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3Q Production Hints at Utica's Place as Next Prolific Gas Play

A report released earlier this week on third quarter production in Ohio's Utica Shale has stepped-up scrutiny of just how prolific the play will be. The latest data has many drawing comparisons between the early days of Pennsylvania's Marcellus Shale, with rising production reinforcing the Utica's place as a gas play.

The Ohio Department of Natural Resources (ODNR) on New Year's Eve said 245 wells produced 33.6 Bcf of natural gas and 1.3 million bbl of oil during the three months ending in September (see Shale Daily, Dec. 31, 2013), nearly doubling the production reported for all of 2012 under old annual reporting requirements.

Although the 2012 report included just 85 wells (see Shale Daily, May 17, 2013), that data shattered the expectations that the Utica could be the next great oil play. ODNR's latest report only confirmed that the play's most prolific wells are located in gassier areas. But this week's report has been deemed encouraging by financial analysts and others, with many predicting that operations will continue to be concentrated in the state's southeast (see Shale Daily, Nov. 19, 2013) and even find more companies moving into northern West Virginia for the kind of dry gas results that mirror the production witnessed in Northeast Pennsylvania.

"It's a little tough to interpret these numbers; they're on a two-stream basis and there's also a major lack of processing and infrastructure, meaning many of these wells are not necessarily being flowed to their full potential," said Gabriele Sorbara, vice president of exploration and production research at Topeka Capital Markets. "We don't think the oil window works in the Utica; it never worked, but the wet gas window does and many of the most prolific wells are turning out to be in gassier areas. Those could be as prolific as some we've seen in Northeast Pennsylvania."

Sorbara added that some Utica wells in Southeast Ohio could eventually hit the 15-50 MMcf/d range or higher, citing the potential of Gulfport Energy Corp's Irons 1-H well in Belmont County, which tested at an initial production rate of 30.3 MMcf/d in the third quarter (see Shale Daily, Nov. 8, 2013) and Magnum Hunter Resources Corp's Stalder Pad in Monroe County, which is designed to handle 10 wells aimed at multiple pay horizons (see Shale Daily, July 3, 2013).

A closer look at the latest production data shows that Antero Resources Corp., Gulfport and Chesapeake Energy Corp. were Ohio's top producers in 3Q2013. Most of their acreage resides in Belmont, Monroe, Harrison, Noble and Carroll counties in the southeast, which accounted for more than half of all the gas produced in the play during the third quarter.

Ohio law does not require operators to report natural gas liquids (NGL) separately, meaning that they are included in the report's gas totals.

"It's hard to read a lot into these numbers. There's not a ton of history in Ohio. It still seems fairly gassy to me, and I expect that to continue," said Will Green, an energy analyst at Stephens investment bank. "One thing you don't see in these numbers is you're not stripping out the NGL component, without taking that off the gas stream the numbers will look pretty dry on the surface. I will say that production from individual companies like Gulfport is showing that quite a bit of NGLs are coming out of the Utica currently.

"These [state production] numbers are food for thought from my standpoint, but there's still a lot of liquids associated with the gas in the Utica and it seems pretty rich," Green added. "Once you get a longer data set, though, it's easier to draw conclusions that are in line with what the expectations have been."

Sorbara said there is still much to be excited about in the Utica, however. There are 661 wells drilled in Ohio and 1,033 permits have been issued. More than half of those wells are waiting on pipeline connections and production is only expected to increase. One advantage for dry gas production, even though operators continue to de-risk the Utica at a higher cost than the Marcellus for example, is the fact that dry gas pipelines are cheaper to construct and the gas doesn't require further processing, reducing an operator's price to market, Sorbara said.

What's more, are the thousands of wells eventually projected to be completed in the state, said Mike Chadsey, spokesman for the Ohio Oil and Gas Association. Of the 245 producing wells included in ODNR's report, an additional 40 were said to be waiting on pipeline connections.

"These numbers were encouraging, and they continue to confirm that this is a gas play, not an oil play," Chadsey said. "We've been hearing about infrastructure constraints for more than a year now, and we're making progress on that everyday. This is still an emerging play, and we're not even close to where we will be."

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