Utica Shale First Quarter Conference Calls

by: StockMarketPundits

For those who follow us, you know that we were among the very first to write about the vast potential of the Utica Shale (starting with our August 1, 2011 article.) We have subsequently updated our Utica outlook and profiled four different leading Utica Shale players.

This is our third compilation conference call article. As we have previously stated we think quarterly conference calls are invaluable sources of information and often give "color" that can not be obtained elsewhere. Therefore, we are once again sharing our notes relating to the Utica Shale from the recently concluded first quarter conference calls of Chesapeake Energy (NYSE:CHK), Gulfport Energy (NASDAQ:GPOR), EV Energy Partners (NASDAQ:EVEP), Petroleum Development Corporation (PETD) and Rex Energy (NASDAQ:REXX). To that end…

Chesapeake Energy Corporation - May 2, 2012 conference call

Chesapeake and the various analysts on the call were distracted by all the ongoing nonoperational Aubrey McClendon/Chesapeake soap opera drama and so it seemed we gleaned less pertinent operational information than normal. Chesapeake continues to be the leading Utica leaseholder and operator with 10 operated rigs currently working to evaluate their 1.3 million net acres. Chesapeake reports that they continue to delineate the wet gas window with their JV partner, Total, with outstanding results. The Utica oil window still needs additional drilling and study and they are not ready to disclose specific thoughts as of yet although the company remains confident that it will have positive results to report by mid year.

Chesapeake has been testing various completion techniques in the oil window and they want to see how those work before releasing any public information. Basically, prior to flow testing the oil wells they are letting the wells "rest" for various time periods to let the water and frac fluid dissipate. Time period range from 30-60 days in the wet gas window to 60 - 90 days in the oil window and the net result is the initial production rates are much improved. McClendon singled out the Buell well as perhaps the most important well Chesapeake has drilled in the Utica and stated that it may be the best shale well the company has ever drilled. The Buell was also the well that was shut-in for the longest "rest" period before testing. It was also indicated that the Buell well is a great indication of what is likely to come going forward.

The company has 400,000 acres in the oil window but has been careful not to say how much of it is prospective because they do not know yet. This is because the company has not drilled enough wells yet but stressed their acreage is not on the western flank of the play but rather right up against the wet gas window. Chesapeake indicated they are encouraged by the Anadarko wells that have been drilled down south in the oil window and stated that we should all know a lot more in the next 120 days. In response to a question Chesapeake confirmed that the company could do two more JVs in the Utica - one on the dry gas side and the second one in the oil window but acknowledged that now was not an opportune time on the dry gas side due to pricing and that it was to early to be thinking JV on the oil side. See transcript here.

EV Energy Partners - May 9,2012 conference call

EV Energy has 150,000 net working interest acres in the Utica Shale and a 2% over-riding royalty interest on 880,000 gross acres. The company stated that the core of the wet gas window is now significantly derisked. Chesapeake's cost of drilling Utica wells has fallen 30% this year. The company is encouraged by the tests of 5 oil window wells by others. Enervest has completed 2 operated wells- 1 in Guernsey County and 1 in Starke County. Both wells will be shut in for 30 -60 days to dissipate water from frac fluid.

EV Energy has hired Jefferies to advise on the monetization process of their Utica acreage. The data room is scheduled to open in July.

The Chesapeake/Total JV is small regarding EV Energy but does have a carry component to it. Three to five Utica operated wells will be drilled this year. We were told that 193 horizontal Utica wells have been permitted so far and were told that the wet gas window is derisked and the play is viable. Chesapeake has 7 rigs in the Utica now and will have 18 by year end. Five hundred wells are to be drilled in the wet gas window by the end of 2014. Drilling started in Carroll County and now is spreading to other counties. EV Energy says it is now routine for Utica horizontal wells to go from spud to total depth in 21 days. Three wells from Anadarko have been drilled and tested and are now producing in the oil window in Noble and Guernsey Counties. The Enervest operated RH DK #8H (no EVEP interest) has been completed in the oil window in Guernsey County. EV Energy has a 34% interest in the second Enervest operated well in the oil window (the Frank 2H) in Starke County. That well has a 6,600 foot lateral (second longest to date in the Utica) and a 24 stage frac job (the most in the Point Pleasant). Both of these wells are shut in for their dissipation period. Production should start at the end of June. The Carnes well in western Carroll County is now drilling near the wet gas/oil window transition zone - EVEP has a 39% interest in this well which should be completed in the 2nd quarter prior to shutting in for its dissipation period. EVEP has a 9% interest in Cardinal Gas Services and an 8% interest in Utica East Ohio Midstream.

In the question and answer session they stated that they would drill stem test the two Utica oil window wells in June after the dissipation period. They are using a 45-60 day rest period for their wells. The water saturation is 5% or less in the Utica which is less than the Eagle Ford - utilizing a rest period has doubled initial production rates in some cases in the Eagle Ford. Carroll County is probably the most important county for natural gas liquids. Starke County is thought to be the best rock in the Utica play and EVEP is heavy in acreage there. EV Energy is drilling a test well in Ashtabula County in northern eastern Ohio - they noted that there is little to no Point Pleasant formation there but that the Utica shale there is very thick. Regarding monetization EVEP is open to any and all types of offers and still hope to do a deal by year-end. The company plans on keeping the 2% ORRI on the 880,000 gross acres. You can read the transcript here.

