Huron Shale Stocks

The Appalachian Natural Gas Play

By Jon Carter
Monday, September 16th, 2013

Here is one natural gas play keep under a watchful eye.

It’s called the Huron shale, and it’s located in West Virginia, northeastern Kentucky, and southeastern Ohio. The Huron is in prime territory – located in the Appalachian Basin near the Utica shale and Marcellus shale.

oil and natural gas 10Thickness for the Huron ranges anywhere from 200 to 2,000 feet. It is shallower than the Marcellus, which ranges from 4,000 to 5,000 feet deep.

The Huron is primarily a natural gas field. And while it may be small and relatively undeveloped, it has a good recovery rate of 40% for leg lateral wells.

Production indicates that the most profitable area is the Lower Huron Shale – most notably the Big Sandy field of eastern Kentucky and southwestern West Virginia.

The area first sparked interest in 2008 when natural gas prices were at profitable levels. Although production is fairly recent, activity in the Huron actually began over 100 years ago in Kentucky. The 1950s showed signs of success, but production did not begin until the 1970s in Virginia, when natural gas was produced. Coal production began in the 1990s.

In comparison with other shale areas, this is certainly no Bakken or Eagle Ford. Unlike major plays in Texas and North Dakota, where there is a rich combination of oil, gas, and natural gas liquids, the Huron is a smaller East Coast play that consists primarily of natural gas and coal deposits.

The Huron is also known for its low pressure, which requires extensive horizontal drilling and an increase in lateral length and well structure.

It also requires shorter fracking stages. Well costs in the Huron can amount to $1.2 million for a typical lateral well that reaches beyond 3,000 feet.

Since natural gas prices have fallen to levels too unprofitable to keep drilling going, there has not been much activity in this play.

Natural Gas Prices

Natural gas prices are slowly inching up, but not enough to generate interest in strictly natural gas plays. As of now, domestic shale oil is the hot commodity within the American energy field. But the Huron will certainly be worth remembering when natural gas prices return to higher levels.

Natural gas prices are currently around $3.64. This is not exactly enough to spur healthy production, but it is an improvement from 2012, when prices were hovering around $2.

Factors that could play a role in rising prices would be exports or fostering more domestic demand. Right now, the export scenario seems unlikely in the short-term, since the Department of Energy has levied an unofficial cap on the amount of exports.

But there is growing demand from manufacturing centers and utility companies that are investing in facilities powered on natural gas. And we may see more demand from the construction sector as more companies will need natural gas to fuel heavy duty vehicles.

We may also see a rise in demand from the auto sector as more companies like Ford (NYSE: F) and Honda (NYSE: HMC) invest in vehicles that run on compressed natural gas.

So far, these factors still have not been enough to spur more drilling activity, which is bad news for fans of the Huron.

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Is the Huron Worth It?

Currently, the Huron is not worth the investment simply because natural gas prices are too low to invigorate widespread drilling.

A vast majority of the region remains unexplored, and major companies specializing in natural gas like Exxon Mobil (NYSE: XOM) and Royal Dutch Shell (NYSE: RDS-A) have not shown interest thus far.

Many companies in the surrounding region have placed a higher focus on Marcellus Shale instead of smaller plays like the Huron.

Only a handful of companies have been in the region, and some have pulled out.

EQT Corp. (NYSE: EQT) was in the region for some time, but it pulled out in 2012 for a more pressing focus on the Marcellus Shale and because of the drop in natural gas prices.

Next Generation Corp. (OTC: NGMC) purchased 134 acres of Huron land in West Virginia’s Mason County this year – adding 2,154 acres in Appalachian territory.

And Range Resources (NYSE: RRC) has been active in the Huron Shale, but the Texas company is mostly focused on the Marcellus Shale.

If you’re interested in the region, there are other more profitable plays, such as the Utica and the Marcellus, that yield more resources and have the attention of small and large companies alike. But the Huron is a small play that could gain steam when natural gas prices rise.

We don’t know when natural gas prices will surge again, but when it comes to commodities prices, it is only a matter of time.

 

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