Ohio 500 Billion Oil Dream Gone?
Are these people anti-frackers? If this has any validity, it's a disappointment to us waiting for a lease, not to mention any investors concerns.
http://www.bloomberg.com/news/2013-04-15/ohio-s-500-billion-oil-dre...
U.S. drillers that set up rigs amid the rolling farmland of eastern Ohio on projections underground shale held $500 billion of oil are packing up.
Four of the biggest stakeholders in untapped deposits known as the Utica Shale have put up all or part of their acreage for sale, as prices fall by a third in some cases. Chesapeake Energy Corp. (CHK) of Oklahoma City, the biggest U.S. shale lease owner, last week offered up 94,200 acres (38,121 hectares). EnerVest Ltd. and Devon Energy Corp. (DVN) are selling as early results show lower production than their predictions.
Chesapeake Energy Corp. of Oklahoma City, the biggest U.S. shale lease owner, last week offered up 94,200 acres (38,121 hectares). Photographer: Daniel Acker/Bloomberg
“The results were somewhat disappointing,” said Philip Weiss, an analyst with Argus Research in New York. Early data show “it’s not as good as we thought it was going to be.”
The flip-flop underscores the difficulties faced by even experienced drillers around the world in tapping the sedimentary rock. In California, Occidental Petroleum Corp. was stymied by the Monterey Shale’s fault-riddled terrain. InPoland, Exxon Mobil Corp. (XOM) stopped drilling because shale output was minimal. China’s failures with shale gas drove producers Cnooc Ltd. and China Petrochemical Corp. to seek expertise in North America.
In Ohio’s Utica formation, which runs eastward as far as New York, drillers frequently found the rock too dense and underground pressures insufficient to produce oil.
The rush to buy acreage has reversed.
The Utica saw one deal valued at more than $50 million in the fourth quarter of 2012, compared with seven in North Dakota’s more productive Bakken Shale and six in Texas’ Eagle Ford Shale, according to the accounting firm PricewaterhouseCoopers LLP.
Eagle Ford
By 2017, the Utica should produce a daily average of 200,000 barrels of oil, Wood Mackenzie Ltd. estimated. The Eagle Ford by then will be producing 1.15 million barrels a day, almost six times more.
“People started to realize that, you know what, maybe the oil window of the play is not all it’s cracked up to be,” said Jonathan Garrett, an analyst at Wood Mackenzie who has studied the Utica.
Utica acreage can fetch about $1,000 to $8,000 an acre, Garrett said. In the Eagle Ford, which produced about 374,000 barrels of oil a day in January, acreage can cost about $5,000 to more than $36,000 an acre, he said.
Gulfport Energy Corp. (GPOR) paid $10,000 apiece for 22,000 net acres in Utica in February, compared with $15,000 an acre Total SA spent on a joint venture with Chesapeake in January 2012.
The global exploration and production industry, which Cowen Group Inc. estimates will spend $645 billion this year, is learning how hard it is to transfer practices and expectations from one shale formation to another and replicate the success of the top fields, such as the Eagle Ford.
Shale Spotlight
The Utica grabbed the U.S. shale spotlight in 2011 when the Ohio Department of Natural Resources estimated it held 5.5 billion barrels of recoverable oil reserves -- equivalent to more than twice Yemen’s proven resource and valued at about $488 billion at yesterday’s $88.71-a-barrel U.S. oil price.
Chesapeake had boasted Utica would outperform the Eagle Ford. EnerVest, the biggest gas producer in Ohio, had said the Utica would bring jobs and new industry to the state. EnerVest in the past year has tried to sell acreage there and no buyers have emerged.
EnerVest is selling out of the Utica because oil production doesn’t fit its low-cost business model, Mark Houser, chief executive officer of EV Energy Partners LP, said in an interview. EV Energy is a master-limited partnership controlled by Houston-based EnerVest.
Code Cracking
Going for natural gas is another story. Some areas of the Utica were found to be rich in gas liquids, though only a minority of companies are positioned to benefit. They include Gulfport of Oklahoma City and Denver-based PDC Energy Inc. (PDCE)
Chesapeake has decided to leave it to other companies to crack “the code” of the Utica’s oil prospects after the company found it wasn’t worth trying any longer, Senior Vice President Jeff Mobley said in December at an industry financial conference. Since September, Chesapeake has been seeking a partner to share ownership and costs in the Utica.
