Even fewer independent operators pushed combined conventional and unconventional natural gas production to new highs in Ohio last year, as the consolidation that’s occurred in the state over the last decade continued, according to data included in the Ohio Oil and Gas Association’s (OOGA) annual Debrosse Memorial Report.
The bulk of last year’s gas production came from horizontal Utica Shale wells. Before the Utica land rush got underway in 2008, there were more than 180 exploration and production (E&P) companies working in the state, but that number has declined every year since. From 2011-2013, as Utica activity ramped up, there were more than 100 independents at work. Last year, according to the report, only 38 were operating, down from 45 in 2017.
As producers continue to chase big wells off larger pads, block-up acreage for longer laterals and search for synergies throughout their asset bases, consolidation is likely to continue in Appalachia as it has in other unconventional plays across the country.
"Scale becomes much more important,” said Encino Energy LLC CEO Hardy Murchison, whose company acquired all of Chesapeake Energy Corp.’s Ohio Utica assets last year. “It's really hard for a small business to manage projects like that. These pads in states like Ohio now look like offshore platforms in the Gulf of Mexico 30 years ago. It's a big boy business. I think the pressures on the industry to consolidate are real. You've got a lot of private companies with owners that don't have enough capital."
Private equity firms only hold on to companies for so long, which eventually leads to asset sales, Murchison added. And for publicly traded companies, he said "investors are really clearly signaling that what they want is larger, better capitalized companies not just focused on growth but on shareholder returns and that translates to consolidation." Murchison made his comments at OOGA’s winter meeting earlier this month in Columbus, where the 2018 Debrosse report was presented to give a high-level snapshot of activity last year.
The report estimated that combined conventional and unconventional gas production in Ohio hit 2.4 Tcf last year, up from 1.8 Tcf in 2017. Horizontal wells accounted for 2.3 Tcf of the 2018 volumes and vertical wells accounted for about 50 Bcf. The estimates closely matched a recently released state report that showed unconventional wells produced nearly 2.4 Tcf.
Meanwhile, combined conventional and unconventional oil production hit 23.4 million bbl in 2018, which bounced back on better prices for most of the year from 16.4 million bbl in 2017. Horizontal wells accounted for 20.3 million bbl of last year’s oil production, according to estimates in the report, while vertical wells accounted for 3.1 million bbl. The state’s unconventional report showed similar volumes, with Marcellus and Utica shale wells having produced about 19.7 million bbl of oil last year.
Ohio’s oil production record was set in 1896 at 23.9 million bbl, said Locus Bio-Energy Solutions’ Martin Shumway, technical officer, who presented the Debrosse report. “We’ve never been close to that number since, but we’re making our way back up,” and added that he expects the state to surpass the record this year.
There were 408 completions in Ohio last year, down slightly from 449 in 2017. Most (90%) were horizontal wells, Shumway said. Utica activity is concentrated in eastern Ohio. The top three counties for completions were Belmont with 98, Monroe with 95 and Jefferson with 42.
Belmont County also had the most footage drilled at nearly 1.9 million feet, followed closely by Monroe and Jefferson counties. According to the report, operators drilled 6.5 million feet across the state last year, up from six million feet in 2017 and well above the 1.8 million feet drilled in 2011, when the first commercial Utica production was reported.
The top three most active operators were Ascent Resources LLC with 70 completions, Gulfport Energy Corp. with 45 completions and Antero Resources Corp. with 39 completions. Antero stopped drilling wells in the state late last year to focus on liquids-rich Marcellus locations in West Virginia.
Ascent led in several other categories. The company had its beginnings when the late Chesapeake co-founder Aubrey McClendon founded American Energy Partners LP to develop affiliates with basin-specific strategies; eventually became a standalone company.
According to the Debrosse report, Ascent drilled the most footage in the state last year at 1.3 million feet. It also averaged the highest initial production rate among operators at 21.7 MMcfe/d, followed by Chesapeake at 19.6 MMcfe/d. Encino took over drilling and completion operations on Chesapeake’s former Ohio assets last month. Chesapeake had the most producing wells of any operator last year at 688, Shumway said.
Permits issued in 2018 declined year/year from 931 to 493. They were well off a recent peak of 1,608 permits issued in 2013 when Utica development hit full gear. Of all the permits issued last year, 335 were issued for the Utica. Those were followed by permits for the Clinton Sandstone, where horizontal drilling has been resurgent in recent years. Sixty Clinton permits were issued last year, up 67% from 2017, Shumway noted. The remainder of permits were issued to test a variety of other formations in the state, including the Marcellus.