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 wyalusing jim on April 16, 2013 at 11:07am

i'm glad to be here too glenn, and as well, i enjoy reading what you say.

one thing to remember, your results will vary according to the quality of the shale in your area. you might be better than my area, and might not. also, i am in a purely dry gas area, bradford county,pa. i dont know nuthin about wet gas except what i read on the net and here on this forum.

glenn, if ever you'd like to know any details of my situation that i might not be apt to post on an open forum, ask. we can manage it somehow.

wj

Permalink Reply by Trapper on April 16, 2013 at 11:12am

Thanks wj.

Permalink Reply by Joseph-Ohio on April 17, 2013 at 2:04am

Not a politician Glenn.

Don't want to be a politician.

I don't do well in the gray area - I see things either as black or white / in contrast to one another - always try to stick to real world solutions.

There are theories and I do tend to visualize / theorize possible solutions to issues / problems.  Once theory is proven I say let's apply - but if theory is disproven move on.

That's not being a politician as I've come to understand what a politician is.

I think they ought not to teach political science as a matter of fact, as I believe political science is best defined as the methods used to persuade (and deceive if necessary) the general public into buying in to programs / legislation that serve your chosen persuasion - good for the general public or bad. 

I am definitely not a politician and do not aspire to be.   

Permalink Reply by PA Joe on April 17, 2013 at 1:00am

It is but it away from  the fractures you create it needs to be to move from the unfractured part into the fractured part. Otherwise you only drain what you bust up and that's not enough to pay for the well.

Permalink Reply by Joseph-Ohio on April 17, 2013 at 1:47am

PAJoe,

Thanks, I got it.

But, it seems to me payback would be a function of how much and what type of resource is there / how saturated with oil or NGLs the fractured interval actually is.

Then there's the fact that they're supposed to be working on improving fracturing techniques - maybe better fracturing techniques will result in some wells that weren't profitable earlier becoming profitable after better techiques are developed.

Also, wondering how effective re-fracturing works out to be ?

J-O 

 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on May 3, 2013 at 7:39am

Permeability means nothing without pressure, which DVN found out pretty quickly.

Permalink Reply by Kathleen on April 16, 2013 at 6:29am
From this article and seeing where the acreage is being sold I would say you might be disappointed about leasing the further west you go.
Permalink Reply by TM on April 16, 2013 at 6:47am

I read this article the other day. Seems anymore there are articles written about the oil window and how there is lack of pressure to get the oil out. How is it really any different than other plays that use pump jacks to keep the wells flowing?

Permalink Reply by Joseph-Ohio on April 16, 2013 at 7:15am

My Theories As I Have No Scientific Facts To Support My Guesses / Visualizations With :

I'm thinking that Conventional Vertical Wells with 'Pump Jacks' drain a natural reservoir / a naturally re-filling reservoir of oil within the earth but lacking in geo-pressure.

I'm also thinking that Fractured Horizontals (Laterals) fill gradually after the fracturing process and normally depend on natural geo-pressure to push the oil to the surface.  Therefore if there is insufficient geo-pressure the oil would just fill the Lateral and not move to the surface.  If it is determined that low geo-pressure would not be enough to push the resource to the surface I wonder why not slope the horizontal and drain gravity assisted to a man-made reservoir at the terminus of the lateral - then use a 2nd vertical to the man-made reservoir equipped with a pump jack to lift the oil to the surface ?

Others have pointed to vertical wells and existing technology that uses steam and gravity to push oil to the surface (in areas of low geo-pressure).

No one has ever indicated that the theory I describe above would not work for horizontally configured wells - only that it would be more expensive.

Like I wrote much earlier, I'm of the opinion that: If the resource is there - and they want it - and it costs more to recover it - and they make up their minds to go and get it - then they will and then market it at a greater price.

Just my theories and opinions here.

Permalink Reply by Jamotom on April 16, 2013 at 8:27am

Joseph-Ohio: Please explain how an increased cost basis can be passed on to the market if there is a lower price alternative available from a competitor?

Permalink Reply by Joseph-Ohio on April 16, 2013 at 8:47am
Why does the cost of gasoline rise practically
across the entire market simultaneously ?
Same reason (my theory).
Permalink Reply by wyalusing jim on April 16, 2013 at 8:56am

joe, i tried to help ya out before, but ya got yourself in too deep this time.

think about it.

if the gas station on the left side of the road is selling gas at  $3.50, and the one on the right is selling at $4, are you ever gonna make a right turn?

energy companies sell their products in competitive markets. if you insist on a higher price for your gas or oil than the current market conditions support, you're gonna end up keeping your product. and in all liklihood, you cant do that because you aint got no place to put it.

wj

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