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Production reports for the Utica Shale have been disappointing for analysts expecting a higher percentage of oil in the state’s wells.
When Aubrey McClendon, the former CEO of Chesapeake Energy, talked about the Utica Shale, he compared the play with the Eagle Ford in Texas, which is one of the most-successful shale plays in the lower 48 states, said Mark Hanson, energy analyst for Morningstar in Chicago. McClendon had estimated the Utica Shale could be worth as much as $500 billion.
Wells in the Eagle Ford produce about 75 percent oil by volume, he said. The most-successful wells in the Utica generate about 25 percent oil.
“Compared to one of the most- successful shale plays in the lower 48 states, the [Utica] just does not stack up based on the production reports,” Hanson said.
A production report from the Ohio Department of Natural Resources resulted in reduced stock prices for nearly every company operating in the Utica Shale, he said. The most-recent ODNR report showed 26.7 million gallons of oil, which is nearly 636,000 barrels, and 12.8 billion cubic feet of natural gas were produced last year in the state.
The Utica Shale primarily is natural gas, said Don Fischbach, chair of Energy Group for Calfee, Halter & Griswold, a Cleveland law firm. Though companies want oil because of its higher price, the shale still contains significant amounts of wet gas such as butane and propane — which generate higher profits than dry gas.
“It’s way too early for any sort of death march on the Utica,” he said.
Locally, there were five wells in Columbiana County that were part of the ODNR report. They produced 24,085 barrels of oil and 132,569 thousand cubic feet of natural gas. There was one well report for Mahoning County in which there was no gas production and 816.87 barrels of oil. The six wells were all owned by Chesapeake Energy. There were no production reports for Trumbull County.
According to ODNR records, only one of the local wells was in production for more than 40 days in 2012. A Hanover Township well off Georgetown Road near Westville-Lake Road was in production for 204 days. It produced 8,832.99 barrels of oil and 54,730 mcf (thousand cubic feet) of natural gas.
The geology of the area was understood with the eastern portion of the Utica mostly dry gas, the central part wet gas and the western area being oil, Fischbach said.
“There are only really two counties, Carroll and Harrison, that have shown good results compared to the Marcellus Shale, where eight or nine counties have shown above-average results,” Hanson said.
Devon Energy and Anadarko, companies in the western portion of the Utica where oil was expected to be found, had little to no production, Hanson said.
“Companies in the central portion of the shale like Chesapeake did have better results,” he said.
In response to a Reuters article that labeled the Utica Shale a bust, Dr. Robert W. Chase, chairman and professor of the Marietta College Department of Petroleum Engineering, wrote: “In the end, the raw production numbers reported to the state represent only a snapshot of what the industry is actually doing — and, more importantly, what it’s capable of doing. No, the oil numbers are not as good as other, more mature plays, like the Eagle Ford in Texas.”
The question is can companies produce economically and make a profit, Chase wrote.
Production results aren’t bad if you take them for what they are, Fischbach said.
“There weren’t any wells that had a full-year production cycle,” he said. “It was less than half a year for most of the wells.”
There is nearly $10 billion being invested in the midstream infrastructure, which includes pipelines and processing facilities, Chase wrote. Production numbers will improve once the infrastructure has been put in place.
Part of the issue is the reporting from ODNR didn’t provide the type of robust information that investors would like to see, such as separating dry from wet gas, Hanson said.
ODNR did not provide a response to the lack of detail in the production reports. It did provide an overall response to the idea that the shale play is less than was expected. “We believe Ohio is at the beginning of a major expansion of oil and gas production in the Utica/Point Pleasant play. Based on the number of wells permitted, wells drilled and production from these wells, ODNR is anticipating continued and staggering growth,” according to an email statement from Mark Bruce, public information officer.