Gulfport Energy Corp.- May 9,2012 conference call

Gulfport completed leasing of 125,000 gross Utica Shale acres last quarter. The company hit total depth and has set pipe on their Wagner #1-28H well at 8,673 feet vertical depth with an 8,143 foot lateral. The company intersected a 123 feet of thickness in the Point Pleasant formation. GPOR has two rigs running and are drilling two "curve" sections on two wells as we speak. The target is to spud 20 wet gas Utica wells this year. The team will start unfracing the Wagner well next week.

Gulfport has adopted a procedure for a 60 day "rest period" for all their wet gas wells in the Utica. Gulfport says that due to the low water saturation of the shale that letting the water slowly disperse and dissipate prior to flow testing has permanent benefits. They point to Chesapeake's Buelle #8H well as the poster child for this procedure and note that the Buell well improved greatly by being shut in.

Gulfport remains high on the merits of their Utica acreage and stress that not all Utica acreage is created equal. Mark West is laying pipe at present and there should be no waiting on midstream facilities. Gulfport stated that Ohio will be a future operational emphasis of the company. Based on lines drawn by Chesapeake Energy, Gulfport's acreage should be 17% in the dry gas window, 73% in the wet gas window and the remaining 10% in the oil window. The company is still leasing in the Utica. Their current rate is $6,000 per acre and their weighted average is $3,000 per acre. During the question and answer period of the call Gulfport stated that the Wagner well had "wonderful shows" during drilling and that the permeability test was excellent but that they are still in the 60 day rest period. The dry gas window will probably have a 30 day rest period, the wet gas window 60 days and the oil window a 90 day rest period. Thus most of the Gulfport wells will have a 60 day rest period. The company further stated that they are learning from the experience of others.

The company thinks they will have 10 wells producing at the end of the year. The basic schedule is it takes one month to drill a well then one month to frac the well and two months to rest each well. Again the target is to spud 20 wells this year. Additionally Gulfport is developing an oil terminal on the river that will be scalable to other producers. Gulfport also pointed out that the state of Ohio production reports for Chesapeake's Buell well (which is just north of Gulfport acreage) does not include the natural gas liquids. The two wells currently being drilled will both have laterals of 7,300 and 7,700 feet.

Petroleum Development Corporation-May 10,2012 conference call

Petroleum Development increased their Utica Shale exposure to 45,000 net acres at a cost of just $1,750 per acre during the quarter. The company continues to confirm title on up to 45,000 net acres in the Utica primarily in the wet gas and oil windows.

Petroleum Development drilled a vertical "drill to earn" test well to hold less than 1,000 acres in central Belmont county- it resulted in a dry gas well with over 100 feet of pay and represents less than 3% of their projected land position. PDC is now drilling their second Utica Shale vertical test well (the Palmer 44-20) in eastern Morgan County. The Palmer vertical well will be followed by two horizontal wells in Guernsey County. The company has confirmed title on 25,000 net acres and still has 20,000 net acres under contract undergoing title confirmation and/or negotiation. The expectation is to close on the remaining 20,000 net acres subject to title confirmation within the next 30 days. The company continues to look for a joint venture partner and is seeing a lot of interest. If they do a joint venture they expect to increase their Utica acreage up to 80,000 -100,000 acres. The company stated they are aiming for mid year on doing their joint venture. Potential joint venture partners that they are speaking to are primarily industry partners.

Rex Energy Corporation-May 2,2012 conference call

Rex Energy closed on the 15,000 acre Warrior Prospect in Carroll County, Ohio during the quarter and have begun drilling the first well (the Brace #1H). Completion operations for the Brace well are scheduled for next month. Additionally, Rex did a farm in agreement in the tri-county area of Noble, Guernsey and Belmont Counties adding a further 4,500 gross acres (2,800 net acres). Rex is calling the new area the Warrior South prospect. Thus Rex's total Utica Shale acreage is now up to 17,800 net acres. The initial work commitment for the new acreage calls for Rex to complete one horizontal well and commence the drilling of two others by November 15th. Therefore, Rex has adjusted their drilling plan accordingly to allow for 1 of the 3 budgeted wells for the Warrior Prospect to be shifted to the Warrior South Prospect. The 2012 drilling budget will not change.

The Warrior Prospect should have approximately 100 net drilling locations in the heart of the play. The Brace #1H is close to total depth and the company should have the 4,500 foot lateral drilled and ready for the frac job by the middle of June. Rex is working with Dominion East on laying the wet gas sales line to the well. Rex expects to give an update to the market on this well during the Q2 conference call in August. The Warrior South Prospect is being obtained on a drill to earn basis and they expect to have 22 net locations in that project. Rex is still expecting costs to run $6.5 to $7.5 million to complete their initial Utica horizontal wells. Rex management talked about the increasing amount of evidence that competitors are having better initial rates and their wells are performing better after a shut-in period due to the low water saturations seen in the Utica. Rex's current plan calls for shutting in their wells for at least 45 days. Rex likes their acreage and states there is a lot of thickness information out there and that the company feels very confident in the liquids window but until it is drilled they will not know the porosities and other factors. The entire transcript is available here.

Disclosure: I am long EVEP, GPOR.