Utica Shale: Is it the real deal?

The long-awaited release of the seemingly disappointing 2012 production numbers for the Utica Shale has renewed skepticism about the true potential of the Utica and whether it is living up to its expectations.

Focusing on day-to-day news and information can cause one to lose sight of the bigger picture and what is actually happening. By taking this opportunity to step back and look at this year’s production results within the context of the bigger picture, maybe we can gain some insight as to whether the Utica Shale is the real deal.

Long before the leasing frenzy of Utica Shale mineral rights, petroleum geologists were well aware of the shale’s oil and gas potential. After all, it is the source rock for oil and natural-gas produced from formations above and below the Utica such as the Clinton Sandstone and Trenton Limestone.

The Utica Shale is actually the combination of two organic-rich rock formations consisting of the Utica Shale resting on top of the Point Pleasant Formation. Unlike the Marcellus Shale of Pennsylvania, which is shallower than the Utica and penetrated by thousands of wells targeting the underlying Oriskany Sandstone, geologic information on the Utica in eastern Ohio was sparse and limited to wells targeting the deeper “Knox” formations.

The Utica Shale play is being defined by exploratory drilling. Exploratory drilling began in late 2010 and continues to this very day. Considering there are approximately 4 million acres of Utica leases and there are currently about 330 Utica wells drilled, there is a lot of unexplored Utica Shale. The drilling activity has certainly improved the understanding of the eastern and western limits of the play and where the dry gas, natural-gas liquids and oil-rich zones can be found.

Exploratory drilling has also identified the Point Pleasant Formation as the primary target. The Point Pleasant has good porosity, relatively high organic content and it responds well to hydraulic fracturing.

The relatively clay-rich overlying Utica Shale provides a good reservoir pressure seal and upper frac barrier, and the underlying Trenton Limestone provides a good lower frac barrier.

Exploration in shale-gas plays includes experimentation of well design and construction. Comparisons often are made between the Utica Shale and the Eagle Ford Shale of southern Texas. Although they both have dry gas, wet gas and oil zones, the comparison really doesn’t extend much beyond these similarities.

The fact is every shale-gas play is different, and what determines the production potential comes down to well design and construction. Design includes things such as length of the lateral, directional- drilling technology, length and number of perforation stages, frac chemical additives, grain size and tonnage of sand proppant, spacing of laterals and resting time between fracking and production.

Operators in the Utica Shale are developing a good understanding of how to maximize well production and improve their rate or return.

The 2012 production report released by the Ohio Department of Natural Resources on May 16 tells only part of the story. The report identified 87 producing Utica wells. The combined production from these wells amounted to roughly 636,000 barrels of oil and 13 million Mcf (thousandSFlbcubic feet) of natural gas. Based on these numbers, the average production per well works out to be roughly 140 barrels of oil per day and 1,400 Mcf gas per day. On the surface, these numbers are disappointing.

In reality, the production numbers have little meaning simply because the infrastructure required to produce the wells is not in place.

The construction of midstream system infrastructure is critical to evaluating the true potential of the Utica Shale. Midstream systems include the pipelines that gather raw production from wells and the processing plants that separate the natural-gas components in preparation for delivery to markets. Utica play currently has four major midstream systems under construction, which will begin operations later this year.

The capital investment of these midstream systems is estimated to be more than 4 billion dollars. Each system represents a joint venture between midstream companies and the producers the systems will service. Only after these systems are up and running will Utica wells be able to produce at full capacity. To justify such massive investments, the producers must be confident the Utica Shale is the real deal.

By this time next year, we will have a much clearer picture of true potential of the Utica Shale. The anticipated completion of midstream systems will spur a dramatic increase in drilling activity in the central and southern portions of the play. Operators such as BP, Halcon and Consol will have drilled enough wells in the northern part of the play to better define its production potential.

Hopefully, the ODNR will have a production reporting system in place that is based on the realities of shale-gas production and not the low-volume production of the traditional Ohio oil and gas industry.

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