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 Joseph-Ohio on
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Supply and Demand Koolaid !
The game is rigged.
The books cooked.
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Permalink Reply by 0i7okn54zwbdo on
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Listen, I agree with you about the politicians, but they're not the only ones benefiting at others expenses. Landowners benefit when the consumer is getting beaten up too you know. Let's not act like every landowner wouldn't take a lease at a price 30% higher than today's and be quite content with it. Never mind WHERE that money comes from, as long as ole farmer John gets more life is good. So there's just one cycle of greed that drives this thing. BTW, I'm not a very religious man but I do worship at the alter of capitalism and have no problem with the way that this business cycle functions.
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Permalink Reply by Joseph-Ohio on
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I'm with you on most all of that Marcus.
Being a landowner and landowner advocate.
However, things are taking too long to germinate IMHO.
Let's keep the show on the road
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k
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Permalink Reply by wyalusing jim on
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Reply by Marcus Grayson
""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"
you're both right really, if you think about it.
joe says " they just charge more when they sell it". that's true. it's just that sometimes it takes a real long time before they can sell it at the higher price.
you say, " If it costs more to recover they abandon an area or they sell at a huge loss and take write downs.", sure, but when that area becomes economical due to price increases, some company goes back and produces it.
look at the marcellus...
the industry has long known of it's existence. companies have logged the gas kicks for years. there's even been production wells drilled into it before frac'ing technology came around. nothing worked, it wasn't economical.
but it is now! and they're baaaa...aaaack
wj
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Actually I'd argue that the Marcellus isn't profitable right now outside of the wet zones.
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Permalink Reply by Joseph-Ohio on
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The most operable words there Marcus are 'right now'.
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Permalink Reply by wyalusing jim on
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i love to argue....
upon what do you base this lack of profitability opinion marc?
you do realize i hope, that some dry marcellus wells are making a profit in a matter of months even at current pricing. when prices were even lower recently, the payout was still under a year.
while it is true that there are areas of much lower production in the marcellus, a modest increase in pricing will change that scenario dramatically.
and in areas where production is very low, abandonment for the present seems very likely. but all is not known until the gas goes up the pipe, so those failures are inevitable in any play.
dry marcellus wells are being drilled, they've never stopped. there's a rig drilling a development well outside my side door as i type. do ya think they're drilling to lose money? that unit is already in production for a couple of months now, hbp, no need to drill, unless it is to make money.
wj
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"you do realize i hope, that some dry marcellus wells are making a profit in a matter of months even at current pricing."
Sure, some of them are. Most of them are not. It also depends on what we're calling "profit". Most full cycle accounting of the Marcellus requires much higher pricing for it to be economical.
"do ya think they're drilling to lose money?"
Yes. For God's sake, yes. They've been doing that for years. Ask the guys at Exco why they didn't stop drilling dry gas wells when the price was collapsing. Ask them why they didn't listen to old T. Boone--a board member--and instead kept right on drilling into the red. Do a little digging and find out why these guys are so wildly inefficient and you'll see how much more there is to it beyond "drill here, drill now".
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Permalink Reply by Joseph-Ohio on
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wylausing Jim,
Hope they don't take too long.
It just seems to me that the good times are at our fingertips and we've got all of this maneuvering going on and not enough movement toward the real goal of straightening things out domestically.
New taxes ---- a load of horsepucky ---- un-needed ---- plenty of revenue if they decide to quit screwing around and put the country back to work in a big way.
Lack of Infrastructure ---- Processing Plants and Pipelines, Natural Gas Fueling Stations, etc. ---- quit bellyaching about it and build it out.
Lack of geo-pressure prohibiting recovery ---- figure out a way to defeat that nuance, then recover the resource ---- time to get to it.
Oil wars ---- forget about it.
Foreign Aid ---- later ---- help ourselves 1st ---- charity begins at home.
Disgusting.
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Permalink Reply by wyalusing jim on
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Reply by Joseph-Ohio
"wylausing Jim,
Hope they don't take too long."
to drill that well? i can hear 'em pulling drillpipe as i type. it's been about 2 weeks, they should be close.
but i'm not in the unit for that well. the well for the unit that this property is in is just down over the hill from me, drilled, frac'd and waiting on pipeline.
it's still cool though, i can step out on the porch and see the rig, hear the pipes clanking and know that somebody's gonna be cashing checks soon.
wj
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Permalink Reply by Trapper on
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Joseph-Ohio: Have you ever considered politics? Wish we had more straight thinking types , like yourself , running things.
Wyalusing Jim: Thank God you started posting here! You have helped open my eyes to the ACTUALITIES of this gas business from a LANDOWNERS perspective. Hearing from someone actually living in and experiencing the prosperity of "gasland" (in a dry gas area , no less) is most refreshing and educational! I believe in what you have to say and you have given us plenty of food for thought. I feel much better about my prospects , that's for sure! I ain't expecting milk and honey to flow from the ground , but reading your posts bolsters my hopes for the future.
Thank You!
Glenn
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