Utica Shale promises to make Ohio an energy powerhouse

The increasing rig count and recent drilling successes in the Utica Shale play have led companies to shuffle assets and seek to become bigger participants in the liquids-rich play located primarily in eastern Ohio. Although Utica Shale exploration does not yet match the amount of unconventional development in other parts of the US, the Utica Shale rig count is rising quickly. As of mid-January, the Ohio rig count stood at 28, with 25 of those rigs active on horizontal projects. A year ago, the state's rig count was 14 with nine rigs drilling horizontal wells.

So far, Ohio regulators have issued 500 horizontal drilling permits for the Utica Shale, with a little more than 200 horizontal wells drilled to date. Chesapeake Energy has taken the lead, drilling more than half of all Utica Shale wells completed in Ohio. Two recent Chesapeake completions in Ohio's Carroll County -- the 8H Houyouse "15-13-5" and 8H White "17-13-5" -- tested at respective daily rates of 465 bbls of crude and 390 bbls of crude. Numerous Chesapeake wells in the play have tested at rates of more than 350 bbls of oil per day.

Gulfport Energy, another active exploration company in the play, has completed a handful of horizontal wells in eastern Ohio. One recent completion - the 1-12H Shugert in Belmont County -- was flow tested over 48 hours, reaching an average sustained rate of 28.5 million cu ft of gas and 300 bbls of condensate per day. The nearby 1-1H Shugert which was tested in October at a peak rate of 20 million cu ft of gas and 144 bbls of condensate per day. Gulfport's Utica Shale wells in the area have recovered Btu-rich gas, resulting in strong production of natural gas liquids.

Along with Chesapeake and Gulfport, Anadarko, CNX Gas, Hess, Devon Energy and Enervest Operating are among some of the other companies active in the play.

Oil and gas potential

The size of the prize is substantial: The Utica Shale contains 38 trillion cu ft of undiscovered, technically recoverable natural gas, according to the first assessment of the region by the US Geological Survey. Along with vast quantities of natural gas, the shale play has a mean of 940 million bbls of unconventional oil resources and a mean of 208 million bbls of unconventional natural gas liquids. USGS estimates are for technically recoverable resources, which are those quantities of oil and gas producible using currently available technology and industry practices, regardless of economic or accessibility considerations.

The Utica Shale is productive at deeper vertical depths than the Marcellus Shale, which is generally east of Utica Shale play.

Source: Ohio division of Geological Survey, 2011

Pipeline constraints

Work on pipelines and other infrastructure needs to be complete before oil and gas can get to market. Chesapeake, for example, saw only moderate Utica Shale production growth last year. At the end of the third quarter, nearly 40 company-operated Utica Shale wells had been drilled but not yet brought online. The Oklahoma City-based company anticipates much larger production growth this year as midstream constraints are reduced.

As a way to capitalize on the region's growth, many companies are forging partnerships to improve pipeline capacity. Most recently, Dominion and Caiman Energy formed a $1.5 billion joint venture to provide services to gas producers operating in the Utica Shale play in Ohio and portions of Pennsylvania. The joint venture -- Blue Racer Midstream LLC – is an equal partnership between Dominion and Caiman, with Dominion contributing midstream assets and Caiman contributing private equity capital.NiSource and Hilcorp Energy also formed a partnership to construct new gathering pipelines and natural gas liquids processing facilities to support growing gas volumes in the Utica Shale play in northeastern Ohio and western Pennsylvania.

Economic benefits

An IHS report America's New Energy Future Volume 2: State Report found that unconventional energy development in the US will lead to a huge boom in employment and economic benefits across the county. By 2035 it is estimated that Ohio will join the top five states, ranked by energy employment, behind only Texas and Pennsylvania. In the report, IHS found that Ohio's unconventional oil and gas employment will increase to 144,000 by 2020 and approach 275,000 by 2035. Both job total estimates are sharply higher than 2012 levels of 39,000. The Utica ranks highly among unconventional oil and gas plays in the US and creates a long term business and employment upside for Ohio, helping to offset years of hard times in the manufacturing intensive state.

Posted 11 February 2013

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.