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Utica’s Next Frontier Moving to West Virginia, Pennsylvania

With the Utica Shale making a reputation for itself in Ohio after a series of eye-opening well results, and with technology pushing drilling efficiencies to new heights, the formation is poised to become the next horizon of development in West Virginia and Pennsylvania.

Last year, operators in the Appalachian Basin began to more aggressively target multiple pay zones (see Shale Daily, Oct. 2, 2013). The pad drilling that has evolved to characterize much of the country's onshore oil and gas drilling has set the stage for multi-well units targeting not just the Utica or Marcellus shales, but the thinner, shallower Upper Devonian formations too (see Shale Daily, July 23, 2013).

Now, the basin's long-awaited trifecta of three pay zones appears to be within reach (see Shale Daily, Oct. 4, 2012), as operators are drilling deeper, going longer on the lateral and reducing the cost of their wells at the same time.

A number of Appalachia's leading operators with the money, know-how and marketing arrangements in place have either permitted wells or have scheduled drilling to target the deeper grouping of shale formations that sit below the Marcellus in Pennsylvania and West Virginia, with commercial test results expected later this year.

"It's deeper, a lot deeper, except in western-most Pennsylvania, the costs will be high, and I suspect multiple pay horizons is what they're after and where they'll drill," said Michael Arthur, co-director of Pennsylvania State University's Marcellus Center for Outreach and Research, referring to the Utica and the two formations beneath. "That's what's going to make it difficult; you're not going to have oil, there might be liquids throughout because you're looking at maybe four or five zones, but it's anywhere from 2,000-3,000 feet deeper than the Marcellus."

In February, Range Resources Corp., which has nearly one million acres under lease and holds a prime position in the stacked core of southwest Pennsylvania, said it would drill the first Utica well in Washington County, PA this spring and have test results by year's end.

The company drilled one of the earliest exploratory horizontal Utica wells in Pennsylvania in 2009. In 2012, it drilled its first unconventional Utica well in Crawford County, PA in the northwest part of the state along the Ohio border (see Shale Daily, July 12, 2012).

"We're very encouraged about what we see from the industry results," Range’s director of operations Dennis Degner told NGI's Shale Daily at the recent Northeast Oil and Gas Awards Conference for Excellence in Pittsburgh. "There are some folks who have been testing the concept and it looks extremely prospective. Our geological team and technical folks have also pointed to the fact that we believe this will be just as prospective for us in the southwest part of the state and that's going to stack the opportunities."

Arthur said drilling for Pennsylvania's Utica has "been a long time coming." Only limited tests are available and only exploratory wells have been drilled there. He added that "the challenge will be in the economics," but said the potential is undoubtedly there.

"The Utica is more complex in a way, there are several horizons lumped together, like in Ohio where the Point Pleasant formation is the richer one," Arthur said. "The Utica is not the only rock down there per se. When you get into Pennsylvania the lithology changes. They won't be chasing it east over here, but it still looks as though, based on what little tests are out there, as if a fair amount of organic carbon content exists."

Degner said it's still difficult to say how much the company's next planned Utica well will cost. He said the additional drilling time, different casing infrastructure and higher pressures that the company may face in southwest Pennsylvania may result in steep costs.

"It's going to be more expensive, inherently, because it's deeper," he said. "The other thing that exists is that it's going to be a much higher pressure regime. So, right now, we basically deal with 5,000 psi operating equipment at the surface of all our Marcellus operations, but most likely this [Utica] well will involve 10,000 psi equipment, and as that goes up, so does the price."

During a 4Q2013 conference call, Range's senior management officials shared limited details about their plans (see Shale Daily, Feb. 26). The company's next Utica well is designed to have a total depth of 11,500 feet, which management said is "workable" and comparable to some of the horizontal well depths in the southeast Ohio core. Range plans to drill a longer lateral, complete the well with reduced cluster spacing (RCS) and flow it into sales fairly quickly.

"Based on our expansive, high quality 3-D and Trenton/Black River [seismic] test in the immediate area, we already know a lot about the rock," COO Ray Walker told financial analysts on the call. "The Point Pleasant is expected to be approximately 130 feet thick with around 10% porosity. Gas in place is expected to be as high as 140 Bcf or more per square mile."

One compelling reason to drill the Utica formation in Pennsylvania and West Virginia, is it's nearly 97% methane composition, according to Range and analysts. The dry gas is much easier to flow into pipelines without processing, unlike some natural gas liquids that have presented issues for midstream systems in the area.

A point in case is Magnum Hunter Resources Corp., which soon plans to drill West Virginia's first commercial Utica well. In February, it reported stellar results in Monroe County, OH, where its first Utica well tested at an initial production rate of 32.5 MMcf/d (see Shale Daily, Feb. 14).

Magnum faced production constraints late last year (see Shale Daily, Dec. 20, 2013; Feb. 24). Analyst Gabriele Sorbara at Topeka Capital Markets said the problems were caused not only by extremely cold weather that hindered its infrastructure build-out in southeast Ohio and northern West Virginia, but because unanticipated liquids production from wells in the region posed problems during the cold weather for the pipeline system.

"The Utica dry gas is just pipeline quality; it flows more easily," Sorbara said. "I mean, just think about what Cabot Oil & Gas did up in northeast Pennsylvania when they kept bringing the dry gas online, they were getting an easy 30-40% increase in their production. The Utica could take precedence over the Marcellus in an area like West Virginia because you could also flow it in with the liquids stream to dilute it."

Range officials agreed with the Utica's "drill and fill" potential outside of Ohio.

"We actually believe we can bring this well online pretty quickly after we test it and that's critically important," Walker said of the Utica plans. "We don't like to have wells sitting around waiting on the infrastructure...we think it has the potential to be hugely economic, and a great play that we can really ramp-in and develop as the years go forward."

Depending on Range's next Utica test, company officials said more wells could be drilled in Pennsylvania in 2015 and 2016. Magnum plans to drill a Utica well, along with three Marcellus wells, on the Stewart Winland pad in Tyler County, WV, which is in the play's core (see Shale Daily, March 14). Test results from that Utica well are expected sometime this summer.

Sorbara said rumor has it that Chevron Appalachia LLC tested a "great well" in West Virginia's Utica. Antero Resources Corp., Stone Energy Corp., Chesapeake Energy Corp. and Gastar Exploration Ltd. have all recently secured horizontal Utica drilling permits in West Virginia, Sorbara said.

Many of those companies, he said, have the capital to develop deeper wells and more firm transportation secured than other companies in the basin -- both factors that could limit other operators from further developing the Utica outside Ohio anytime soon.

"We still believe production will continue to outstrip takeaway in the region. There's about 2 Bcf/d of capacity [in southeast Ohio and northern West Virginia] that could fill up very easily," Sorbara said. "But the [Utica] action is really starting to pick up outside Ohio. I think we're going to see a lot of good well results later this year from deeper wells with longer laterals."

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