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Utica Geology Dividing 'Winners,' 'Losers'

As energy companies begin collecting production data from the few wells drilled so far in Ohio's portion of the Utica Shale, a picture is starting to emerge that company executives and industry experts agree will determine how, where and when the play will ultimately be developed.

Meanwhile, an energy industry analyst asserts that the Utica could yield as much as 500,000 b/d of oil, assuming explorers embark on an aggressive drilling campaign within the next few years.

"They're starting to delineate out where the Utica performs well and where it doesn't," Ohio Oil and Gas Association (OOGA) Executive Vice President Thomas E. Stewart told NGI. "Everybody has acreage positions that are impacted by that phenomenon. Each well that's drilled tells you more. There will be winners and there will be losers. This is not a home run for eastern Ohio; it's a home run for certain areas of eastern Ohio."

According to the Ohio Department of Natural Resources' (ODNR) Division of Oil and Gas Resources Management, as of Aug. 5 there had been 335 permits issued to drill horizontal wells in the Utica. Of those, only 118 have been drilled. Carroll County led with 124 permits, followed by Columbiana (48), Harrison (28) and Jefferson (26) counties.

Other counties with permits issued were Monroe (17), Guernsey (16), Stark (13), Mahoning and Noble (12 each), and Portage (10). Seven permits were issued in both Belmont and Tuscarawas counties, three each were issued in Coshocton and Muskingum counties, two each in Knox and Trumbull counties and one each in Ashland, Geauga, Holmes, Medina and Wayne counties.

The ODNR data indicated that Chesapeake Exploration LLC held the lion's share of permits with 239. The other top operators are HG Energy LLC with 16 permits, Anadarko E&P Co. LP (12), Enervest Operating LLC (11), Hess Ohio Developments and Resources LLC (nine), Devon Energy Production Co. (eight) and CNX Gas Co. LLC and Gulfport Energy Corp. (seven each).

Five permits were given to RE Gas Development LLC, four to Antero Resources Appalachian Corp., three to Carrizo Utica LLC, Mountaineer Keystone LLC and XTO Energy Inc., two to Chevron Appalachia LLC and Sierra Resources LLC, and one each to Ohio Buckeye Energy, PDC Energy Inc., Petroleum Development Corp. and SWEPI LP.

The ODNR plans to unveil a map that outlines economically viable areas of the state's portion of the Utica/Point Pleasant Shale by late September, which could provide oil and natural gas operators with a valuable tool to use for future exploration. Mac Swinford, chief of the ODNR's Division of Geological Survey, told NGI that the new map would expound upon the original version published in March.

"We have some new geochemical data to plot on the map," Swinford said. "It will be a page-sized map of the entire state. It's more of a regional study; that's all the data really allows."

Swinford said operators have been drilling vertical holes across the state to assist with the ODNR's mapping project. Geochemical data has been collected from a warehouse of cuttings and core samples, with various labs then analyzing the information for the agency.

"The one thing I was pleased to see is that the general trends are holding up," Swinford said when asked if anything stood out between the two maps. "But as more detail, more data, is added to the map, the lines aren't broad, sweeping curves; they're having more undulations to them. I'm pleased to see our first guess at the maps turned out to be good with the data that we had. The maps are only going to get better."

The division's map from March showed a C-shaped line running across the state, with what the state believes to be the core area for natural gas deposits lying east of the line. Starting in Lake County, along the coast of Lake Erie, the line makes a gentle curve to the west around Cuyahoga County and continues westbound to Huron County, where it then heads south toward Madison County before turning back east. The line ends in Washington County, along the border with West Virginia.

Under the previous map, most of Geauga, Summit, Medina, Huron, Crawford, Marion, Union, Franklin, Fairfield, Muskingum and Washington counties were east of the line, in the core area of the Utica/Point Pleasant.

ODNR data shows that as of Aug. 13, Harrison County had 28 permits issued for oil and gas drilling in the Utica, making it the third-highest county in terms of permits behind Carroll (124) and Columbiana (48) counties. Eighteen of the Harrison County permits were issued to Chesapeake Exploration LLC. Gulfport Energy Corp. and Hess Ohio Development LLC each have four permits.

Meanwhile, Chesapeake Energy Corp. officials, whose company has close to one million acres in the Utica, said during a conference call this month that they were taking a cautious approach moving forward. CEO Aubrey McClendon backed away -- on oil, anyway -- from comments he made last year that the Utica is "likely most analogous, but economically superior to, the Eagle Ford Shale" in South Texas (see NGI, Aug. 1, 2011).

"I don't think I would make that statement comparing the oil plays," McClendon said. "It's just way too early on the Utica side, and we've not focused much of our efforts in that area. Most of our acreage is in the wet gas and the dry gas side. So we're basically allowing other companies to work on the oil side; we've got plenty of acreage over there."

Chesapeake said as of June 30 it had drilled 87 wells in the Utica, with 28 completed and creating production information on a post-processing basis. The company said peak rates from the completed wells have averaged about 1,000 boe/d, with 205 b/d of oil, 150 b/d of natural gas liquids (NGLs) and 3.8 MMcf/d of natural gas.

But the Utica hasn't been kind so far to Devon Energy Corp. David Hager, executive vice president for exploration and production, said results from the company's first two horizontal wells in the play were "not encouraging. These wells are located on the northwestern-most acreage," Hager said during the 2Q2012 earnings call. "We are currently completing our third well to the south, the Sensibaugh 1H located in southern Knox County. We will continue drilling in a liquids-rich window to the east, where industry has about 20 horizontal rigs running."

Devon is trying to follow the success of other companies that have produced good crude oil wells in the Utica, said Stewart. "Devon's out in the western side [of the play]," Stewart said. "They're trying to find a latent crude oil window. I've got to hand it to that company -- they've got guts. It's been hard for them so far.

"All of the great wells [in the Utica] are natural gas wells. The hope is that they have high Btu value and the promise of liquids uplift. There have been some good crude oil wells, but they're not overwhelming the gas play. This is a gas play. It's just that it's going to hopefully be a liquids-rich gas play. The best wells that I've seen are in the dry window. They're great wells, if it weren't for the commodity prices."

Steve Fillingham, senior associate with Denver-based Energy Analysts International (EAI), told NGI that the Utica could become the nation's third-largest producer of oil, natural gas and NGLs from shale, after the Bakken and Eagle Ford. According to data provided by Fillingham, one EAI model suggests that if 15 drilling rigs were deployed in the Utica, the play could yield 300,000 b/d of oil, with an average well cost of between $4.5 million and $5.5 million.

But the data also shows that the EAI concedes that the Utica's success will ultimately depend on two factors: the rig count and the distribution of estimated ultimate recoverable (EUR) figures from wells. "Using a simple combination of EUR and potential locations, the Utica fairway can generate [more than] 300,000 b/d of [crude oil and condensate] with 60 rigs by 2015-2016," the EAI said, adding that such a scenario could yield 500,000 b/d of oil by the year 2020.

According to one projection, the arithmetic mean is a well count of 94 wells, producing about 16.5 million bbl of oil, at 169,000 b/well, with a EUR of between 150,000 and 200,000 bbl. That same projection shows a median average well count of 112 wells, producing about 14.0 million bbl, at 125,000 barrels/well, with a EUR of between 100,000 and 150,000 bbl.

But Stewart derided the EAI's calculations as "a pretty speculative statement," and cautioned against Ohioans being too impatient to see results. "Oil and gas exploration and production is a rational process. It takes time and the application of rational economic decision making. It's going to take time for this to happen. It's just not going to happen overnight."

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