Utica Shale Stocks

Why You Shouldn't Write Off the Utica

By Swagato Chakravorty
Friday, July 26th, 2013

The Utica shale in Ohio is something of a puzzle. It used to be that people talked about the Utica like it was the next Bakken Shale. But recently, Ohio came out with its highly-anticipated report from the Department of Natural Resources, which provides yearly statistics for drilling, permitting, and production.

Utica Map 10-9The fact that Ohio publishes this just once a year compared to North Dakota's monthly and Pennsylvania's every six months just adds to the anticipation and expectations. Last year’s report only accounted for a fraction of the Utica wells, and this more recent report was expected to provide a much more comprehensive outlook, which is why it was so eagerly awaited.

And when it came, it was a bit of a disappointment.

According to the report, the Utica shale had produced just 636,896 barrels of oil, or a mere 1,745 barrels per day. The report indicated production numbers from 87 wells that were drilled over 2012, of which 65 are commercially producing.

On the other hand, just three of these wells had been in operation for more than 300 days. If you consider that the Bakken has not only been under development for almost ten years, but that there are more than 8,500 producing wells, I think it’s evident that such a comparison doesn’t make a lot of sense. In other words, we can’t write the Utica shale off just yet—the game’s only just begun.

In 2012, Utica wells accounted for just shy of one-half of one percent of Ohio’s total oil wells. But over the next few years, it’s actually expected that the Utica will account for about 75 percent of the entire state’s oil production.

Moreover, the real gem in the Utica may not even be oil—it could be more natural gas. Consider that aside from the 636,896 barrels of oil I mentioned earlier, the Utica produced 12.8 billion cubic feet of natural gas over 2012. You’re already familiar with the crucial role of natural gas in the changing American energy climate. I needn’t spell it all out for you; clearly, if the Utica proves to be a hotbed for natural gas, that would increase its attraction many times over. With conventional and coalbed methane gas production on the decline, shale gas production is the next big thing.

And it seems certain companies are recognizing that, despite the lackluster numbers that emerged recently, there’s more to the Utica than appearances suggest.

Companies Persist in Exploring Utica

Gulfport Energy (NASDAQ: GPOR) is one such company, recently stating that it has acquired an additional 8,000 acres to arrive at total holdings of 145,000 acres in the Utica shale, according to CantonRep.com.

Additionally, Gulfport has two producing wells in the shale; the McCort 1-28H well, with an estimated production rate of 9.6 million cubic feet per day of natural gas and 835 barrels of natural gas liquids, and the McCort 2-28H, with an estimated production rate of 11.6 million cubic feet of natural gas per day and 1,009 barrels of natural gas liquids. For oil, the McCort 1 is at 2,218 barrels of oil equivalent per day, and the McCort 2 is at 2,701 barrels.

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ENGlobal Corp. (NASDAQ: ENG) is another company that appears interested in the Utica shale. BizJournals reports that the company has received a contract worth $5 million from Utica East Ohio Midstream LLC, whereby it will provide engineering and procurement services.

ENGlobal will provide a full suite of services for a control room condensation stabilization unit, site grading, and design integration for the unit, which is rated at 200 million standard cubic feet per day. Development work is projected to begin immediately, and everything should come online around the second quarter of 2014.

And it doesn’t end there. A joint industry project (JIP) comprising five oil and gas companies is in the works to gain more detailed information about the Utica shale, reports RigZone. The project was conceived back in April courtesy of Ingrain Inc., and it should sustain itself for about a year. Collectively, the JIP aims to seek out the richest zones within the Utica to further future development.

This is very good news, considering some early entrants like Chesapeake Energy Corp. (NYSE: CHK) have begun selling off their Utica assets, citing operational difficulties in that region. Don’t write off the Utica shale yet!

 

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