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National Fuel plans to step up its drilling in Pennsylvania

National Fuel Gas is looking to ramp up its natural gas drilling business.

The Amherst-based energy company, which had scaled back its drilling program in western Pennsylvania two years ago after natural gas prices plunged, has been steadily increasing its production over the past year as gas prices in the Marcellus region have rebounded.

And now, with a new deal in place for pipeline capacity that will allow it to ship more gas to energy-hungry markets, National Fuel is planning to further expand its drilling, with the expectation that its production will grow by 15 to 20 percent a year through 2022.

The company, which had reduced its production to a single drilling rig immediately after gas prices dropped, added a second rig last year and plans to add a third rig this spring.

Because many of National Fuel's existing drilling sites that tapped into the Marcellus Shale for rich natural gas deposits also lie over an equally rich layer of Utica Shale, the company is planning to use those pads to drill new wells into the deeper layer of Utica Shale. By doing that, National Fuel expects to be able to increase its production while using existing infrastructure and gathering pipelines, making it less costly for the company to expand its production.

"We have a large inventory of additional Utica locations in and around our core Marcellus footprint that will generate stronger consolidated returns, particularly in areas where new Utica production can use existing gathering infrastructure that was built during our Marcelus development," said Ronald J. Tanski, National Fuel's president and CEO.

To bring the additional gas to market, National Fuel said, it has signed a deal with Transcontinental Gas Pipeline Co. to take 300,000-dekatherms of daily capacity on a new pipeline project that is expected to come into service in 2022.

National Fuel disclosed the plan to increase its production as it reported a 3 percent increase in its second-quarter profits, which rose to $91.8 million, or $1.06 per share, from $89.3 million, or $1.04 per share, a year ago. Excluding a $4 million reduction in earnings because the new federal tax law made some of the company's deferred tax losses less valuable, National Fuel earned $95.8 million, or $1.11 per share, topping analyst forecasts by 5 cents per share.

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