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 Graham on April 17, 2013 at 10:28am

It's all about energy, not just oil.

Permalink Reply by gary smith on April 17, 2013 at 2:30pm

watch them end up in crawford county pa. the home of the energy business.

Permalink Reply by bo boboski on April 17, 2013 at 10:49pm

OK,  what's wrong with this picture?  I've played the stock markets a little, Seems like "the big boys" like to release all these news articles and investor reports for the sole purpose of steering mass amounts of Sheeplike investors to buy & sell in certain directions, in results being, they gain, the sheep lose!. Could this be what's happening in the eastertn ohio Utica?. I remember back about 2 years ago, when this all started. O&G co.s came here ,leasing right & left, some mass signings. News of large amounts of oil and gas and wet gas sitting under under eastern Ohio counties of Guernsey,Harrison,Belmont, Carroll Counties. The talk back then was, This was the sweet spot,and it is becoming proven now, even further south is showing promise. But west of I-77 back then, was to be the cut-off line,where drillers seemed to think it wasn't worth leasing. So what did Enervest, and Devon do? go about 2 counties west! Now they say ,Let's pack up,bad results!   I tend to think there was a hidden agenda here, other than just exploring. I"ve always been a tad paranoid, lean a little toward conspiracy theories. Always thinking someone is trying to pull the wool over my eyes.  .After 60+ years on this planet,looks like theres good reason for my feelings!  This news will definitely lower the lease bonus payment, and the royalty percentages, also some will profit bigtime on wallstreet.  I"ll just sit back & watch the SHOW.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 18, 2013 at 1:52am

The only people who are puppets are those who choose to be.

Permalink Reply by Joseph-Ohio on April 18, 2013 at 2:38am
I think it's possible to feel like
a puppet even armed with the
knowledge that you're not.

Famous quote by 'Howdy Doody' (NOT)
Permalink Reply by wyalusing jim on April 18, 2013 at 1:46am

having just gone through the birth pains of a new gas play 5 short years ago, i see where you're coming from.

there is an air of disbelief among the general population at first, to some it seems like free money, to others it must be blood money.

as folks wait, the conspiracy theories grow in number and scope. it's hard waiting, especially when you're not sure what you're waiting for.

folks start reading geological survey data, investment materials, quarterly reports, all kinds of stuff that jjust a few short months ago, no one had ever heard of. the theories get more detailed, and seemingly more credible when there is hard data.

after some wells are drilled, lotsa folks say, look see, i told ya so.

after some wells are plugged, other folks say, look see, i told ya so.

and when large areas fall out of the interest of gas company landmen, some folks who just a year ago had grand dreams, now have sleepless nights.

but in the end, it's all good. there will be benefits to your entire state, there already have been. and some day those benefits may be very very big.

wj

Permalink Reply by Gary L on April 18, 2013 at 9:23am

Last year I was told that Devon has a history of drilling the outside parameters of new shale plays.

If that were true, then maybe all the majors work together with a planned strategy. If the findings are not what they expected, then others would chip in as Devon would not bear the entire cost.  Maybe competition is of no importance by working together. It is a new play and we have to realize that these drillers are operating all over the country and world. I was told that Anadarko would be the big player in my area and if you read their quarterly conference calls, they mention very little with operations in Marcellus and Utica. They discuss their holdings in other areas, yet they have 400,000 acres of leased land within our states. I am sure they all have their political voices in place with ODNR , only having to report output productions yearly. This pressure issue is the focal point for now and hopefully it will get worked out soon. The thing I don't understand is we had a well in the Clinton Formation that had so much pressure that no pump jack was used for the first three years. It flowed oil continuously, the depth was 5'600 feet as the Utica is 500 feet deeper. I didn't realize 500 feet would make that big of a difference.   

Permalink Reply by Joseph-Ohio on April 18, 2013 at 9:54am

Gary L

The origin of underground pressure I think could be a tricky thing to track down.

As I think about it, I wonder if it could even be possible that the origin of the pressure that your Clinton Pool exhibited originated elsewhere than the 'overburden' directly above.

Maybe there was a seal above your Clinton Pool and a greater 'overburden' some distance away from your vertical bore (than existed directly above your Clinton Pool) ?  Say there were a mountain or a range of mountains a distance away from your vertical bore (which was located in a valley) but, the Clinton Pool extended from the valley and into the area beneath the mountain / range of mountains.  Could that explain the pressurization realized ?

Then again, maybe there were upward geo-forces beneath your Clinton Pool that caused the pressurization.

I couldn't predict the cause.

Maybe no-one can until a test bore is drilled in a promising area - I don't know but would like to learn how much fact there is / could be in some of the above scenarios. 

Permalink Reply by Joseph-Ohio on April 18, 2013 at 10:14am

You know Gary L,

Clinton' pools were the 'easy oil'.

All they had to do was find the pool.

If a 'pump jack' were needed they put one.

If no 'pump jack' were needed thay didn't.

Don't think geo-pressure made too big of a difference.

I think that the oil made the difference in those days (the 'easy oil' days).

Permalink Reply by Jim on April 18, 2013 at 10:26am

Gary,

The Clinton is sandstone, the Utica is shale.  Is the difference, oil will flow easier through sandstone than shale?

Permalink Reply by wyalusing jim on April 18, 2013 at 3:03am

Reply by edmund kresty

"Should have signed and sold  before the big price drop."

maybe, and maybe not.

back in 2008, before prices here in nepa crashed after the economic crisis, the top offer on the streets was  around $3k/acre and 15%R. after the crash, in some areas there were no offers whatsoever. in mid 2009, offers began to return slowly, then they rose pretty quickly to around $6k/acre and 20%R. now they are down again. will they rise again? i dunno. gas is cheap now and the economy is sputtering along. not much industrial growth and incomes are flat.

i think it's fair to say that these plays have a cyclical nature, but how many cycles and when things will turn around only hindsight will tell us.

otoh of course, it's risky business to try to time any market.

wj

Permalink Reply by Joseph-Ohio on April 18, 2013 at 10:05am

Edmund,

I've read EnerVest reports that their acreage for sale in the western Utica has good pressure and they just don't want to invest in recovering the resources but would rather sell it to someone who is ready to instead.

They also said they had a buyer and the money was right but the terms weren't - don't know what the article / they could have meant by that.

They also said it all had to be right for them to sell.

Another thing the article said they said was that the cost to drill a Utica well has fallen to 50% of what it was just a few years ago.

Personally I don't know the truth in any of it - and am taking it all with a few grains of salt.

But, I know there have been huge investments based on the industry projections and that's also worth a few grains of salt less (the way I look at it, as the investments made are hard money - and we all know what hard money means to business / anyone).

Who / what can anyone believe as far as all of this Utica business goes ?

Good luck to all of us - we need it.

 

 

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