The natural gas industry is more bullish about the Utica Shale than ever before, but several geologists remain skeptical until more data is publicly available about the play.
Chesapeake Energy Corp. launched a flurry of interest in the Utica after CEO Aubrey McClendon recently called the play "economically superior" to the Eagle Ford Shale of South Texas and estimated that Chesapeake's 1.25 million net acres in the play could be worth $15 billion to $20 billion for shareholders (see Shale Daily, Aug. 1).
Although he didn't offer any reserve estimates, McClendon said the Utica, like the Eagle Ford, should have three phases: a dry gas phase in the east, a wet gas phase in the middle and an oil phase in the west, but is "economically superior" because of "the quality of the rock and the location of the asset." He added that Chesapeake has drilled nine vertical wells and six horizontal wells in the Utica, drilled and analyzed more than 3,200 feet of core samples and examined more than 2,000 well logs that have penetrated the Utica.
That extensive information remains proprietary, though, and public sources of data about the formation directly below the prolific Marcellus Shale remain scarce.
"I have not seen any production data that substantiates the hype and until I see that I would rather not comment on the Utica one way or the other," said Terry Engelder, the Pennsylvania State University (PSU) geosciences professor who helped prove the value of the Marcellus.
While geologists generally agree that the Utica is the source rock for other productive formations above and below it, such as the Trenton/Black River and the Clinton/Medina groups, they still don't have a clear sense of amount of oil and natural gas in question.
The U.S. Geological Survey has yet to formally assess the "undiscovered resources" in the Utica. The Ohio Geological Survey in March estimated that the Utica in Ohio could contain some 15.7 Tcf of natural gas and 5.5 billion bbl of oil, but noted that it couldn't "properly" estimate the probable reserves until there is more production history from the Utica.
That figure also only covers one portion of a play that stretches from Quebec to Ohio.
Like its productivity, the quality of the Utica is also uncertain, geologists said.
For instance, the Utica is thinner in New York and Ohio than it is in western Pennsylvania.
So while companies might have enough information to begin developing the edges of the play, they are still exploring its center, according to Michael Arthur, a professor of geology and co-director of the Marcellus Center for Outreach and Research at PSU.
"It's probably early days for Pennsylvania for sure," he said.
The Pennsylvania Department of Conservation and Natural Resources (DCNR) files include only two completion reports from Utica wells, from 2008 and 2010 respectively, but the DCNR noted that there are 11 outstanding drilling permits issued for wells into the Utica and associated Point Pleasant formations in Pennsylvania (see Shale Daily, May 19).
Those permits are mostly in neighboring Beaver, Lawrence and Butler counties north of Pittsburgh, but also include locations in Armstrong and Somerset counties to the west and south. And one company is planning to drill a Utica well in northwestern Pennsylvania.
That geographic diversity suggests companies are still studying the play, Arthur said.
To the west, on the other hand, the Ohio Department of Natural Resources has issued more than 40 Utica/Point Pleasant drilling permits in eight eastern counties since June.
Because the Utica is shallower in Ohio than in Pennsylvania, operators there have been drilling through it for years to get to deeper formations, giving them snippets of information about the depth, thickness and ratio between shale and sandstone across the play, according to Jeff Daniels, a professor in the School of Earth Sciences at Ohio State University.
But, he said, "We've got to get a lot more holes before we know the potential of the Utica."
Chesapeake and other companies aim to do just that.
After spending nearly $2 billion acquiring acreage, Chesapeake is now running five rigs in the Utica and plans to run eight by the end of the year and 40 by the end of 2014.
The company is opening a regional office in Canton, OH.
Chesapeake is operating on some of its acreage in Ohio through a joint venture with Houston-based EnerVest Ltd. and its affiliate company EV Energy Partners.
EnerVest, the largest producer in Ohio, is permitting 10 wells in the Utica and plans to drill two or three laterals late this year and early next year. The company said its joint venture plans to release data on six Utica wells in the coming months (see Shale Daily, Aug. 16).
CONSOL Energy Inc. recently sold a big chunk of its Marcellus acreage to Noble Energy Inc., but kept its Utica holdings (see Shale Daily, Aug. 19). The Pittsburgh-based company plans to run a full-time rig on its 200,000 acres in the Utica of eastern Ohio starting this fall.
Devon Energy Corp. previously drilled one Utica well on its 110,000 net acres in the "heart of the oil window" in Ohio and plans to drill three more this year (see Shale Daily, June 30).
"The primary risk to a shale play is of course the ability to move fluid through a very tight reservoir. However, we have now analyzed the core from our first Utica well and are highly encouraged by the positive permeability indications seen in our first well," exploration chief Dave Hager said during a recent earnings call. Hager also noted that Devon's 300,000 net acres in the Michigan Basin just to the north is also prospective for Utica drilling.
Range Resources Corp. completed a 12,700-foot Utica well in Beaver County in January 2010 and plans to spud another early next year, but COO Jeff Ventura said during a recent earnings call that the company will focus on the Marcellus until it understands the Utica better.
State College, PA-based Rex Energy Corp. is currently drilling its first Utica well in Butler County. The company holds 83,000 gross acres in the Utica of southwestern Pennsylvania and eastern Ohio and believes that its acreage sits within the western gas corridor of the play.
Seneca Resources Corp., the operating arm of National Fuel Gas Co., is the geographic outlier in the Utica. The company is planning a Utica test well this fall in Venango County, PA.
Not all Utica leaseholders are bullish, though.
"We believe it's a little bit too soon to conclude on the potential of the Utica," Chevron Energy Corp. Vice Chairman George Kirkland said during an earnings call (see Shale Daily, Aug. 1). "We've got a good acreage position in the Utica from the Atlas acquisition. We are going to do what we do everywhere in the world. We're going to evaluate that. And the only way we can evaluate it is we're going to have to drill some wells and test performance. So it's something for the future, but it's, like I say, too early at this point in time to, I think, to hype it."
If this early drilling leads to production soon, companies might be able to take advantage of unused pipeline capacity in the region, according to several midstream players.
El Paso Corp. operates Tennessee Gas Pipeline, which "couldn't be in a better position" to capitalize on the liquids-rich portion of the Utica in Ohio, according to chairman James Yardley.
MarkWest Energy Partners made similar claims during a recent earnings call.
"It's still early, but again we're very encouraged by what the producers have been saying publicly and feel that we can leverage our existing position in West Virginia and Pennsylvania to be able to compete for those services," Chairman Frank Semple said.
Dominion Resources Inc. is working on a gas processing and fractionation plant in Natrium, WV, that will compete for Marcellus and Utica production (see Shale Daily, Aug. 8).
But Spectra Energy Corp. believes there is still uncertainty, according to CEO Gregory Ebel.
Ebel said during a recent conference call that interest in the Utica has not, so far, offset larger economic concerns that have kept companies from signing long-term contracts on its proposed Marcellus Ethane Pipeline System project (see Shale Daily, Oct. 26, 2010).
"But that's a short-term issue," he added.