Ohio government officials and industry experts met for a shale symposium hosted by law firm BakerHostetler LLP, offering their opinions of what the challenges will be in the Utica Shale as the play develops.
Rick Simmers, chief of the Ohio Department of Natural Resources’ (ODNR) Division of Oil and Gas Resources Management, touched on last month’s report that wells targeting the Utica produced 12.84 Bcf of natural gas and more than 635,000 bbl of oil in 2012. Some industry experts were disappointed there wasn’t more oil (see NGI, May 20).
“If you follow any of the electronic media or the printed media, you’re probably seeing articles that either said this is the greatest thing ever to come, or it’s a bust,” Simmers said. “I would encourage you [not to] believe most of the articles you read, no matter where you read them. Most of the wells in Ohio are very good wells.”
Simmers told the audience to consider that nearly 280,000 conventional oil and gas wells had been drilled in Ohio since 1860 and that cumulative gas production from those wells equaled about 7 Tcf. He said that based on initial production reports, fewer than 2,000 unconventional wells drilled in the Utica could exceed the 7 Tcf mark in as little as eight years.
“The production numbers are phenomenally high and the potential for our economy, jobs and for industries of many types is extremely good,” Simmers said.
Dave Mustine, managing director of JobsOhio, said Ohio was in competition with the Gulf Coast for downstream projects. “It’s a tough order because of the downstream infrastructure on the Gulf Coast,” Mustine said. “But there may come a point when companies say it will take them too long to get in the queue to build [facilities] in Texas or Louisiana and that they’re better off going to Ohio.”
Gary Alletag, business group coordinator for BakerHostetler, cited IHS Inc. figures that showed mergers and acquisition (M&A) deals exceeded $238 billion in 2012. But that figure was a little misleading because it didn’t take into account unreported M&A. “There is probably almost the same number, or more, of unreported M&As, usually between different independents or smaller oil companies,” Alletag said. “This is especially true of a newly developed area such as the Utica.”
But Alletag said one unique problem in shale plays, especially in areas like the Utica Shale, which has a long history of oil and gas drilling, is that older oil and gas contracts do not contemplate horizontal drilling.
“Some of the many older versions of the leases are standard forms that contemplate 40-acre square units, which are not necessarily what you need for horizontal drilling,” Alletag said. “In addition, many old leases have drain covenants which have protective drilling requirements as to wells close to lease boundaries…these covenants don’t work, and we’ve been involved in disputes over whether those covenants have been complied with.”
W. Ray Whitman, chairman of BakerHostetler’s litigation group, said that although hydraulic fracturing has been around for decades, it has only recently come into the public view. “There is so much in the press about it that people are overly sensitized to it,” Whitman said. “That brings a heightened awareness about it and also a concern about it, and that leads to a lot of the litigation that we are seeing.”
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