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Pessimism and Optimism over Utica Shale

Earlier this year some big names like Chesapeake Energy, Devon Energy and EnerVest put their Utica shale assets up for sale, saying they were not meeting expectations, but this isn’t the whole story—it’s tinged with enough success to tip the scales.

For Chesapeake, the story is clear. The company is coming off a crippling asset binge and now seeking to purge. But Chesapeake is still there, and says it’s “satisfied” with the way things are going.

“We’ve got a lot of wells that we’re getting ready to bring online … I’m very encouraged by it … and I think it’s an exciting area for the company,” CEO Doug Lawyer told investors with the release of Q2 2013 earnings. “We see the Utica to be a very strong asset going forward.”

Chesapeake intends to focus on the most-productive areas in the Utica shale for natural gas, petroleum and other liquids including ethane, butane and propane.

For Devon, the focus seems to be more on the Cline and towards liquids to offset suppressed natural gas prices. Utica is just a bit to gassy for Devon.

Related article: Shale by Rail: A Lasting Phenomenon

The thing about Utica—whose core is in Ohio, but which also spans Pennsylvania and West Virginia--is that it is mostly about natural gas and natural gas liquids—not oil, so the commodities market isn’t as kind to it right now. And production is moving at a pace that is faster than new infrastructure can be built to get it to market. This should start looking up later this year; however, as new infrastructure capacity comes on line and bottlenecks are taken care of.  

In fact, there is already some good news on this front. The Natrium Natural Gas Processing and Fractionation Plant in West Virginia has been taken over by Blue Racer Midstream and is now up and running—and servicing the Utica shale as of this summer. In total, Blue Racer has 500 miles of pipeline to carry Utica gas to the plant and can process 200 million cubic feet per day. It is the first large-scale processing plant in Utica.  

Utica production should also ramp  up later this year (especially for Chesapeake), with the start-up of another natural gas processing plant in Columbiana Count, Ohio, along with a liquids-separating facility in Harrison County.

Despite some cold feet, the potential for Utica is great. The play is estimated to contain about 38 trillion cubic feet of undiscovered, technically recoverable natural gas, along with around 940 million barrels of unconventional oil resources and over 200 million barrels of unconventional natural gas liquids.

Utica is now home to over 230 horizontal wells already drilled, 100 producing horizontal wells, another 40+ in the drilling process, and 375 more will permits, ready to be drilled.

Related article: Has the Shale Bubble Already Burst?

And while Chesapeake has had cold feet in Utica, its former CEO, Aubrey McClendon, has enough faith in Utica to strike out on his own with a new oil and gas exploration company. McClendon, who was ousted earlier this year by Chesapeake investors, is hoping his comeback will be in Ohio. He has reported already lined up around $1.2 billion in equity and debt financing deals to hit the Utica scene, according to the Wall Street Journal.

The new company, American Energy Partners LP, is buying 22,500 acres in Ohio for $284.3 million from EnerVest Ltd.

So while Utica may not have taken off as majestically as investors expected, it’s still a great play, and there’s still a lot of interest here and this will increase as we see infrastructure bottlenecks resolved.

By. Charles Kennedy of Oilprice.com




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