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
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Replies to This Discussion
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Permalink Reply by Kangoo on -
Some interesting comments from the Hess Q1 call, considering their acreage position together with CNX and oil window vs. condensate and dry gas:
(the full transcript can be found here: http://seekingalpha.com/article/1366611-hess-management-discusses-q...)
Quote:
Arjun N. Murti - Goldman Sachs Group Inc., Research Division
Just a few follow-up questions just on the Utica results. Just sounds like it's liquids-richy type gas at this point, mostly NGLs. If you can confirm that? And any comments on maybe the black oil potential of the Utica? Maybe you've not drilled that part yet, but any thoughts there would be very helpful.
Gregory P. Hill - President of Worldwide Exploration & Production, Executive Vice President and Director
Yes. I think, particularly in Belmont, Jefferson and Harrison counties, we're in that liquids-rich part of the play. As you move east, as we've said before, in our Marquette acreage, then you move more into the dry gas as the Point Pleasant plunges deeper to the East. Regarding the oil activity in the West, so far, I would say the results are disappointing. It's like the Eagle Ford oil window. You get shallower, and the reservoir just doesn't have the energy required.
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Permalink Reply by 015334grltd9m on
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Just like I wrote, we are like the Eagleford.
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Permalink Reply by Thomas Moss on
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it's all a game jody. look what what they accomplished. landowner groups gone. everyone got there gaurd down. no oil. no pressure. bs.
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Permalink Reply by Gary L on
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Thanks Jodi for the update. With GE taking over Lufkin, with developing new technology for extracting oil from dense shale areas, we may see hopes returning to our areas. Confirms
that we are not afforded the info that we landowners desire to have. I did notice Enervest recorded a new lease in Muskingum County the other day. I wonder why Anadarko never listed their 400,000 acres for sale? Keep up your good work for us as you and searcherone always post good information.
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Permalink Reply by Paul Martinelli on
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Still first inning.......
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Permalink Reply by Paul Martinelli on
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....and the fact that we (landowners) want the most $$$ we can get from leases and royalties, and WE WANT IT NOW....works in the favor of the O/G companies.
Groups splinter and fall apart
Folks settle for less, just to "get in the game"
Mineral rights are sold for quick cash
As for the oil window.....my thoughts are that it is there....it is just going take a couple more years to get it "unlocked", can you (we) wait that long?
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Permalink Reply by Whites on
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The reality is that none of these shale plays are as profitable as they've been trumped up to be over the past few years. And not trumped up by the producers, but by landowners such as those who frequently comment on this site. In fact, there is a very good chance that Shell's cracker plant will not even happen for a number of reasons. One of those being that the gas is not nearly as wet as earlier believed. AND the rate of decline on production for any Shale play is staggering. All the wishing and hoping in the world won't change this. So tell yourselves (and post on here) whatever you need to hear to help you sleep at night. Stop waiting for the oil companies (that many of you like to demonize) to make you rich, and don't quit your day jobs.
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Permalink Reply by Ted Croft on
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@Whites- Which probably more amply explains why all of the Major O&Gs in the plays are sinking 7 to 10 mil per well to keep the hoax going. Hmmpf, I think not. Maybe the players in PA are playing that game but across the nation, new plays (and established) are in on the "conspiracy" of misinformation that could not possibly leak out with the disgruntled ex-execs and ground pounders that usually abound with such malfeasance. Not, IMHO.
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Permalink Reply by Joseph-Ohio on
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@ Whites:
Curious.
What's your interest in this dialogue / exchange of info. ?
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To be fair Whites is partially correct. Most of the dry gas shale plays have been massive money losers because the price support is not there. And the continuation of drilling isn't a conspiracy, it's a contractual obligation. Go ask the fine folks at Exco why they kept drilling uneconomic Barnett wells and they'll point to a JV agreement that evidently never allowed for the possibility that prices would slump below $10 MCF. Good companies drill bad wells. EURs are overstated. The play is expanded to several times it's productive size because everyone wants in on the leasing boom. This is very typical. The Utica is no different.
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I've noticed that many people have a difficult time staying on point. I think that's just the normal flow of the internet.
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