Utica shale boom talk not as loud

5/24/2013

COLUMBUS — The warm-up is almost over in Ohio’s Utica shale country. Now, it is time to see whether the flurry of activity, the billions of dollars of investment, and the hyperbole about its potential will produce substantial results.

Oil and gas now are being pulled from the layer of rock known as the Utica, located as deep as 9,200 feet under the eastern and central parts of the state. Figures released this month show that energy companies nearly doubled their production in the Utica last year. Based on those results, industry experts now have a better sense of what the Utica is and what it isn’t.

Here is what we know:

• While the Utica is beneath eastern and central parts of the state, its sweet spot is a much smaller area that includes Carroll, Harrison, Columbiana, and Noble counties.
• Despite early hopes that the Utica would be rich with oil, its most abundant resources are natural gas and natural-gas liquids. Much of the oil is locked away in areas that are difficult to access with current technology.
• Central Ohio is unlikely to see an oil and gas boom. Devon Energy is already giving up on the Utica and is selling its assets there, having drilled the closest to the area with a well in Knox County and coming up virtually empty.

Nobody contributed to the high expectations as much as Chesapeake Energy and its now-former CEO, Aubrey McClendon. Two years ago, he told an Ohio audience that shale energy would be the biggest thing in the state “since maybe the plow” and estimated $500 billion in income.

His company remains the largest leaseholder and producer in the state, but his successors and other energy executives have toned down the talk.

“Early on, there was this hype that [the Utica] was going to be the next east Texas or Saudi Arabia,” said Randy Albert, chief operating officer of gas operations for Consol Energy of Pennsylvania, which is drilling in eight Ohio counties. “It’s not going to be that.”

He sees the Utica as having a strong core of resources in just a few counties, with declining levels to the east and west.

Much of the early excitement was tied to hopes that the Utica was rich in oil, which is more valuable than natural gas. What companies have found, though, is that much of the oil is hard to get to.

“I think everybody continues to believe that the Utica contains prospective amounts of crude oil, but there are technological issues and challenges that need to be addressed,” said Tom Stewart, executive vice president of the Ohio Oil and Gas Association. “That’s a function of technology, and somebody will figure it out.”

Energy companies produced 635,896 barrels of oil and 12.8 billion cubic feet of gas last year in the Utica, according to the Ohio Department of Natural Resources. In releasing the figures last week, officials spoke about the “staggering amounts” of energy and issued forecasts showing production would grow by more than 10 times by 2015.

This optimism is in contrast to the grumbling of analysts, some of whom are beginning to see the Utica as a disappointment.

“There has been a lot of smart money that lost a lot of money in this space,” said Mark Hanson, an energy analyst with Morningstar in Chicago, noting that several regions outside Ohio also failed to live up to their promise.

That said, development of the Utica is in its early stages. “People are still trying to figure out where the sweet spots are, where you can get the highest returns with oil content,” he said.

He points to one well in Harrison County, operated by Gulfport Energy, as the rare example of substantial oil content. The well, called “Boy Scout 1H,” produced 37,235 barrels of oil and 122 million cubic feet of gas in 32 days. But it is just one out of the 87 wells included in last week’s state report.

For some perspective, look at Eagle Ford in Texas, a shale formation that gushes with oil. In 2010, when there was drilling on 72 leases, Eagle Ford produced more than 5.5 million barrels of oil (Texas doesn’t list the number of wells per lease). Last year, Eagle Ford had drilling on more than 1,200 leases and more than 135 million barrels of oil, according to the Railroad Commission of Texas, which compiles oil and gas figures.

Based on the few numbers available for the Utica, analysts feel comfortable saying it is no Eagle Ford.

State officials say that the Utica numbers would have been much higher in 2012 if not for a lack of infrastructure to process and transport the resources. Indeed, companies have announced more than $5 billion in spending on pipelines and processing.

The officials also note the continuing pace of drilling permits, with more than one in four of the state’s 660 permits issued so far in 2013.

But there is no refuting that some companies are heading for the exits.

Devon Energy, one of the largest producers in the country, is the most notable example. A spokesman confirmed that Devon is still planning to sell its assets in Ohio.

Devon drilled five wells and got no natural gas from any of the wells and only a small amount of oil from one.

Devon’s results are bad news for anyone hoping to sell mineral rights in central Ohio. The company drilled in an area closer to Columbus than anyone else, with one well in Knox County near the Licking County line.

Few people were as disappointed to see Devon’s results as Mark Jordan, president of Knox Energy of Columbus, which owns mineral rights on some of the land where Devon was drilling.

“We wanted to see them have a successful venture, and it’s too bad,” he said.

And it may be a long time before any other company decides to drill near Columbus.

“I hate to tell you this, but (central Ohio) is probably outside of any commercial part of the Utica,” said Consol’s Albert. “It’s not on our radar.”