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: 19896
Replies to This Discussion
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Permalink Reply by Paul Martinelli on
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so....what is your advice to all the landowners on here, on how they should maximize thier income from this doomed play before it disappears?
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Permalink Reply by T. Alexander on
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That may be a "reality" for much of the Utica, but not necessarily meaningful for everyone. I find it difficult to believe extensive tracts of land would be leased for as much as 5900/25 (and paid), massive investment would be made for pipeline construction, midstream processing capacity would be expanded tremendously, huge rigs capable of drilling 16 wells on one pad would be ordered, extensive water contracts would be signed...all for some sort of speculative play? Not hardly. This is not a bunch of wildcatters looking for a sweet spot, and if these guys are wrong, they have made one of the worst bets in O&G history. I'm not saying there won't be (and haven't been) disappointments, but there's way too much smoke for this fire not to be lit somewhere.
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Permalink Reply by BirdDog on
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T,
It's good to see that someone else can look at the big picture. So many people change their moods with the tides (or the article of the day). I, too, think the Utica play is on its way and just in its infancy. I've dealt with big money companies...and though they are not always the most efficient, they do their homework. It seems like such a roller coaster ride, especially if you follow the headlines everyday. However, I agree that there is a reason why such infrastrucutre is being set up and so much money has already been invested. It's not speculation (though there is always SOME spec).
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Permalink Reply by Trapper on
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Whites:
Based on the amount of money being spent and infrastructure being constructed as we speak , I am a believer this is for real. Activity has not ceased across the Utica and Marcellus plays. New leases are being recorded daily and pipelines are being laid. As far as decline rates go , I am of the opinion that much of this talk is another scare tactic tool in the naysayer's kit. Some actual royalty recipients have posted here reflecting no such severe decline in their units.........hmm.
Here in little old Lawrence County , PA , Shell and Hilcorp are swapping leases to solidify positions. Shell's really hot on the southern and eastern parts of our fair county. Coincidently , Vanport and Shell's proposed Cracker site is maybe 15 miles as the crow flies from this region......hmmm.
Jeepers , I guess the Mariner West pipeline project connecting VANPORT to Huston (under actual construction NOW) is just a dog and pony show as well........hmmmm.
Look through these threads and check out the county sites and you will discover many other such projects under way as well........hmmmmm.
What oil company did you say you work for?
Perhaps you were recruited to attempt dissuade because you are of the landless variety and just envious of us fortunate ones. Sad , so sad.
Glenn
P.S.
I haven't slept so well in years! :-)
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Permalink Reply by Kriste Sayel on
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Glenn - absolutely! How easy is it to sow doubt and suspicion! Ask any good ad/marketing exec!
Personally, I heard those "pipelines" are actually going to be used to transport illegal aliens all across the USA, that's why most of them are big enough for a full-grown person or at least a child to crawl through. The cracker facilities, trains, etc., are just gathering stations for the illegals! That's where the money is - cheap labor, not cheap fuel!
oh wait... is it all a bad dream? Or sarcasm run amok? Is it all a new wardrobe for the Emperor? Is it a $50 shovel from the company store? Or is it some folks doing whatever they can get away with to make their fortune without any thought to the future (bad bad ex CHK execs! Bad!) Or a way to convince Americans we need Canadian tar sands oil because we can't produce any??? Or, forgive the 'crude' analogy, is it just a ploy to get into our mineral pants?
I sleep well these days! If all the infrastructure is just for show and is going to be abandoned, I will still own my place and what's under it. Perhaps I can even have the dog and pony when they retire... lol
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Permalink Reply by jason smith on
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BirdDog good observation all the money that is being spent is not on a bad investment...
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Permalink Reply by Tusc Follower on
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Looks like Chevron is also significantly increasing their presence in the area...
http://www.bizjournals.com/pittsburgh/news/2013/05/01/chevron-buys-...
The site is less than an hour east of Cadiz, Oh
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Permalink Reply by Jeff Polara on
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Classic marketing ploy. Downplay the value of something even sell off or attempt to sell off some of your investment and wait for panic to set in and then buy everything up on the cheap. This is just an old real estate tactic that has been going on for years. I think the OGC know what a huge resource lies below and they need to buy alot more land but they do not want to start making anymore large purchases until they can get everyones expectations way down. Don't fall for it.
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Permalink Reply by Gary L on
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To all those that posted positive replies, I am with you. A few years ago, I stopped and needed directions in an unfamiliar area. The directions by different people all stated go down this street three RED lights, turn right, and go two blocks and make a left at the next RED light. I think they are Green as much as RED. Take all this negative speculation with a grain of salt. I have followed this play when it was Marcellus in PA and W VA. It came into OH and the Utica became the big topic as with the Marcellus. We all know that there are major investments, infrastructures, process facilities, and big plans coming into the tri-state areas. I read some of the small drillers have stopped drilling as they can't compete with the big companies. They hold on to the leases so they can make money by servicing the wells, thus holding the lease. Why don't they just surrender the lease? They know whats down there along with additional formations, holding key commodities per seismic explorations.
I went to a casino and felt someone just standing behind me watching my machine every time I hit the spin button. I guess they must have wanted the machine that I was currently playing. I always root for everybody to win. I told them there is enough for everybody so here it is, good luck.
I agree we west of the wet I-77 Line are only in the first inning, maybe a strike, I think we are capable of hitting some home-runs. Don't be discouraged, we still have hope, I believe it will be soon.
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Permalink Reply by Thomas Moss on
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do we trust the word of devon and anadarko. just imagine what would happen to the price of land if they wells that far west were good. locals in the business hear things and the well in knox was a good one. suddenly devon is gone. they can play there mind games. you just have to play along with them.
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Permalink Reply by 0i7okn54zwbdo on
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Mind games? They plugged their wells and put the acreage up for sale. That's one Hell of a long con. Some of you people blow my mind. The oil companies are always liars, always. Except when the news is positive. Then they're honest as the summer day is long.
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