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Utica Shale: Boom or Bust?

Keith Kohl

Written By Keith Kohl

Posted May 17, 2013

“The whole thing is a bust. We might as well give up.”

That’s what a friend of mine told me earlier today, during a phone call on my way in to work. I have a feeling it won’t be the last time I hear this sentiment…

My friend was referring to a recent report released by Ohio’s Department of Natural Resources. The annual report shows statistics for drilling, permitting, and production.

This year’s report was highly anticipated because it reveals the activity in the Utica Shale for the year.

And this particular report  is significant due to the frequency with which the department publishes these reports. North Dakota, for example, allows us access to drilling and production statistics on a monthly basis. In Pennsylvania, it’s every six months. But Ohio only does this analysis just once a year — and last year’s report only included results from a handful of Utica wells.

Some are calling the report a flop for the Utica; others, a major disappointment. One even called it “hope-shattering” for oil investors.

But they’re all dead-wrong.

Personally, I see the report as a definitive sign that we’re headed straight for a natural gas-fueled future.

I’ll tell you more about that in a moment.

Behind the Utica Curtain

So, what’s behind the skeptical outlook for the Utica?

Well, when the report was released, it showed the Utica Shale produced 636,896 barrels of oil. That averages out to a trivial 1,745 barrel per day — far from what we consider an oil boom.

But don’t be too quick to make comparisons to North Dakota. The two plays are at opposite ends of the development stage…

The nearly 800,000 barrels of oil being pumped out of the Peace Garden State are a culmination of years of drilling. Companies in North Dakota, on the other hand, have been drilling into the Bakken for the better part of a decade.

But one look at a chart showing Ohio’s crude oil production doesn’t inspire much confidence, does it?

ohio output 5-17

Is this as “hope-shattering” as some have described?

The report’s production figures were from just 87 wells drilled during 2012 — only 65 of which were commercial producing wells. According to them, the rest were tested and shut-in, or dry and abandoned.

Furthermore, we have to remember that only three of the commercial wells were in production for more than 300 days. Compare that to the Bakken, which has over 8,500 producing oil wells.

In other words, it’s way too early to call.

As I put it to one of my readers in an email this morning: “Those 87 Utica wells make up a microscopic share of the state’s 50,000-plus wells… and despite that fact, the Utica STILL accounted for 13.4% of Ohio’s total crude oil production, and 16% of total gas production.”

The truth is Utica wells made up less than one-half of one percent of Ohio’s oil wells in 2012. Within a few short years, it’s projected to account for nearly three-quarters of the total.

Still, the crude oil portion of the report isn’t what has me bullish over the Utica’s potential role in future U.S. energy production.

For that, we have to turn to natural gas…

Our Natural Gas-Fueled Future

The report also hinted at something else: The Utica play might be more “gassy” than originally believed.

If you recall, one of the reasons Marcellus drillers in Pennsylvania were moving westward into the Utica was that they believed the formation was more liquids-rich (think of a play similar to the Eagle Ford).

Along with the 636,986 barrels of oil, activity in the Utica Shale also produced 12.8 billion cubic feet of natural gas.

What’s the benefit of the Utica being more “gassy”?

To put it simply, that’s where the United States will turn for its next cheap source of energy.

Our natural gas demand has been unwavering, even after the massive economic meltdown in the summer of 2008.

nat gas 5-17

I haven’t found anyone who disagrees that natural gas will play a critical role in U.S. energy consumption over the next several decades.

And the payout for long-term investors in these shale gas plays will be extraordinary.

You’ve no doubt noticed by now that U.S. natural gas production has been on the rise over the last few years, but what you may not have realized is that conventional and coalbed methane production is actually declining…

us natural gas production 5-17

By year-end, natural gas prices at the Henry Hub will top $5/MMBtu.

The slowdown in drilling activity as companies shifted their focus to oil will inevitably take a toll on production. We certainly won’t see a spike like we did in 2008, when natural gas prices shot into double-digits…

But here’s the important thing to recognize: It doesn’t have to spike.

In fact, savvy gas investors don’t need prices to rise at all!

Until next time,

Keith Kohl Signature

Keith Kohl

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A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.

For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.

Keith’s keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith’s Topline Trader advisory newsletter.

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