Shale Daily / Utica / NGI The Weekly Gas Market Report / Northeast

BP Soon Expected to Decide Upon its Future in the Utica

After nearly two years dedicated to its closely watched appraisal program in Ohio, BP America expects to make an announcement early next year about whether it intends to go forward with Utica operations and make the play a material part of its business.

Considered by many to be a bold move at the time, BP established its Utica acreage position in March 2012, when it announced a $331 million deal with members of the Associated Landowners of the Ohio Valley -- a group representing area mineral owners -- to secure the rights to about 84,000 acres in Trumbull County, OH, a largely unproven area where only two other companies are active in the northern reaches of the play.

Currently, BP has roughly 105,000 acres under lease in northeast Ohio, far removed from the liquids-rich sweet spot that has emerged in the southeastern part of the state.

Initially, the company planned to spud 10 test wells in Trumbull County. Thus far, those plans are on track, with four wells completed -- one of which is producing, according to records at the Ohio Department of Natural Resources.

The company completed its first appraisal well in April. BP’s director of government and public affairs in Ohio, Curtis Thomas, said the company’s goal is to drill and complete six more wells by year’s end.

“We have, or are drilling in Johnston, Hartford, Mecca and Vernon Townships. The data acquired through this process will help us determine our way forward in Ohio,” Thomas told NGI’s Shale Daily. “In other words, we’ll see what the rocks have to tell us, and then we’ll determine whether or not we can build a natural gas business here in Ohio.”

Only after sufficient data is gathered about BP’s acreage and reservoir capacity will a concrete determination be made about the company’s operational plans in the area. BP expects to have sufficient reservoir information by early 2014.

Thomas added that BP expects to make an announcement in either the first or second quarter of next year, but he couldn’t say whether detailed well results will be provided, or whether the company will simply “characterize” the results.

To be sure, the economics of an oil and gas play are much different for a major such as BP. Its move to secure what amounted to 20% of Trumbull County last year was not an indication that the company intends to remain in the play for the long haul, said Thomas Stewart, executive vice president of the Ohio Oil and Gas Association.

Rather, that kind of acreage block is required to validate potential horizontal drilling methods and justify the kind of critical mass a major integrated oil and gas company needs to justify its operations and match the rate of return it’s looking for in any given onshore play.

“The question is, will BP, or any very large integrated companies, find enough critical mass to justify being here?” Thomas said of the Utica. “I applaud them for trying to figure it out, but whether it works out in the end is a good question.

“I think everybody watching the Utica shale puts a big question mark on the northern end of the play. Then again, a lot of people who discounted the southern part of the play regret having done that because it’s shaping up to be the sweet spot,” Thomas added. “Now it’s about how far north can you extend that. There’s only one way to find out -- get the acreage and justify your position.”

Since it drilled its first test well in April, BP has been tight-lipped about its Utica appraisal program. Only Halcon Resources Corp. and CNX Gas Co., a subsidiary of Consol Energy, have holdings that far north.

What’s more, only Halcon has released early results from a handful of wells in Trumbull County and just across the state line in northwest Pennsylvania.

In November, during a third quarter earnings call with analysts, Floyd C. Wilson, chairman and CEO of Halcon, used an expletive to describe the quality of wells the company had drilled in the northern part of the Utica, saying poor results in northwest Pennsylvania, and to a limited extent, in northern Trumbull County -- in an area where BP also is drilling -- had turned Halcon’s focus to southern Trumbull County and adjacent northern Mahoning County, OH.

“I don’t know if [Wilson] was necessarily talking about Trumbull County specifically. [Halcon] took a 3Q impairment due to the Woodbine in Texas and some of that impairment was related to northwest Pennsylvania Utica acreage where they drilled,” said Will Green, an energy analyst at Stephens Investment Bank, who covers Halcon. “I think the stuff we’ve seen out of Trumbull is encouraging. It’s the results in Crawford and Venango counties, PA, that have shown to be a little out of trend. The key is finding where the Point Pleasant is thick in that part of the play, in places where it is, it will work. We’ve actually seen some success there.”

Indeed, Halcon reported impressive results at its Kibler 1H in southern Trumbull County, where a high gas-to-oil ratio well prompted the company to go forward with plans on a second well at that pad and obtain additional permits to drill others there in the future.

For now, BP will wrap-up its appraisal program and complete its final wells. Stewart said it was hard to speculate about whether the company would continue with its Utica operations, but added that the BP officials he’s spoken with to date remain “cautiously optimistic” about the Ohio drilling program and its future.

BP’s North America Gas business has a presence in seven of the leading U.S. onshore basins. The company has active shale positions in the Woodford, Haynesville, Fayetteville and Eagle Ford.

Another major which jumped into North American shale with both feet, Royal Dutch Shell, now has second thoughts. Shell took a $2.2 billion charge for 2Q2013 primarily against its North American unconventional investments (see Daily GPI, Oct. 15). The charge led to a review of all of the major's U.S. and Canadian properties, with as much as half of its nine main unconventional onshore properties on the list for sale. The Eagle Ford Shale and Mississippian Lime properties already are being marketed.

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