Devon, also based in Oklahoma City, decided to sell its 157,000 net acres in the Utica so it can concentrate on more profitable plays, said Chip Minty, a spokesman.
PDC, another Utica explorer, dropped its effort to find a partner when it couldn’t get a high enough bid for the stake it was offering, and in September decided to go it alone.
Better Fracturing
Early drilling results showed the oil portion of the Utica isn’t as porous as some other shale formations and is shallower than its gas-filled areas, meaning it’s harder to get oil to flow through the rock, and there’s less natural pressure to help force it out, said Jerry James, president of Artex Oil Co. in Marietta, Ohio.
Operators are looking for better ways to fracture their oil wells, and discussing whether to use pumps to get crude to the surface, James said.
“Some of the oil window is going to work, it’s just going to take a while,” James said.
The Utica has the potential to be one of PDC’s top performers, based on the company’s recent results, Vice President Scott Reasoner said in an e-mail.
Jim Gipson, a spokesman for Chesapeake, declined to comment. Paul Heerwagen, Gulfport’s investor relations director, didn’t return phone messages seeking comment.
Infrastructure Build
Much still depends on the construction of processing units and pipelines to provide a route to market for Utica production. The pace of drilling has been hindered by a lack of infrastructure that may require a $30 billion investment over three years to build out, said Jack Lafield, CEO of Dallas-based pipeline operator Caiman Energy LLC.
The number of drilling rigs in the Utica has risen year over year, indicating that producers still see value in the field despite the lack of oil, said Jeff Daniels, a professor at Ohio State University who heads the school’s Subsurface Energy Resource Center. The problem with oil production may be solved with new technology.
“We have a lot to learn about producing from these shales,” Daniels said.
To contact the reporters on this story: Mike Lee in Dallas at mlee326@bloomberg.net; Edward Klump in Houston at eklump@bloomberg.net
Views: 19883
Replies to This Discussion
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Permalink Reply by Joseph-Ohio on
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No argument.
It never happens that way however.
It just keeps going up all over simultaneously
or on occasion minimally down.
The simultaneous ups (and short lived downs)
are what I'm referring to.
Simultaneous behavior across a market to
me are quite suspicious.
What causes that ?
A free market ?
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Permalink Reply by wyalusing jim on
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refineries must buy crude oil in order to refine it into gasoline...correct?
they buy crude at market prices, it goes up, and it goes down. mostly though it goes up over time. (except during the recent economic downturn when everything just about went down.)
if you watch the price of crude, when you see it make a significant move, you will almost always see a corresponding move in the price of gasoline roughly 2 weeks later.
there are also regional price variations and swings, depending on regional issues like localized shortages and such.
wj
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Permalink Reply by Joseph-Ohio on
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I guess what you're saying is that the E & P
Company's won't spend the increased developmental
costs until they have to.
I also agree to that.
Back to hoping that's not too far in the distant
future.
Supply & demand ?
Demand needs to outpace supply ?
If they can buy it elsewhere for less then
why expend more developmental costs ?
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Permalink Reply by mark ayers on
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I was told, for what it's worth, all the gasoline is the same at the end of the pipeline, and different companys add their own additives when they pick it up.
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Permalink Reply by Jim on
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Last year I asked a local Marathon gas station employee, "how do you know at what price you sell your gasoline?". The employee told me that when she comes to work in the morning she looks at what the gas station up the street is selling their gas for and makes any adjustments to sell at the same price. A few weeks later I noticed that the station up the street was selling gas for a nickle cheaper than than the Marathon and I stopped to tell the Marathon employee of the difference because the Marathon had no customers at their station. The employee promply got out the computer and changed the prices.
Sometimes it has nothing to do with the price of oil or orders from corporate headquarters, but instead follow the leader.
