America has seen a boom in shale exploration over the past decade, and as investors we have learned that the "next big one" tends to give birth to new and exciting equity plays for investors of all sizes and backgrounds. The next big shale play is going to be the Utica Shale, with a focus on the portion in Eastern Ohio. The below companies represent those which we were able to confirm/corroborate being active in the Utica.
Chesapeake Energy (CHK)
Approximate Land Position: 1,250,000 net acres
Chesapeake is unrivaled in the Utica at this stage. The company has the largest land portfolio, some of the best acreage with large holdings in the oil and liquids areas, and has conducted the most exploration at this point. We expect CHK to do a deal, as previously announced, whereby they bring a JV partner on board to help develop the vast acreage. Our guess is that they arrive at a price somewhere between $7,000 to 9,000 per acre, and we lean more towards the $9,000/acre figure.
EV Energy Partners (EVEP)
Approximate Land Position: at least 600,000 net acres
EV Energy Partners is our favorite play in the area. It has the second-largest land position, and has JV agreements with CHK on portions of its property. It is highly likely that EVEP will participate in some way in the deal that CHK does to monetize some assets. This will enable EVEP to further develop its current land holdings and increase distributions to its unit holders. Most of EVEP’s land is held by production, which will allow it to develop its Utica potential on its own timeline.
Hess Corporation (HES)
Approximate Land Position: 185,000 net acres
Hess has been very active in the Utica as of late, closing two deals which has enabled it to accumulate one of the larger land positions. The company entered into a joint venture with CONSOL Energy whereby Hess receive 50% of the 200,000 acre holding and footed the bill for drilling along with a small $50+ million up-front cash payment. Hess also purchased outright Marquette Exploration, LLC and its 85,000 acre Utica holding. The company raised its estimate for reserve replacement after these two transactions, obviously indicating that Hess is very bullish on its shale plays, including the Utica.
CONSOL Energy (CNX)
Approximate Land Position: 100,000 net acres
CONSOL inherited its Utica landholdings via its Dominion Resources (DOM) purchase. CONSOL recently entered into a JV agreement with Hess Corp. whereby Hess agreed to pay $59 million up front and then $534 million in drilling costs over the next 5 years for a 50% interest in the 200,000 acre package CNX has. The deal enabled CNX to monetize this holding, which had very little value assigned to it, and was probably sold too cheaply. However, with the acreage not being directly in what we believe to be the "hot zone," CNX’s JV should reward shareholders going forward at no cost in the near term.