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Below the Marcellus Shale: Exploring the Utica

If recently announced drilling programs are any indication, 2011 could be the biggest year to date for Utica Shale exploration.

Quietly sitting underneath the Marcellus Shale gas play, the Utica formation that covers a larger area -- from Tennessee into Canada -- is attracting attention from some of the largest shale gas players. And it's not just the Utica. The Marcellus is pancaked in between the topmost Upper Devonian and the Utica, and each has its champions.

To date the Marcellus has garnered most of the attention, but some drilling has begun in the Utica, particularly in Ohio and western Pennsylvania, where the Marcellus thins, making the Utica shallower than it is in eastern Pennsylvania and New York.

That shallower section of the formation is not only cheaper and easier to drill into, but also more prospective, geologists believe.

The gas in the deepest portions of the Utica, such as in northeast Pennsylvania, could be "overcooked," (i.e., because of the depth, pressure and heat the gas has been "cooked" out of it), but that threat isn't a certainty, according to Kristin Carter, a petroleum geologist for the Pennsylvania Department of Conservation and Natural Resources (DCNR).

"Years ago, we were saying such things about the Marcellus and now they're looking at it," Carter told NGI's Shale Daily.

While the DCNR is hearing announcements about upcoming Utica exploration, it hasn't gotten details about geology yet, Carter said. "There's not a lot of discussion on what aspects of that rock unit are most important [for development]," she said.

In fact, there are only two Utica well completion reports in the DCNR files, a 14,464-foot well that EQT Corp. drilled in Greene County in June 2008 and a 12,700-foot well that Range Resources Corp. drilled in Beaver County in January 2010, both located in southwest Pennsylvania. That should increase this year, although if permitting is any indication, companies are walking, not running, to explore the Utica.

In Ohio, where the Utica is shallowest, companies have permitted 28 Utica wells -- 19 vertical and nine horizontal -- and drilled just 14 -- nine vertical and five horizontal -- since the end of 2009. By comparison, companies have permitted 77 Marcellus well, drilling 49.

Pennsylvania does not track Utica Shale permitting specifically, but the Pennsylvania Department of Environmental Protection (DEP) said 18 wells have been permitted to date to a depth and in regions where the Utica Shale lies, out of nearly 2,000 total well permits issued this year.

Still, the biggest leaseholders in the Marcellus are all looking at the Utica.

Chesapeake Energy Corp. has been signing agreements on both sides of the state line -- at around $1,500 an acre, CEO Aubrey McClendon revealed recently -- and now holds 1.2 million acres of Utica Shale leases in western Pennsylvania and eastern Ohio. Chesapeake hasn't offered many details about its drilling program, but is touting the liquids-rich Utica and is searching for partners.

Chesapeake and Dominion East Ohio entered a letter of intent in March on Utica infrastructure. Under the proposal, Dominion would build several gathering systems to connect Chesapeake wells in the Utica to the existing Dominion pipeline system in the region.

EV Energy Partners Ltd., a master limited partnership formed by EnerVest Ltd. out of Houston, holds 150,000 net acres in the Utica in Ohio with an overriding interest on another 80,000 acres. Because of drilling into the deeper Knox formation, EV Energy has more than 500 well logs for the Utica and believes it has identified the natural gas, oil and natural gas liquids windows, according to CEO John Walker.

The company is currently drilling that acreage through a partnership with Chesapeake. Based on those wells, Walker said EV Energy expects to have enough information by this summer to determine the productivity of the Utica and associated Point Pleasant formations. "This does have the promise to be America's next big shale play," Walker said, adding that the Utica could double EV Energy's asset value.

Range Resources, the second largest leaseholder in the Marcellus, plans to drill its second horizontal well into the Utica later this year, followed by a third well early next year. Range recently revealed that its first Utica well flowed at 4.4 MMcf/d over a seven-day period.

Range sold its Barnett Shale acreage this year to focus on Appalachia, seeing the potential to develop three stacked shale formations in southwest Pennsylvania: the Upper Devonian, the Marcellus and the Utica (see Shale Daily, March 7). In March CEO John Pinkerton said about 60% of the 700,000 net acres Range planned to develop in the Marcellus had potential in the Upper Devonian and Utica. While the company is spending most of its energy on the Marcellus, it is more interested in the Upper Devonian than in the Utica, for the time being.

Range brought two Upper Devonian wells online in the first quarter. The first that tested at 5.1 MMcf/d and the second tested under "constrained conditions" at 2.5 MMcfe/d, or 1.9 MMcf/d of natural gas and 91 b/d of liquids. The combined initial product rate for the two wells was 3.8 MMcfe/d, a rate that Range did not see in the Marcellus until its seventh well, according to COO Jeffery Ventura.

The company plans to test between two and four more Upper Devonian wells this year.

Ventura said the Upper Devonian, being shallower, holds an advantage over the Utica. Because every well drilled into the Marcellus must go through the Upper Devonian, the formation is better understood, and therefore cheaper and less risky to develop, than the Utica. Range also noted in recent investor presentations that it isn't in a rush because much of its Utica acreage is already held by Marcellus production.

Consol Energy Corp. currently runs three rigs in the Marcellus, and recently brought up a fourth to explore the Utica. Consol plans to drill between four and six Utica wells in eastern Ohio this year, in addition to 70 Marcellus wells in western Pennsylvania and northern West Virginia, Robert Pusateri, executive vice president of energy sales and transportation services, told analysts during a first quarter earning call.

Seneca Resources, a subsidiary of New York-based National Fuel Gas, recently completed a vertical Utica test well in McKean County, in northwest Pennsylvania, but won't have results for several months. The company is already preparing a second Utica test well in the region.

Through recent acquisitions from Atlas Energy Inc. and Chief Oil & Gas LLC, Chevron Corp. now holds one of the largest Marcellus lease positions, around 714,000 acres (see Shale Daily, May 5; March 21). Through the Atlas acquisition, Chevron picked up 623,000 acres in the Utica, more than in any other basin, but the company did not detail development plans for the Utica in its most recent quarterly filings.

The Utica is not solely the interest of the big names. Rex Energy Corp., a Pennsylvania company, plans to drill its first Utica well in July on leases in Butler County, hoping to extrapolate information from the Range well eight miles to the west. Rex is currently drilling its first Upper Devonian well (see Shale Daily, May 9).

Not all the major Marcellus players are pushing headlong into the Utica, though. Despite its early foray into the Utica, EQT is taking a wait-and-see approach for the time being.

"Our plans for the Utica right now are to sit tight and watch what our competitors are doing, and if that ends up being the next big thing, we'll be right there with them," CFO Philip Conti said, according to a transcript of the company's first quarter earnings call.

The Utica runs from Canada to Tennessee, but the formation varies across that area. It is generally considered most prospective in the tri-state area of southwestern Pennsylvania, eastern Ohio and northern West Virginia, and leaseholders in other areas haven't shown as much interest.

Calgary-based Talisman Energy Inc. is the largest acreage holder in Quebec's portion of the Utica with 756,000 net acres, but the company does not appear to be planning any immediate Utica wells on its Appalachian acreage in northeast Pennsylvania (see Shale Daily, March 10).

Ultra Petroleum, a Houston company with more than 280,000 acres in the Marcellus in northeast Pennsylvania, said natural gas prices need to stay above $4 to support the deep wells needed to explore the Utica, according to Senior Vice President of Operations William Picquet.

Anadarko Petroleum, another major leaseholder in northeast Pennsylvania, also has not announced any Utica wells on its leases.

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