The Pt. Pleasant – EQT’s Fickle Mistress in Ohio

Most everybody knows EQT bought out Rice Energy in 2017 in a 6.7B deal. In doing so, EQT acquired some of the best drilling opportunities in the state, assuming one is exploring the Utica Shale. They have some very inviable positions, particularly in Belmont County, where they have drilled some pretty prolific wells. It seems some of the best rock in the whole play is located there. In all, they acquired about 65,000 acres, most located in the heart of Utica Shale exploration.

Many others know the merger/buyout has been a mixed blessing. One particular tract in Belmont has been in the news constantly, and not for good reasons. The current mineral owner has successfully sued EQT for criminal mineral trespass and illegal conversion. This has been going on since the merger in 2017 and has bounced from one court to another, including a verdict reached just last Friday in Ohio’s 7th Court of Appeals. Seems they drilled 6 successful horizontal wells on one property, or on adjacent property which pooled it into a production unit. About a year ago, EQT was found liable, and a judgement in excess of $60M was issued. They, or course, appealed to a higher court.

At issue is whether or not the drilling company had the right to enter and produce from the Pt. Pleasant formation, which lies just below the Utica in Ohio. Tera, LLC, the successor to Thomas Shaw, the original lessee, contended that the lease language did not allow production from any strata other the Marcellus or Utica. What the court then referred to as “unambiguous language” in the leases between Rice (as lessee) and Thomas Shaw (as original lessor and predecessor to Tera’s mineral interest) existed verbatim as follows –“ Lessor, in consideration of the payments described herein and the covenants and agreements hereafter contained, hereby leases and lets exclusively to (Rice Drilling) all the oil, gas, minerals and their constituents (not including coal) in the formations commonly known as the Marcellus Shale and the Utica Shale, underlying the land described” herein.

Other relevant lease language reserves distinct mineral rights to Shaw, now Tera, including a reservation clause that reads “Lessor reserves all rights to all products contained in any formation: (1) from the surface of the leased premises to the top of the formation commonly known as the Marcellus Shale, (2) any and all formations below the base of the Marcellus Shale to the top of the formation commonly known as the Utica Shale, and (3) all formations below the base of the Utica Shale. EQT now finds itself in a terrible legal position due to the language found within its own lease. It seems unlikely they will prevail in any further litigation, having failed multiple times already. They are about to run out of options for relief. So, just what is the Pt. Pleasant and how did it become embroiled in all this controversy? An explanation and analysis of the formation can be found immediately below.

The Point Pleasant formation has been described as marking the end of Middle Ordovician time. The Ordovician Period is characterized as the greatest submergence of the North American plate because shallow seas covered such an extensive area, including all of Ohio. In this environment, the Acadian mountain- building event occurred whereby sediments high in kerogen were shed from the highlands into a somewhat enclosed basin, lowering the amount of available oxygen. As they were buried and subject to the pressure and temperatures of the earth's crust and core, the environment became conducive for the formulation of petrocarbons, especially oil and natural gas liquids.
The appropriate balance of hydrogen and carbon along with the corresponding favorable oxygen/carbon ratio (along with suitable temperature levels) created primarily type one or two kerogen content materials. Because they were formed from fossils containing mostly proteins and lipids, and to a lesser degree, from pollen, spores, or plant/animal decompositions, conditions became prime for oil or a mix of oil and wet gas. It is particularly important to recognize that the Utica and especially the Point Pleasant have both been identified as having high TOC (total organic content) and type one or two kerogen levels, two of the most important factors to realize if you are indeed searching for wet petrocarbons i.e. oil or natural gas liquids.

The Point Pleasant is characterized as having “three westward-thinning tongues of calcareous strata separated by shakier eastward-thinning tongues." It is further described as being 60% limestone and 40% shale, interbedded, gray to bluish gray in color and up to 200‘ thick in parts of Ohio. A well log which I located from a Tuscarawas County well showed the Utica/Pt. Pleasant merged to create a 255* core with an excellent TOC as high as 3.73%. Pretty damn impressive. Chris Perry, chief geologist with ODNR, claims the Point Pleasant to be the sweet spot of the entire play, with the highest TOC and a propensity to be highly brittle and contain significant natural fractures. Further, he claims formation thickness of as little as 50 feet to be commercially productive.

ODNR's Larry Wickstrom offers that the formation lies just beneath and adjacent to the Utica making the formation ”actually thicker and higher in total organic content. It is very unusual. It is a black organic-rich crystalline limestone interlayered with black organic-rich shale. The Utica is a wonderful rock, but it is even better with the Pt. Pleasant beneath it. Since it is interlayered with the Pt. Pleasant, it is more frackable.” He believes the Utica/Pt. Pleasant formation covers most of Ohio, but to what extent it will be commercially productive remains to be seem.

It is important to recognize it as being calcareous shale because it contains a high calcium carbonate content derived from ancient algae, which is the perfect content for petroleum formation. Consequently, it is high in TOC and contains level one kerogen, making it a perfect source for formation of hydrocarbons, especially oil. The Point Pleasant and the Utica are both identified as having a much higher carbonate and lower mineral clay content than the Marcellus. It is exceptionally similar to the Eagle Ford. If only we are so lucky. Production and fracking techniques will likely be borrowed from experience gained in the Eagle Ford play.

The characteristics described in the preceding two paragraphs could easily be used to describe the Bakken. It is not a true shale play. Instead, it is various limestone and sandstone formations interbedded with shale. Consequently, it can achieve optimum production only through horizontal drilling and hydraulic fracturing. I think this play, the Utica has been derisked sufficiently to rank among the Bakken and Eagle Ford as some of the more prolific shale formation in America

Generally speaking, the Point Pleasant exists above the base of the Trenton limestone to the base of the Cincinnati group (Kope Formation). Of importance is noting that the source rocks of the Trenton limestone and the Point Pleasant formation have been credited with generating 75 billion bbl of oil. Of this, due to permeability of subsequent formations, some has migrated into the Silurian reservoirs, including the Clinton Sandstone.

Is the Pt. Pleasant really the key to the entire Utica Shale play here in Ohio? Time will tell, but so far it seems certain that the most productive areas certainly appear where the formation is quite prevalent. It seems to work almost like a conventional reservoir which traps hydrocarbons as they are migrating into the Utica. Word is that most frack jobs actually occur into the Pt. Pleasant rather than the Utica itself. It seems to be a wonderful trap for the condensate and NGL's which exist in the area and which have been the source for much of the production and the hoopla associated therewith.

It is likely no coincidence that the wells drilled further North in Ohio have been disappointing. The Utica is much thicker in Mahoning and Trumbull counties, and BP and Halcon had hoped this would offset the nonexistence of the Pt. Pleasant there. So far, they have been disappointed, Halcon so much so that they have abandoned their Ohio operations entirely. On a more positive note, several excellent wells have been a drilled recently in Columbiana County. I’d say the play has not been de-risked further North than that.

I am surprised so far that other challenges have not been adjudicated regarding lease language as to the Pt. Pleasant. There is no doubt whatsoever that many, many wells have explored horizontally the formation and that it is the source of much, if not all of the production from numerous wells. Hopefully, other E&P companies have not painted themselves into the corner like Rice did. I wish EQT luck in straightening this all out. They certainly will need it.