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McClendon Values Utica Shale at $500 Billion

The Utica Shale could be worth $500 billion, and the "biggest thing economically to hit Ohio, since maybe the plow," Chesapeake Energy Corp. CEO Aubrey McClendon told an audience in Ohio on Wednesday.

"I prefer to say half a trillion," McClendon said at the Ohio Governor's 21st Century Energy & Economic Summit in Columbus. "It sounds bigger." While admitting that fluctuating commodity prices make it difficult to estimate value accurately, McClendon called his estimate "reasonable."

Although merely an estimate and not a scientific analysis, the figure is among the first offered for the infant Utica. McClendon previously turned heads by saying the Utica "is likely most analogous, but economically superior to, the Eagle Ford Shale in South Texas" (see Shale Daily, Aug. 1).

"We started to look at Utica in Ohio here about two years ago and arrived at two conclusions: One, it's big. Two, a lot of the acreage on it was owned by EnerVest," McClendon said, pointing to EnerVest Ltd. CEO John Walker. "We'd always been friends, but I got chummier."

"Now we're best friends," Walker said.

EnerVest is the leading conventional oil producer in Ohio. Chesapeake and EnerVest formed a joint venture recently to explore the Utica, but each company is also exploring outside of that joint venture (see Shale Daily, Aug. 16). Chesapeake spent $2 billion on its 1.25 million acres in the play.

McClendon also continued his role as the shale industry's most aggressive promoter, telling two opponents to hydraulic fracturing as he entered the Ohio auditorium: "I'm the biggest fracker in the world. I've done it 16,000 times since 1989 and I'm proud of it," before elaborating that his "plan" involved increasing jobs, lowering the cost of energy and helping the country become energy independent. "So what is your plan?" he asked.

When they told him they want the energy supply to come from renewable fuels, he said, "It's not reality. It can't happen."

Chesapeake is comparing the Utica to the Eagle Ford because both plays have dry gas, wet gas and oil windows, allowing both plays to remain economic even at times such as now when natural gas prices are depressed, but unlike the Eagle Ford, the Utica is still too new to measure, McClendon said.

"We know it's big. How big is big? We don't know and I can't put volumes on it yet," he said. That said, Chesapeake plans to drill as many as 12,500 wells in the Utica and McClendon expects around 10 companies to compete in the play, investing as much as $200 billion in Ohio over the next 20 years. Chesapeake is currently running five rigs in the Utica and plans to gradually increase that to 40 rigs by 2014, but McClendon said Ohio should expect more than 100 rigs in the Utica at full buildout.CONSOL Energy Inc. and Hess Corp. recently formed a joint venture in the Utica and Anadarko Petroleum Corp is getting drilling permits (see Shale Daily, Sept. 20; Sept. 8).

"This will be the biggest thing, I think, to hit the state of Ohio economically since maybe the plow," he said.

Chesapeake is the only company to have completed a horizontal Utica well in Ohio -- other companies have drilled but not completed Utica wells, according to the Ohio Department of Natural Resources -- but its drilling to date has been in the dry gas and wet gas windows of the play, McClendon said. The oil window is not only potentially more profitable at current commodity prices, but also more difficult to produce, because oil molecules, being larger, are more difficult to extract from the microscopic pores in shale rocks than smaller natural gas molecules, he said.

While Chesapeake and EnerVest are bullish about the Utica, McClendon and Walker both acknowledged the difficult road ahead for early operators.

"The question is: Can we move oil from this rock to the surface? And we don't know yet. I've been pretty up front about that. I think we'll be able to, based on our experience in the Eagle Ford... but we're just now beginning to move over into the oil phase of the reservoir," McClendon said.

Because oil from the Utica migrated to traditional sandstone reservoirs beneath it, conventional producers like EnerVest have information about the shale formation from existing well logs. Walker said EnerVest and Chesapeake have digitized and analyzed around 600 conventional well logs. "The final thing that you have to do is you've got to drill wells," Walker said.

Chesapeake and EnerVest plan to release preliminary results from the Utica later this year, but Walker said those results could vary. "You don't want to drill all your wells where you know that you're going to have success," he said. "Even our drilling right now is going into some places that we don't know whether or not they're going to be successful. But that's the way you test the limits of a play. That's the way you de-risk the play."

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