Magnum Hunter Resources Corp. (MHR) has entered a joint venture agreement with Stone Energy Corp. (SGY) to jointly develop Marcellus Shale acreage in Wetzel County, West Virginia.
The contract area covers an existing mineral leasehold position currently owned by both companies.
Magnum Hunter and Stone Energy will jointly develop a 1,925 net Wetzel County acreage block on a 50/50 basis. Stone will be the operator of a two-year, $100 million, 19 horizontal well program. 2012 activity will include 11 horizontals and cost $47 million gross. As a result of the deal, the joint operating footprint increases to 2,309 net acres. In a separate agreement, SGY agreed to commit its share of production from the contract area to MHR's Eureka Hunter pipeline system, Eureka Hunter Pipeline LLC. MHR's total Marcellus footprint remains at 62,600 net acres.
Earlier this year, Stone Energy and Triad Hunter drilled and completed two horizontal Marcellus wells, with 50% ownership interest each, on a portion of this existing mineral leasehold.
The additional 1,925 acre contract area is a portion of an existing 5,288 acre leasehold in which Triad Hunter will retain 100% interest in 2,979 acres. During 2011 and unrelated to the additional contract area, Triad Hunter drilled and completed three horizontal Marcellus wells with a 100% ownership interest. Triad Hunter anticipates drilling an additional nine wells with a 100% ownership interest on the 2,979 acres.
A December 12 note to investors from Jefferies & Co. Inc. viewed the transaction as a positive, saying, “Combining two adjacent acreage blocks provides enhanced development efficiencies through the use of longer lateral wells,” echoing a prepared statement by James W. Denny, III, president of Triad Hunter LLC. “Both companies realized that by combining our resources, we could each obtain a much greater value and improve efficiency in our respective leasehold positions by drilling a greater number of wells with longer lateral sections. We anticipate establishing new significant production volumes in this region during 2012,” he said.
In recent months, Magnum Hunter has pushed its completions in the Eagle Ford Shale with longer laterals and greater frac stages, as well.
While the 2012 program increases to 16 gross wells, the net well count and spend remains largely unchanged at $50 million and 10, noted Jefferies analysts.
