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Chris Pedersen

Chris Pedersen

Chris Pedersen is the Managing Director of U.S. Operations for Oak Leaf Energy Training Inc., an energy education firm with offices in Houston and Calgary.…

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Utica Boosts U.S. Natural Gas Production To Record Levels

The Utica shale formation has consistently been overshadowed by the Marcellus shale formation, which lies above it. But it is time the Utica started receiving some real attention for the incredible growth that has taken place over the last two to three years.  

Utica Shale extent mapUtica Cross Section
Source: Geology.com

The Utica lies beneath the Marcellus and expands both north and west. It is thicker than the Marcellus, averaging 300 feet, and more porous, but the total organic carbon (TOC) is generally lower. The source rock is about 100 million years older than the Marcellus and often deeper by 3,000 to 7,000 feet. The greater depth leads to higher drilling costs, but the hydrocarbons are estimated to be more pressurized, resulting in better production.

Related: Why U.S. Should Be Cautious About LNG Exports

The surge in Utica gas production is so recent that the formation was only added to the Energy Information Agency’s Monthly Drilling Report this past August. Since January 2012, production has increased from 155 million cubic feet per day (MMcf/d) to approximately 1.3 billion cubic feet per day (Bcf/d). Utica’s production per rig has also steadily improved.  

Utica mcf/d 
Source: EIA

Chesapeake Energy was one of the first major players with a bullish outlook for the Utica. Former CEO Aubrey McClendon called it the “biggest things to hit Ohio since maybe the plow.” McClendon also said that the Utica is “pound for pound, the best gas rock in the U.S.” Shell, Consol, and Chevron are among about a dozen producers now looking to add acreage and expedite their drilling activity.

Related: Larger Than Expected Natural Gas Inventories Spells Trouble for Producers

The old adage that producers will always go after the “lower hanging fruit” rings true as companies decide whether to drill for Marcellus or Utica gas. In many ways, the Marcellus is the low hanging fruit, but the Utica’s offerings are beginning to look more appealing. The Utica producers are now taking advantage of the above-ground infrastructure built to develop the Marcellus. Utica wells drilled today are often stationed on existing Marcellus well pads and connected by roads and pipes that were built for Marcellus takeaway.

Even with these cost saving methods, drilling costs remain expensive. EQT has reported drill costs of $15 million per well, while Fossil Creek Energy announced a $22 million well, about three times the cost of drilling in the Marcellus. Chesapeake Energy is bucking the trend, significantly lowering its drilling cost year over year.

Drill days
Source: Chesapeake Energy Investor Presentation, September 3, 2014

To find a market for both Marcellus and Utica gas production, existing pipelines are finding creative ways to move growing sources of gas, while new pipelines are proposed to take larger quantities of gas from large interstate pipelines such as the TRANSCO line. Williams’ new “Atlantic Sunrise” pipeline will connect Marcellus and Utica gas from its TRANSCO line. Sabal Trail LLC, a JV of Spectra and NextEra Energy have proposed to build the “Sabal Trail” pipeline, which would connect with TRANSCO. With the Federal Energy Regulatory Commission’s recent approval of the Cove Point LNG plant, it is not farfetched to imagine India or Japan producing electricity from Utica gas by the end of the decade.

By Chris Pedersen of Oilprice.com:




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Leave a comment
  • Tim Bilsky on October 06 2014 said:
    Chris,

    Thank you for the informative article. I knew very little about the Utica play and its contrast/likeness to Marcellus prior to reading it. Finally, an article on oilprice.com that is touting a self-sustaining energy source, not one like solar that needs taxpayer money to simply survive.
  • David Hrivnak on October 06 2014 said:
    According to the EIA website the subsidies for natural gas are larger than they are for solar. And unlike natural gas solar has a MUCH longer life.

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