity in 2019.

"We're drilling with two rigs today and one completion crew. We expect to increase that at some point in 2019 to three rigs and a second completion crew," he said.

In selecting the Utica assets as the foundation on which to build the company, Encino executives looked at the optionality the assets would provide, allowing the company to shift its focus to the production of oil, natural gas or natural gas liquids as economic conditions warranted."We were really focused on margins and profitability as opposed to which commodity," Murchison said.

TAKEAWAY PIPELINE CAPACITY

Encino officials anticipate that the company to benefit from the buildout of natural gas pipeline infrastructure coming into the Appalachian Basin as well as from the expansion of gas-fired power generation within the region.

Currently, virtually all the gas produced from Encino's Utica assets flows to the Gulf Coast via pipelines under existing transportation contracts, Murchison said.

He pointed to the increase in takeaway capacity coming online from Enbridge's Nexus Gas Transmission and Energy Transfer's Rover Pipeline projects. As the company ramps up its drilling activity in the Utica, Encino will take advantage of the firm transport capacity it holds on Nexus, a 255-mile interstate pipeline system built to deliver 1.5 Bcf/d of gas from eastern Ohio to pipeline system interconnects in southeastern Michigan, he said.

Additionally, Encino plans to take advantage of existing pipeline contracts to move the NGLs it produces from the wet gas window of the Utica play.

"We can move all the NGLs we produce and we'll be looking to grow volumes," Murchison said.

He also anticipates that in-basin demand for NGLs, such as ethane and propane, will grow substantially with the expected development of a petrochemical manufacturing industry in the basin. Shell has already begun work on an 86,000 b/d ethane cracker in Monaca, Pennsylvania, and several other large-scale petrochemical projects are under consideration in the region.

"When Shell's cracker comes online, there will be a lot of incremental demand in-basin. So that's definitely a factor," he said.

-- Jim Magill, jim.magill@spglobal.com

-- Edited by Pankti Mehta, newsdesk@spglobal.com