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Permalink Reply by wyalusing jim on
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Reply by Jim
"Sometimes it has nothing to do with the price of oil or orders from corporate headquarters, but instead follow the leader."
jim, there are many aspects to this issue of gasoline pricing.
there are national and international markets which joe and i have been discussing, which set the price range nationwide, like the $3.50-$4.00 range that i mentioned elsewhere. that aspect involves the finding, development and shipping costs (among others) of crude oil around the world. in other words, the cost of getting a barrel of crude to the refineries.
there are also regional aspects which involve regional refinery capacity and the occasional shutdowns of those refineries due to weather or maintenance, and the cost of trucking the final product to the individual stations. and there are other considerations which affect regional pricing like say californias' specific emissions laws which affect what goes into gasoline in that state and the extra costs involved.
the example you cited, is local competition. both of those stations are likely paying the same price, with maybe a couple of cents per gallon difference. they both try to maximize their profit within local market constraints. that is perhaps the best example of how the consumer controls the market, because the one with the lower price is gonna get the business. they will undercut each other down to a point where they have reached their minimum profit margin to remain viable. if one station can operate more cheaply due to better business practices, the other may not survive. that is the essence of the free market system and how it benefits us as consumers if we shop wisely and control the market by directing our purchases according to our needs.
wj
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Permalink Reply by Jim on
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WJ,
I totally understand your point and if I owned a gas station, I would do the same thing. My point is, I was surprised to learn that a simple employee can change the price of gasoline without first getting clearance from someone that has knowledge of market conditions. In my neighborhood, I have three gas stations less than a mile apart that are owned my the same company. There have been times in the past that all 3 stations are selling gas at different prices sometime as much as ten cents difference. Figure that one out.
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Permalink Reply by wyalusing jim on
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if there's a 10 cent difference jim, then they may have different suppliers.
also, each delivery may be at a different price than the previous.most stations have about 5000 gallons of storage capacity. that brings in the aspect of delivery timing. if a station takes delivery of a full load just before a price increase, they can hold a lower price than a station which takes delivery just after the increase.
how long it takes to deplete that storage requiring a new delivery at the new price varies according to the local market. but it can be a week or 2 in slower market areas.
if the employee has the authority to change the price, it is likely a standing order from the owner. some owners that i have known made the decision themselves, based upon input from customers and employees. and often they decided to cut their profit to the bone so that they wouldnt get stuck with a tank full of higher priced gas.
the energy industry is a dog eat dog world. there are very few gas only stations left like the old mom and pop stations that were around when i was a kid. remember the guy who used to clean your windshield and check you oil in the hopes of selling a quart of oil in addition to your fillup? those days are long gone. profit margins on gas and oil are way lower today due to increased competition. today an owner has to have a mini mart besides to survive, and often the reason an owner will cut his profits to the bone is, that he doesnt want to lose the incidental sales of sodas and coffe that his customers will make when they go in to pay.
now...if you wanna talk about price fixing and huge profit margins...think about the soft drink industry! 2 bucks for a bottle of water, sugar, coloring and flavor? that stuff is more expensive than gasoline! and all of the name brands are pretty much the same price arent they? and how much do they charge for those bottles of....water? i mean really, water is free! but an entire industry has evolved around selling this essentially free commodity.
the energy industry isnt as villainous as some folks make them out to be, but it is a real complicated industry as some of us are beginning to learn as we get more involved with our minerals. and ya know, if shalers look at the energy industry as an enemy, then we have already met the enemy, and he is us. (pogo)
wj
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Permalink Reply by Gary L on
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Some thoughts about this article. Could it be a political maneuver by the industry to downplay the utica?
I see no mention of the multiple formations down to and below the Utica Formation that yield resources.
The year 2017, Utica comparison with (Eagle Ford, being 6 times more oil output) is pure speculation.
The Utica Play is just being developed with growing pains and too new to compare with a well developed Eagle Ford. Also they may not have dense rock nor pressure problems that currently hinder the Utica.
Artex, mentioned in the article, has been going around leasing in the oil window and they are one of the down-player contributors in the article. Why? Glad I didn't accept their $250. acre boilerplate lease.
The current big drillers are selling off acres and waiting on someone to come in, crack the code concerning lack of pressure, so they can come back to make a run for the oil? I thought they got greedy in the land grab and over extended themselves.
I read an article yesterday about OPEC being upset with our new energy output. They are planning to implement a new strategy to battle the US Shale Plays. Guess we'll have to see what happens.
The link below is good news that will help help with the pressure problem.
GE is opening a new research center with Lufkin to develop an artificial lift bringing oil and gas to the surface when a field's natural pressure is no longer sufficient.
