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Midstream Playing Catch-Up in Appalachia as Producers Press On

Tim Clawson, a senior operations engineer at Antero Resources Corp., can remember a time when his company was nothing more than the proverbial "little guy" in the Appalachian Basin.

Antero secured its first permit to drill in Ohio's Utica Shale in 2012, while its program in northern West Virginia's Marcellus Shale isn't much older. Although it's no secret today that the company is one of the basin's most active exploration and production companies, it might be a surprise for some to learn that early on, it was a challenge to meet the basics.

"When we first came into the Marcellus; it was very difficult," Clawson told a packed room at the Ohio Oil and Gas Association's annual winter meeting on Thursday. "We had worked in the Barnett and we were a relatively large player there. When we came to Appalachia, though, we were a very small company here. Getting services was very difficult. We had to beg some people for services. Now we're up to 21 rigs and it's a little easier."

Last year, the pure-play Appalachian operator increased its production by 119% from 2012, producing 522 MMcfe/d. (see Shale Daily, Feb. 27). Antero is currently running 15 rigs in the Marcellus and another six in the Utica. Next year, it hopes to more than double its production and hold that course until at least 2016, Clawson said.

"When we entered the play, there were serious midstream and takeaway constraints," Clawson said of the Utica. "We weren't able to put the wells on and evaluate the play or get them producing at their maximum potential. We focused on getting a drilling program going and getting a completion program so we could adequately evaluate what the wells were going to do when they had the compression plants and takeaway in place. Now that that is starting to happen, we're starting to get a much better handle on what we can produce and what we can take away."

Clawson joined top executives from some of the Utica's leading operators for a panel discussion. They marveled at the the Utica's potential, but they offered their observation's with what has become a rhetorical caveat for those working in Ohio's Utica Shale.

Melissa Hamsher, vice president of environmental, regulation and safety at Eclipse Resources, put it bluntly when she said "we're filling up the capacity of the pipelines." For companies like Eclipse, which Hamsher said has 100,000 acres in the Utica's core, midstream constraints are curbing some of their growth plans there.

But executives on the panel appeared to lean toward the future, hinting at what lies ahead and what they hope for as the Utica continues to develop at a rapid pace.

"From PDC's perspective, we have not kicked into high gear in the same way as Antero has," said PDC Energy Inc. COO Bart Brookman. "Right now we're on our 14th well. Overall, we've learned so much more; we're way beyond the learning curve here and I think this play is going to deliver unbelievable results."

Most of PDC’s operations are centered in the liquids-rich Wattenberg field of Colorado. In December the company suspended its Marcellus program on depressed gas prices (see Shale Daily, Dec. 12, 2013). Instead, it is shifting Appalachian work to the Utica, which may help bump its liquids mix to 60% of production this year.

Later this year PDC plans to expand in Utica by adding one rig, Brookman said. In three to five years, the company is planning to increase its acreage position from 50,000 to 75,000, with three rigs.

The midstream buildout will be critical for such a future to materialize, he said. "Our growth has really been limited here in recent years by insufficient midstream."

Crosstex Energy Inc. Senior Vice President Paul Weissgarber stressed that although it won't be without its challenges, Utica growth is coming.

"Our biggest issue is staying ahead of these people. The producers are just so, so quick with all the activities they have going on," Weissgarber said. "As a midstream company, our biggest challenge is proactively making investments ahead of the pack. We've expanded our truck fleet, expanded the storage across our system, expanded natural gas compression and stabilization...I mean these flowback volumes are just enormous, so we've had to expand our brine wells too."

For Antero, Crosstex is installing 320 MMcf/d of natural gas compression and 60,000 b/d of condensate stabilization (see Shale Daily, May 16, 2013). It’s a situation Weissgarber compared to "the chicken and the egg," with demand expected to keep rising.

"It looked for a while like we were ahead, but now we may be a bit behind," he said.

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