More focused on Marcellus assets, Seneca Resources sells Gulf of Mexico properties

Houston-based Seneca Resources, a subsidiary of Williamsville, New York-based National Fuel Gas Co., has agreed to sell its offshore Gulf of Mexico oil and natural gas producing properties for $70 million. 

"Over the last few years, Seneca's exploration and development efforts have increasingly focused on our Appalachian and California assets," said David F. Smith, chairman and CEO of National Fuel. "Seneca has not made substantial investments in the Gulf Coast for a number of years. This sale allows us to recover the remainder of Seneca's investment quickly. We look forward to redeploying these proceeds to Seneca's long-term growth opportunities in the Marcellus Shale."

The deal is expected to close by the end of April.

Marcellus Shale 
The company reached a milestone in the Marcellus Shale with a daily net production rate of more than 100 million cubic feet (MMcf) per day. As of March 7, 2011, Marcellus net production was approximately 120 MMcf per day from 32 operated and 27 non-operated Marcellus Shale wells. 

"Longer laterals and more frac stages have allowed us to achieve outstanding results," said Matt Cabell, president of Seneca. "While our well costs have increased as a result of additional frac stages and increased service company charges, this has been offset by higher anticipated estimated ultimate recovery (EUR) factors. We are now anticipating well costs of $5.0 - $6.4 million for wells with up to 20 frac stages and lateral lengths reaching over 6,000 feet. Taking these factors into account, we expect to see results continue to improve over time, with some of our best wells achieving EURs of 8 bcf. At a natural gas price of $4.00 per MMbtu, the pre-tax internal rates of return are still exceptional, ranging from 20 percent to better than 65%." 

The company is adjusting its fiscal year 2011 production forecast due to the Gulf of Mexico sale and the increased production from the Marcellus to a new range between 64 and 71 billion cubic feet equivalent (bcfe), as compared to the previous range of 65 to 75 bcfe. This range includes 33 to 37 bcfe from the Marcellus Shale. The company's capital spending in the exploration and production segment for fiscal 2011 is now expected to be in the range of $600 to $655 million, up from the previously announced range of $485 to $560 million.

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