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.

Enlarge imageOhio’s $500 Billion Oil Dream Fades as Drillers Misjudge

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

Permalink Reply by Joseph-Ohio on April 20, 2013 at 8:27am
In the meantime we choose to remain optimistic.
Permalink Reply by Kriste Sayel on April 19, 2013 at 6:53am

If the experts tell you that what you have is worthless, but they'll do you a big favor and take it off your hands - don't fall for it. Maybe it is worth less than originally thought, but what they want is to get as much as they can for as little as they can. Utica in Ohio a bust? Let us take those worthless mineral rights off your hands...

Permalink Reply by bo boboski on April 20, 2013 at 2:55am

Really?    Markwest spending billions on processing plants in Cadiz, Hopedale,Summerfield. Large pipeline system in the works.  Another Midstream co.  building plants and pipelines in Kensington,Scio.  Alfa Hunter buying a $ 7 million.walking,talking   Rig to bring to eastern ohio real soon. MagnunHunter,planning a 12 well pad. along with processing plants and pipelines in southeast ohio. KinderMorgan planning a fractionator plant in Urichsville. Shell still planning on the huge Cracker Plant.Billoins upon Billions to be spent here on a place where theres not enough oil to fool with. Yea , I'd say it's a bust.

Permalink Reply by Gary L on April 20, 2013 at 7:03am

Bo, you are right on, as wet gas is the main commodity sought after for now. Oil will become the next phase with new extracting methods being researched and implemented. The industry has   the foresight and its hard for us landowners to see whats behind the curtains, not given adequate

insight to see the big picture. Be patient, everybody knows whats down there. The down side right now is we are just being fed bits and pieces and trying to hold on with information being made available. Sometimes I think the Lobbyist are in with ODNR concerning reporting, but after reading the following link, I don't know.  

 http://www.marionstar.com/article/20130419/NEWS01/304190013/Utica-S...

Permalink Reply by searcherone on April 20, 2013 at 3:42am

http://www.crainscleveland.com/article/20130419/ENERGY/130419772/12...#

Here is the other prespective on the value of the Utica----- opposite of the Bloomberg article.

The quote at the end says it all:   "if we were raising a child, we are in the first trimester of the pregnancy".

Other point here is the midstream companies have the news and that is that they are building infrastructure.

Permalink Reply by Kathleen on April 20, 2013 at 7:19am
Hi Gary,

I hope the 3 month wording does not get stripped out of the new budget.
I enjoyed both articles.
Permalink Reply by TM on April 20, 2013 at 7:28am

Looks like the quality of the oil and the richness of the gas reporting was stripped out of the budget. Looks like we might eventually get to a monthly reporting schedule which would be great for us landowners.

Permalink Reply by searcherone on April 20, 2013 at 7:38am

Gary, thanks for the link.

 Kathleen, I don't want the wording stripped out either so contact the Ohio Senators and make your voice heard.    Personally, I want the requirement for the quality of the oil and the richness of the natural gas back in.  

Also if ODNR cannot project on its budget and the hiring of necessary qualified people during this shale play how can Ohio taxpayers view the ODNR as being an effective agency of state government.   Just my opinion.

Permalink Reply by Gary L on April 20, 2013 at 11:51am

After looking at the Government Site, it appears they aren't any better with compiling  data either. They show  Marcellus (only with) Pennsylvania and West Virginia data. Aren't there Marcellus wells drilled in Ohio that would have generated numbers by now? The Utica isn't mentioned due to reporting yearly I would assume.

Looking at page 17, that's projecting a lot of oil from 2 1/2 Mb/d in 2013 to 6 1/2 Mb/d in 2020 without Utica.

I agree with the reporting with quality of the oil and the richness of the natural gas.

http://www.eia.gov/pressroom/presentations/sieminski_04112013.pdf

 

Permalink Reply by Gary L on April 22, 2013 at 3:14pm

This article is interesting and merits importance for our future gas projections. It probably should be moved to another spot, maybe someone will move it to the appropriate thread.

I read an article today that Sinopec financed some of Devon's projects and gained a lot of  experience with drilling and fracking. We know China has a major gas find, but water is their problem with fracking. Japan is in dire need for LNG due to their nuclear disaster.

Just my opinion

http://www.dcbureau.org/201304228396/natural-resources-news-service...

Permalink Reply by Gary L on April 22, 2013 at 2:43pm

It appears the Bloomberg gang has to write something to justify their existence. This article 

indicates that leasing still exist west of the wet gas into the oil zone.

 http://www.zanesvilletimesrecorder.com/article/20130411/NEWS01/3041...

Permalink Reply by Utica Shale on April 25, 2013 at 1:24am

Jodi,

 Is that Pad more "connected" to the Utica play coming south out of Michigan than the Utica play going West across I-77?

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