What we Learned about the Utica Shale During Earnings Season
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The Utica Shale is often touted as having the greatest potential among all the emerging unconventional oil and gas resource plays in the United States, and the recently ended earnings season for the second quarter of 2012 provided an update on operations and activity in this play for investors to incorporate into their investment views on companies active here.
Utica Shale
The Utica Shale is present across parts of the Appalachian Basin with most of the current industry activity concentrated in Ohio. Steve Fillingham, an associate analyst at Energy Analysts International, recently predicted that oil and liquids production from the Utica Shale may reach 250,000 barrels per day in a few years and perhaps even as high as 500,000 barrels of oil per day.
Operators
Chesapeake Energy (NYSE: CHK) maintained its status as leader in the development of the Utica Shale and has drilled 87 wells into this play as of the end of the second quarter of 2012. The company is averaging peak production rates of approximately 1,000 barrels of oil equivalent (BOE) per day on the Utica Shale wells that have been put onto production.
Chesapeake Energy plans to accelerate drilling activity and will increase its operated rig count to 16 by the end of 2012, up from the current level of 12 rigs. Management believes that the Utica Shale has an advantage over the Eagle Ford Shale because the targeted formation is shallower and can be developed at a lower cost.
While Chesapeake Energy is far ahead of other operators in the Utica Shale, other oil and gas companies are just starting programs here. Gulfport Energy (NASDAQ: GPOR) brought its first horizontal well online and reported a peak production rate of 4,650 BOE per day, with approximately 50% of the production composed of oil and natural gas liquids.
Gulfport Energy is operating two rigs in the Utica Shale and is working on the company’s seventh well on its properties here.
Other operators were not as successful here during the second quarter of 2012. Devon Energy (NYSE: DVN) disclosed production results on two recent wells and said that the rates were not “encouraging.” These wells were drilled on the periphery of the Utica Shale and do not represent the potential of the play. Devon Energy plans to complete one additional well here and then shift its activity to a liquids-rich areas elsewhere in Ohio.
Rex Energy (NASDAQ: REXX) is also at the beginning stages of the development of the Utica Shale and recently completed its first horizontal well in Ohio. The well was drilled with a lateral of approximately 4,000 feet and completed with a 17-stage hydraulic fracturing operation. The company has shut the well in and expects to have production results by September 2012. Rex Energy is adding to its leasehold in Ohio that is prospective for the Utica Shale and estimates that it will have 20,000 net acres by the end of 2012.
Rex Energy had already completed a Utica Shale well on its acreage in Butler County, Pa., and is currently drilling its second well in this area. Wells in this part of the Utica Shale produce mostly natural gas.
Although Rhino Resource Partners LP (NYSE: RNO) is not well known by that many investors, the company is building up a position in the Utica Shale through an alliance with Gulfport Energy and a private equity firm. The company owns a minority interest in a large leasehold and expects to eventually have a 6,250 net acre position in the Utica Shale.
Energy Independence
The Utica Shale and other unconventional resource plays hold out the hope of reduced dependence on foreign imports of crude oil from governments that are politically unstable or hostile to the United States. This is a worthy goal that should be encouraged by our government.
shaleplays has no positions in the stocks mentioned above. The Motley Fool owns shares of Devon Energy and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2013 $25.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, and long JAN 2014 $30.00 calls on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
