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: 19890
Replies to This Discussion
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Permalink Reply by T. Alexander on
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Let me get this straight: Wall Street went all aflutter when ODNR estimated certain reserves, and is now disappointed like a 12-year old who found a brand new bicycle under the Christmas tree rather than a sports car? And now these brighter than bright energy analysts are going to go off and pout and ignore the millions upon billions of private investment that is still going into the richer Utica plays? Sounds like lousy, sensationalistic journalism to me. Or maybe it's just a reflection of continued short-run thinking by an ADD-stricken Wall Street bunch who make kindergartners look mature by comparison.
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Permalink Reply by Joseph-Ohio on
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My opinions:
If the resource is there and they want it they will figure out a way to recover it.
If the cost to recover it goes up so will the sell price to their customers / consumers rise.
They will take their own sweet time to decide when to invest their money to suit themselves / their controlling shareholders - don't forget, the controlling shareholders are millionaires and can afford to wait.
They will use the the time (wasted time by our standards) to beat down those whom they have to pay (by the way, landowners fall into that group).
The media ? I think also slanted.
Don't forget, the world is their oyster.
Keep the faith brothers and sisters.
Good luck to us all - we need it.
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Permalink Reply by rmc on
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I think the oil is there in the Utica it's just not where they all thought it would be.
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Permalink Reply by Joseph-Ohio on
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Seems to me:
1) 'Flipping' leaseholds can earn the 'flippers' a zero liability pretty penny.
2) Alot more responsibility and liability associated in developing a real world well.
3) Saving grace is that the resource is so valuable (I guess we can thank OPEC for that - and it's hard for me to thank OPEC for anything).
Just sayin'.
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Permalink Reply by Ed C on
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Who other than Devon in the far western edge of the oil window has actually drilled and completed wells in the oil window?
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Permalink Reply by 0i7okn54zwbdo on
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Chesapeake, EnerVest, Anadarko, CNX and Mountaineer Keystone.
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The Stuff Devon is selling is shallow (low pressure) as is the Stuff CHK is selling. Oil is there but it's like flat soda. You need some fizz (gas) to help it move into the well bore because it has such low porosity and permeabilty. Think of porosity like rooms in a house that hold the oil molecules. Perm is like the doors and window between the rooms. If the doors are small the oil crowds them and its like a stampede at a concert where everyone is trying to get out of the same door and no one winds up getting out. So if you're Point Pleasant isn't 6000' or deeper, it will probably never be drilled again horizontally because of a lack of gas and less weight of overlying rock pushing down and squueezing oil into well bore. Alternatively, it could be fire flooded. That has been done in shallow oil shales in California. Basically a vertical well is drilled and they pump air from the atmosphere down hole, ignite, and it burns the oil and creates a lot of pressure to drive it into neighboring wells. Once you stop injecting air the combustion stops; sounds dangerous but its safe and proven.
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Permalink Reply by Joseph-Ohio on
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PAJoe,
Isn't that what fracturing and re-fracturing are all about /designed
to accomplish (make the 'doors and windows' bigger to allow the
'rooms' to open wider to the bore) ?
May also need a sloped / gravity assisted horizontal to a reservoir
and a pump Jack to lift the oil.
I think where there's a will there's a way.
All it takes is money.
If it costs more to recover they just charge more when they sell it.
Just like always !
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"If it costs more to recover they just charge more when they sell it.
Just like always !"No. Not even close to how the market works. If it costs more to recover they abandon an area or they sell at a huge loss and take write downs. For an example of this please see every shale gas player for the last three years.
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Permalink Reply by Joseph-Ohio on
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Marcus,
That may be true this week, but I think it won't be
true forever.
How long will it be true ?
That's up to the big boys in the boardroom.
It's not a supply and demand thing - it's more like a
what the big boys want to demand thing.
Only my opinion.
Just sayin'.
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It absolutely is a supply and demand thing. And the big boys in the boardroom have no control over the prices. If they did then CHK wouldn't be billions in debt and Aubrey wouldn't have been sent packing.
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Permalink Reply by Joseph-Ohio on
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Marcus,
Obviously you've much more faith in the supply and demand principal as ruling the roost than I.
I am a CYNIC and for plenty of reasons too numerous to detail.
Aubrey sent packing - in my opinion - he's a scapegoat.
He'll be back in the energy business in no time and probably rolling in more dough than ever - it will just be somewhere other than CHK.
The high rollers and politicians are continuing to maneuver to garner as much for themselves as possible - at the landowner's and consumers expense.
In my opinion they're wasting time and stalling recovery.
I'll reference everyone back to my 1st reply to this thread - nothing's changed from my perspective.
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