Results for key wells in the Utica Shale will become available over the next couple of months. The results from these wells will have a great impact on the share prices of a number of oil and gas exploration companies that have acreage positions in Eastern Ohio. Among these companies are Chesapeake Energy (NYSE:CHK), Gulfport Energy (NASDAQ:GPOR), Hess (NYSE:HES), EV Energy Partners (NASDAQ:EVEP), Rex Energy (NASDAQ:REXX), PDC Energy (PETD), Anadarko Petroleum (NYSE:APC), Consol Energy (NYSE:CNX), Magnum Hunter (NYSE:MHR) and Devon Energy (NYSE:DVN).
Utica Shale Results So Far Have Been Limited
In September of 2011, Chesapeake announced results of the first three horizontal wells drilled in the Eastern Ohio portion of the Utica Shale. Two of the wells were in Carroll County, Ohio, each achieving peak rates over 1,500 boe/day, with about two-thirds of the production being liquids. The best well result, however, was in Harrison County, Ohio, where the Buell 10-11-5 8H well had a peak rate of 3,010 boe/day, with one-half of the production in liquids. The positive results, particularly from the Buell well, accelerated the aggressive acquisition of acreage in Ohio and prompted Chesapeake CEO Aubrey McClendon to say that the Utica Shale could be "the biggest thing economically to hit Ohio, since maybe the plow."
Since that time, however, natural gas prices have declined and there have been few significant well result announcements. Hess did reveal that a well in Jefferson County, Ohio had an initial rate of 11 MMcf/day. Anadarko also released results from 3 wells, which it called "strong" initial results, with its best initial well producing 9,500 barrels of oil and 12 MMcf natural gas in its first 20 days of production (i.e., a 20-day average of about 575 boe/day).
In May, Chesapeake reported results from three more Carroll County wells with peak rates between 1125 and 1440 boe/day (again mostly oil and liquids), and updated its results with the Buell well. The most important result was that the Buell well was still producing over 1,000 boe/day and had an estimated EUR of at least 575,000 barrels of liquids and 13 bcf of natural gas (i.e., an EUR of over 2,700,000 boe!).
More Harrison County Results Needed
While the results so far demonstrate the viability of Chesapeake's Carroll County acreage as a strong resource play, the lack of any further well results from Harrison County near the Buell well has been frustrating.
Why haven't there been any more results from Harrison County? Blame the Jewett Sportsmen & Farmer's Club and Harrison County Judge Michael Nunner. The Jewett Sportsmen & Farmer's Club is the landowner for a parcel of land for which Chesapeake had obtained the mineral rights from the previous mineral rights owner, North American Coal Company. Chesapeake obtained permits and had started work on wells on the land, but the Jewett Sportsmen club didn't like being left out of the arrangement, and sued.
On January 17, 2012, Harrison County Judge Michael Nunner ruled that the mineral rights Chesapeake obtained from North American Coal Company did not allow for horizontal drilling from the Jewett Sportsmen site without permission from the Club. Chesapeake has since sought reconsideration of the ruling, and the parties have been unable to come to an agreement, which appears to have caused Chesapeake to focus its activities in neighboring Carroll County instead of in Harrison County for now.
Fortunately, we should soon see results from Gulfport Energy regarding wells it has drilled in the southern part of Harrison County. On June 4th, Gulfport announced that its Wagner well (just south of the Harrison County line) had been completed and was in its 60-day resting period prior to production, and that its Boy Scout well in Harrison County was undergoing hydraulic fracturing and would then be put on a resting period prior to production. Wagner well results should be available by the time of Gulfport's conference call in August, with the Boy Scout well results available later in August.
If the Gulfport well results are strong, it will point to Harrison County as being the prime location in the Utica. This will benefit Chesapeake (CHK), Gulfport (GPOR), Hess (HES), and Consol (CNX), in particular, because these are the players with the most acreage in Harrison County. EVEP also has a small portion of good acreage in Harrison County. The other Utica players mentioned above (REXX, PETD, APC, DVN, MHR) have Utica acreage elsewhere, but do not appear to have any in Harrison County.
Here is a map from Chesapeake's investor presentation, showing their large acreage position (in yellow) in Harrison County:
Gulfport Energy, while having a smaller acreage position than CHK, nevertheless has a strong acreage position in Harrison County for a company Gulfport's size. Gulfport's acreage is marked in blue in the figure below from Gulfport's investor presentation.
The Hess/Consol Joint Venture also has a strong position in Harrison County (in the area marked in the figure below from the Hess investor presentation).
I am optimistic that Gulfport's well results in Harrison County will be strong. If that turns out to be true, strong beneficiaries will be GPOR, CHK, HES, and CNX.