Huge Production Growth to Continue at Rice Energy

Rice Energy remains one of the fastest growing energy exploration firms easily surpassing the fast growth of Antero Resources while trading at an attractive valuation.

Jul 14, 2014 at 9:53AM

For investors that thought the 20% sequential increase in production during the fourth quarter was substantial, Rice Energy (NYSE:RICE) easily surpassed that number during the first quarter of 2014. Possibly more shocking is the possibility that the company could lapse the 36% sequential growth for the first quarter during the current quarter.

Rice Energy is turning into a prolific grower in the Marcellus Shale, and the first-quarter earnings provided some interesting insights for both the company and the region. In total, the company saw production surge to 209 MMcf/d to reach growth of 135% relative to the first quarter of 2013 with well results continuing to improve.

Another hot IPO, Antero Resources Corporation (NYSE:AR), is producing substantial growth as well. It can't match that of Rice Energy, however.

Massive wells getting larger
Rice Energy made some interesting points in its fourth quarter report, with a focus more on the combined lateral lengths of wells versus the total number wells. Since starting production in 2010, the Marcellus producer has grown the lateral length for each well on a yearly basis. Along with the increased length has come increased production that ironically nearly matches the added distance. In essence, the added length of each well is more than double the original amount and equivalent to doubling the well count.

Table-Well Operational Data

Screen Shot

Source: Rice Energy

For the first quarter, a four-well Marcellus pad had an average lateral length of 6,691 feet with average gross production of 12.7 MMcf/d per well. The original wells back in the 2010 to 2011 period averaged a lateral length of 3,281 feet and gross production of 5.5 MMcf/d. Production has more than doubled along with the lateral length doubling during that time period.

In late April, Rice Energy brought on a six-well pad with an average lateral length of 8,000 feet and current production of 13.3 MMcf/d. The roughly 20% increase in lateral length from the first quarter doesn't appear to be achieving the incremental gains in production, however, so investors might want to watch those results as the year unfolds.

For comparative purposes, leading Marcellus producer Range Resources (NYSE:RRC) produced its best well yet on a 7,065 foot lateral. However, a five-well pad recently went online with an average lateral length of 6,635 feet. The numbers from Range suggest that the exponential growth in lateral length will slow down.

Second quarter growth
The company wasn't joking when it originally forecast that production would surge over 100% during 2014 to reach totals of between 260 MMcf/d and 310 MMcf/d, representing 106% to 146% growth over 2013 average net daily production. With the company adding 80 MMcf/d from a six-well pad, production would already sit in the guidance range absent any production declines in existing wells. It also doesn't include any oil flowing from the new Utica Shale wells that already have over 16,000 feet of lateral length drilled and in the testing stages. The first Bigfoot well should reach production soon, too.

Remember that the production curves are very meaningful with these horizontal wells. The first six wells from the 2010 time period saw their 90-day production flows decline by roughly 50% during the second year.

Antero Resources hit production growth of 105% in the first quarter, but the sequential gains were only 16% from the prior quarter. At total production of 786 MMcfe/d, the company has production of nearly four times that of Rice Energy. However, Antero is turning more oily with liquids production up nearly 600% to reach and average of 16,332 Bbl/d. With Antero worth over $16 billion and Rice Energy trading at around $3.5 billion, the numbers probably don't reflect that Rice is now growing faster.

Bottom line
Rice Energy appears set to blow past guidance that included growth of up to 135% for the year. The energy exploration firm continues to progress by adding Utica wells to its already fast-growing Marcellus shale wells, setting the company up for continued explosive growth in the second quarter and beyond.

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