Is This the Next Bakken?

Utica Could Be Next Big Shale Play


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By Swagato Chakravorty
Thursday, March 14th, 2013

Ohio was once home to the Standard Oil refineries in Cleveland, and the state’s history includes 6,500 conventional oil wells drilled over many decades.

Now, the state may experience a renaissance of sorts with the shale boom, as several major oil and gas operators look to pour more than $1 billion into investments across the state, reports the New York Times.

Chesapeake Energy Corporation (NYSE: CHK), for example, is already noted for being the largest Utica Shale developer. Now, it is developing a major field office occupying the 291-acre site it purchased last year at a cost of $7.11 million. In addition, it is building several other facilities nearby.

In the second phase of development, the New York Times reports, Chesapeake hopes to build a rail spur and add eight storage silos that would facilitate movement of sand from rail cars to trucks.

The company already employs around 550 in eastern Ohio alone, and could easily become Louisville, Ohio’s second-biggest employer after public schools.

Ohio isn’t really an oil and gas leader. It ranks 18th in oil and 20th in natural gas production nationally, with some 4.8 million barrels of the former and about 78 billion cubic feet of the latter produced in 2011, according to the New York Times.

However, the Utica Shale has been a transformational event. Some 548 wells in the Utica region have been approved, and of that, 255 have already been drilled and completed. 74 are already producing natural gas, and the rest will be coming online in the near future.

The average Utica well relies on fracking, goes underground about 6,000-10,000 feet, and costs between $6-$10 million. It is expected, in fact, that Ohio may produce as much as 2-3 billion cubic feet of processed gas per day within the next 10 years.

Moreover, the Utica Shale features both dry and wet natural gas. The latter contains many other useful gaseous products like ethane, propane, butane, etc. that can be separated out into a variety of chemicals, plastics, and fuel-related products.

Already, more than 28 exploratory drilling rigs operate across the state. NiSource Inc.’s (NYSE: NI) Midstream and Minerals Group and a Hilcorp Energy Company affiliate are developing a gas-gathering system and facility for $300 million in Mahoning County, Ohio, reports the New York Times. Once complete, this facility is projected to process around 200 million cubic feet of gas daily.

And there’s another processing facility coming up near Cadiz, built by Mark West Energy Partners and the Energy and Minerals Group; that facility is expected to process around 385 million cubic feet of gas per day. A third plant, with a capacity of 400 million cubic feet of gas per day, is situated near Summerfield and should be online later this year.

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To aid all this processing activity, Ohio’s pipeline infrastructure is getting a major boost as well. Williams Companies (NYSE: WMB) and Boardwalk Pipeline Partners LP (NYSE: BWP) have joined forces to develop the Blueline Pipeline, which would transport 200,000 barrels of natural gas liquids each day from the Utica Shale and the Marcellus Shale to processing facilities located around the Gulf Coast, reports the Columbus Business First. The pipeline should be operational in early 2015. The companies are also seeking to develop a liquids processing plant and larger storage facilities in Louisiana.

As if this weren’t already enough good news for Ohio, the state’s Department of Natural Resources recently stated that the Utica Shale may actually allow for drilling opportunities farther west than hitherto suspected. New maps, after a thorough review just last week, indicate more than a hundred new drilling locations, including a “hot spot” across Marion and Wyandot counties, as well as Hancock, Hardin, and Seneca counties.

The new data comes from geological explorations and operations conducted over the past year by various oil and gas developers. This is an ongoing process, since much of the Utica Shale is still being explored. That means estimates of the Utica’s actual shale reserves are likely to change with time.

So far, it’s been nothing but good news, as ongoing developments have indicated that Utica may contain more shale than previously estimated, and, more interestingly, that it may extend further west than suspected.

Taken together with the investment going on in Ohio in the oil and gas sector, the pipeline project, and now these revised maps, it becomes clear that Ohio will have a major role to play in the shale sector within the near future.

 

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