Analysts believe operators in the Utica Shale will soon be able to bring many of their wells into production, thanks to progress in building new gathering lines, but they also caution that investors may have set their expectations too high for areas outside of the play's core.
Meanwhile, the Ohio Department of Natural Resources (ODNR) reported that as of July 6, there were 109 horizontal wells targeting the Utica currently in production.
In a note Thursday, Wells Fargo Securities LLC analysts David Tameron and Gordon Douthat said infrastructure in the Utica "certainly still has a lot of catching up to do as we estimate that there are at least as many wells waiting on pipeline as those producing...
"[A] majority of the hold-up can be attributed [to] delays in [putting] gathering lines in place, but [the] industry has made considerable progress on this front," Douthat and Tameron said. "We expect operators will burn through a significant amount of their completed well inventory over the remainder of 2013."
The Wells Fargo analysts said permitting through the ODNR was also "gaining steam," reaching an all-time high of 182 during the second quarter of 2013, up from about 120 permits during 1Q2013.
"Chesapeake Energy Corp. [is] the most active operator, accounting for nearly half of permits issued, followed by Gulfport Energy Corp. at 17%, while Carroll [is] the most active county, with 73 permits issued," the Wells Fargo analysts said. "Harrison [County] had 39 permits while Noble and Belmont [counties] were at 18 and 16, respectively.
"We weren't surprised to see that permitting really accelerated in the southern portion of the Utica, considering the impressive results coming from the area thus far."
Also Thursday, Baird Equity Research analysts Hsulin Peng, Trevor Menke and Maggie Savage said a wet gas window was emerging in the Utica core, with Chesapeake, Antero Resources, Gulfport Energy Corp. and PDC Energy Inc. leading the way.
"[The] western oil window seems all but abandoned as producers have yet to crack the code, though [they are] still actively delineating northern and southern extents of the play," the Baird analysts said. "Investor expectations may still be too high regarding economics outside of the core but fears around infrastructure appear overblown, at least in the medium term. Still early days with plenty more to learn about total economic potential."
The Baird analysts added that it will take "more well results and production data coupled with adequate midstream capacity for investors to get more comfortable Utica type curves and EURs [estimated returns on investment]. Regardless, sentiment around the southern wet gas acreage remains positive predicated on consistent results to date that support solid returns."
According to the ODNR, 767 permits have been issued for drilling horizontal wells targeting the Utica as of July 6. Of those, 386 wells have been drilled and 109 are in production. The ODNR also said there were 29 drilling rigs deployed as of July 6.
Ohio regulators issued 20 horizontal permits during the week of July 6. Six of the approved permits were for wells in Belmont County, followed by five for Monroe County, four for Harrison County, two permits each in Columbiana and Mahoning counties, and one permit in Carroll County.
Gulfport was listed as the operator for 10 of the new permitted wells, followed by Eclipse Resources I LP (five wells), Chesapeake (three), and Hilcorp Energy Co. (two).