How Fares The Utica? Some Operators Face Second-String Acreage

After three years of operators building positions in the Utica Shale, the play’s controversy remains the extent of its treasure and how economically it can be recovered.

Utica production is near 1 billion cubic feet equivalent per day (Bcfe/d), despite the play having been discovered only in 2011, said Bob Brackett, senior analyst for Bernstein Research, in a report. The Utica saw fewer than 100 wells by the end of 2012 since stepping up its production.

“We believe that perhaps a million acres of sweet spot exists sandwiched between uneconomic oil plays to the west and uneconomic dry gas plays underlying the Marcellus to the east,” he said. “Economics in the core are robust, but company disclosed EURs are significantly higher than actual well results to date.”

“We expect it to grow towards 3-4 Bcfe/d in the next 5 years if current activity levels hold,” Brackett said.

The Utica has a long road ahead of it before it reaches the dynamics of the Marcellus, which produced 15 billion cubic feet per day (Bcf/d) in August.

What seems apparent at this point is the Utica Shale is located primarily in Eastern Ohio with a sweet spot concentrated in the wet gas window around Belmont, Monroe, and Noble counties.

Eclipse Resources Corp. (NASDAQ: ECR), Antero Resources Corp. (NYSE:AR) and Gulfport Energy Corp. (NASDAQ: GPOR) have the best results to date in the play, Brackett said.

Chesapeake Energy Corp. (NYSE: CHK) has a giant position in the Utica, 1 million net acres and 4 billion barrels of oil equivalent (BBOE), the company said Aug. 6.

In the fourth quarter of 2014, the company had 210 wells but none were among the top producers. The company says it is the most efficient operator in the Utica with a goal to lower well costs to $5.7 million by year-end 2014.

The company’s core expansion is “unlocking the oil window” at more than 1,000 boe/d and 500 barrels of oil. In the second quarter of 2014, CHK’s net production was up 373% from the same period in 2013. It is currently operating eight rigs.

“In our coverage, CHK has the largest footprint of proven yet second-tier Utica,” Brackett said. The company says the Utica is third behind the Marcellus and Haynesville shales.

Range Resources Corp. (NYSE: RRC) has a large footprint of unproven and potentially too deep/dry Utica with results expected in the next two quarters, Brackett said.

Outside of the core is not a good place to be. Average core acreage is worth $7,000 per acre with a range driven by EUR that could go as high as $40,000 per acre.

“We note that much of the non-core Utica is uneconomic,” Brackett said. “Operators outside of the very best acreage generally consider Utica as a second tier resource play within their own portfolios.”