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Focus could make Utica Shale more profitable

Published: Tue, January 24, 2012 @ 12:05 a.m.

By Karl Henkel



Chesapeake Energy Corp.’s decision to shift its focus away from natural gas and toward oil and natural-gas liquids like propane could make the Utica Shale more profitable.

The Utica Shale is believed to be rich in both natural gas and oil, featuring both wet gases — like ethane — and dry gases such as natural gas.

But the decision to seek wet gas could narrow the Utica Shale play and leave eastern Mahoning County’s impact on the drilling boom up in the air.

Jeffrey Dick, geology department chairman at Youngstown State University, said that based on drilling patterns — many wells have been drilled in western counties like Portage, Jefferson and Carroll and even western Mahoning County — there may be inactivity closer to the Pennsylvania border and even into Western Pennsylvania.

Dick described that area as being “clearly in the [dry] gas area.”

“You kind of have to read the tea leaves,” he said. “Clearly they’ve been delineating the boundaries of oil, wet gas and dry gas.”

Bob Rea, president of the Associated Landowners of the Ohio Valley, a nonprofit landowner advocacy group, said it is too soon to pinpoint exact wet-gas boundaries.

“There’s no way to have that information,” said Rea, who said estimating wet-gas boundaries is a “phantom issue.”

“There haven’t been enough wells drilled,” Rea said.

Wet gas refers to fuels rich in ethane, propane and butane.

Ethane can be “cracked” for chemical and plastics production. A proposed $2 billion Shell Chemical cracker, which experts predict will be built in Southeast Ohio, would be a beneficiary of increased wet gas production.

Prices for dry gas, on the other hand, have dipped since June, when they averaged about $4.75 per million British thermal units, to about $2.35. Futures for natural gas jumped about 8 percent following Chesapeake’s announcement to $2.53.

Chesapeake, the largest holder of mineral rights in the Valley, said it will cut dry-gas capital investments by more than $1 billion and that 85 percent of its 2012 total drilling expenditures will be invested in its liquids-rich plays.

“We have committed to cut our dry gas drilling to bare minimum levels that are likely to be maintained until expected drilling economics on dry gas plays return to levels competitive with expected returns in Chesapeake’s lineup of liquids-rich plays, which we believe is the best in the industry,” said Aubrey McClendon, Chesapeake’s CEO, in a statement.

In the unofficially defined “wet gas area,” much like the dry gas zone of the Utica and Marcellus shales, Dick said it isn’t known how much of the natural resources can be extracted.

Last September, however, Chesapeake released peak production rates for four wells, three of which are in Ohio.

Two wells in nearby Carroll County had peak production rates of about 1,000 barrels per day of natural gas liquids.

The move comes in response to the lowest natural gas prices in the past 10 years, said the company, which added that in 2012 it will use one-third the number of dry gas rigs it did last year.

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