I appreciate all who respond, we are hear to learn from each other........
http://online.wsj.com/article/SB10001424127887324504704578409620170...
*If the link above does not work, I've pasted the article's contents below:
General Electric Co. GE +1.27% agreed to buy Lufkin Industries Inc. LUFK +0.05%for about $3.3 billion in cash, further expanding an oil and gas business that GE has built up via a string of acquisitions in recent years.
Lufkin specializes in boosting recovery of oil and gas from aging fields and booked $1.28 billion in revenue last year.
GE is paying up to get hold of those capabilities. The $88.50-a-share cash price of the deal is at a 38% premium to Lufkin's closing price Friday and values the company at 13.5 times its expected 2013 earnings before interest, taxes, depreciation and amortization.
But GE does have some money to play with as it looks to expand its industrial businesses. It raised $18.1 billion from the sale of its remaining stake in NBC Universal and 30 Rockefeller Center to Comcast Corp. CMCSA +0.63% in a deal it completed in mid-March, and had indicated it could spend $6 billion to $9 billion on acquisitions.
The deal marks a return to oil and gas acquisitions for GE Chief Executive Jeff Immelt, who notched purchases of Wellstream PLC, Dresser Inc. and the well support division of John Wood Group WG.LN -0.61% PLC in 2011. The conglomerate has plowed resources into its energy business as Mr. Immelt has sold off operations in chemicals, insurance and media.
GE's oil and gas operations booked $15.2 billion in revenue last year, more than 10% of the conglomerate's total, and executives have made clear the company wants to expand in the industry.
"We've built this business pretty dramatically over the last decade," Daniel Heintzelman, president of GE Oil & Gas, said in an interview. "We expect that we are going to continue to build this business."
Last week, GE announced plans to build an oil and gas research center in Oklahoma as it seeks to develop its own technologies in the sector.
Lufkin, founded in 1902, specializes in what the petroleum industry calls "artificial lift"—technologies that help bring more oil and gas to the surface when a field's natural pressure is no longer sufficient. The company manufactures and services a variety of pumps at its oil-field unit, which accounts for the bulk of its revenue and profit.
Those products will build out offerings at GE, which makes one type of artificial lift technology—electric submersible pumps. "Lufkin has the rest of the [artificial lift] technologies that we don't have," Mr. Heintzelman said.
GE had been looking to broaden its products in the artificial lift segment, people familiar with the matter said. Mr. Heintzelman said GE started serious discussions with Lufkin a few months ago.
Lufkin is trying to expand its reach in hot U.S. areas like the Bakken Shale as well as overseas. In its annual report in March, it identified its main competitor as Weatherford International Ltd. WFT +2.30% Lufkin also builds heavy duty gears for oil-field and industrial applications.
The company's profit rose 24% last year to $81.9 million, with revenue up 37% to $1.28 billion, thanks in part to a pair of acquisitions. Bookings rose 38% to $1.3 billion.
Bernstein Research analyst Steven Winoker said GE is paying a high price given the deceleration of growth in the U.S.
GE said it aims to cut costs at Lufkin and improve the company's operating margins.
Lufkin's shares closed at $63.93 on Friday, down 20% over the past 12 months. They jumped to $88.35 early Monday morning.
—Ryan Dezember, Sharon Terlep and David Benoit contributed to this article.
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Permalink Reply by Joseph-Ohio on
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Sounds like it would work to retrieve
low geo-pressure oil - but thinking
it needs to draw from a reservoir.
The trick still seems to me to be to
free the oil from the shale by fracturing
a lateral and draining into a man-made
deep underground reservoir.
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Permalink Reply by Joseph-Ohio on
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"Some thoughts about this article. Could it be a political maneuver by the industry to downplay the utica?"
Well yeeeeeaaaaahhhhh......I've been saying / writing that as a probable interpretation as to what's been happening for quite a long while now.
Downplay, delay and beat up any who stand to gain as things are now; while buying time to maneuver and not caring in the least bit about wasting everyone's time postponing / stalling domestic economic recovery.
It's a disgusting concept but I think it a very probable explanation / description as to what's been and still seems to me to be happening.
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Permalink Reply by James Vanderink on -
Very Smart move Gary L. $250.... Really?
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