Chesapeake Energy Corp.'s Buell 10-11-5 8H in Harrison County, Ohio, popped the top on the Utica shale play. Announced in September 2011, the well gushed more than 3,000 barrels of oil equivalent (BOE) per day, of which half were highly valued natural gas liquids and oil. That well today is on pace to become the top-producing well in the history of the state of Ohio, and will likely do so in less than four years.

Two other wet-gas wells, announced simultaneously and in neighboring Carroll County, produced more than 1,500 BOE per day each, confirming economic productivity of the nascent play.

The Buell "may very well be our best shale well ever," said Chesapeake chief executive Aubrey McClendon in the company's first-quarter conference call, a remarkable statement from the leader of shale development in the U.S. "I think that's a great indication of what's likely to come going forward in that play."

A lot of other influential oil and gas companies seem to agree. Since Chesapeake revealed the play less than a year ago, in July 2011, marquee-named producers have expended billions of dollars staking major footholds in the Utica. To name a few: Chevron Corp., BP Plc, ExxonMobil Corp., Shell, Consol Energy, Hess Corp., Total SA, Devon Energy Corp., Anadarko Petroleum Corp. and Sinopec. In the May conversation, Chesapeake characterized the play as our developing giant and ranked it above its four other recent discoveries during what it has called the "Great Unconventional Resource Rush" of the past seven years: the Granite Wash, Haynesville, Tonkawa and Mississippi Lime. The Ohio Department of Natural Resources estimates recoverable resources held in the Utica of approximately 2 billion BOE based on a 1.2% recovery factor and up to 8.2 billion BOE on a 5% recovery.

An independent economic impact study conducted by business consulting firm Kleinhenz & Associates projected Utica shale develop- ment to add more than 200,000 jobs in Ohio in the next five years, with the oil and gas industry spending some $34 billion in the state in the same time period. Referring to the Utica, American Petroleum Institute president and chief executive Jack Gerard in May called Ohio "home to one of the largest resources of energy in the U.S."

Early indications point to the Utica as primed to be the next major North American shale resource play. As such, Oil and Gas Investor has selected Chesapeake for its 2012 Best Discovery award for the Ohio Utica shale.

If it looks like the Eagle Ford…

The Utica has been compared with the Eagle Ford shale in South Texas, where operators have met with economic success in a liquids-prone resource. Both are similar in size, with the estimated core area of the Utica comprising 11 million acres to the Eagle Ford's 12.8 million. Both have three distinct "windows" of thermal hydrocarbon maturity yielding dry gas, wet gas and condensate, and oil. And both look alike in geologic makeup including factors such as depth, thickness, porosity, permeability and total organic content. McClendon projected the Utica would ultimately be economically superior to the Eagle Ford based on rock quality and asset location.

As of April 2012, 208 permits had been filed and 66 total horizontal wells targeting the Utica drilled or drilling to date. Of those numbers, Chesapeake is alone responsible for 150 and 54 of them, respectively.

Tom Layman, Chesapeake's vice president of geosciences for its eastern division, helped lead a team in identifying and defining the prospectivity of the play early on. "When we do our geotechnical work, we make estimates as to the size of the prize," he says. Without revealing the internal figure, he acknowledges "we know this is going to be a world-class reservoir."

Chesapeake first turned its eyes toward the Ohio Utica in late 2009, peeking across the Pennsylvania border where it was actively engaged in its Marcellus shale program. Some cumulative 2 billion barrels of hydrocarbons from Ohio conventional production sourced by the Utica bode well. Utilizing its internal reservoir technology center to analyze cores in weeks rather than months—and drawing comparisons to core data from its Eagle Ford and other shale operations—Chesapeake had its land-buying machine at full throttle by mid-2010, with more than 400 landmen in the field gobbling up leases.

Today, Chesapeake holds 1.3 million net acres across the play, roughly divided 30%/40%/30% among the dry gas, wet gas and oil windows. Not surprisingly, the company's initial development focus has targeted the wet-gas segment of the play, where it achieves the best economics based on current commodity prices. Here, it believes it has about 50% of the core acreage locked up.

"We believe we have identified some particularly nice spots in the wet-gas window," Layman says. The company is focused in Carroll, Harrison, Columbiana and Mahoning counties, where it currently has eight of its nine producing wells. "That's where you'll see the lion's share of our activity this year."

In January, French national oil company Total joined Chesapeake as a 25% partner in the wet-gas window only, for a $2.3-billion cash-and-carry investment. Partnerships in the oil and dry-gas windows remain options.

While the shale spans 11 states and into Canada, Utica drilling activity is focused in Ohio. The reason is the Point Pleasant member of the formation underlying the Utica. The Point Pleasant is up to 140 feet thick and the rock type ranges from an organically rich argillaceous mudstone at the top to an argillaceous limestone at the base of the unit. Chesapeake, however, considers the Point Pleasant as part of the Utica depositional flow system sitting above the Trenton limestone and, in fact, dubs it the Lower Utica.

"Generally, we try to land laterals in the Point Pleasant, because we do think that is some of the best rock," Layman explains, "but we ultimately believe we're getting contribution from the middle and upper Utica as well." The entire reservoir interval can be up to 300 feet thick.

Still, the Point Pleasant remains crucial to Chesapeake's sweet spot. "As we know it now, the Point Pleasant is where most of the hydrocarbons exist. You need the Point Pleasant to make a Utica play work."

Wet, dry and oily

The legendary Buell well is estimated to have an ultimate recovery of at least 575,000 barrels of liquids and 13 billion cubic feet of gas. It is currently producing 1,040 barrels equivalent per day. Yet subsequent well results made public, while strong, have not equaled the ballyhooed discovery well that sparked the frenzy. The company recently released results on three additional wet-gas wells with initial production rates of 1,440, 1,210 and 1,125 BOE per day.

All good wells in aggregate, but Layman is not disappointed when comparing them to the Buell. Rock properties vary across any play. But he also assures the Buell is not a lucky exception. "The Buell is not special—it's not a singular data point. We haven't drilled our best wells yet. We are still learning every day about how to drill these wells, how to best complete them and how best to bring them online.

"Post-processing peak rates for wet-gas wells are approximately 415 barrels of oil, 260 barrels of NGLs, and 3.9 million cubic feet of gas, according to Chesapeake's pro forma estimates. Pipeline capacity, however, is not yet available to capture the ethane stream, which will take about 18 months to come online.

Layman considers at least half of the company's 525,000 wet-gas acres as being fully de-risked. "From an economics standpoint, the wet-gas window is working nicely," he says.

Although de-emphasized due to depressed natural gas price, the dry-gas band in eastern Ohio extending into Pennsylvania is completely derisked, he says. As-yet unreported producers in both states are "very strong." Up to three rigs are working this region to hold acreage.

A lot of mystery still surrounds the oil window, however, where even fewer data points exist. In the call, McClendon held back hyperboles for the oil zone. "We just don't know; we don't have enough wells." The company has two rigs running in the oily patch with 10 wells expected to be completed by year-end.

It's here, though, where the company is comfortable with a large portion of its acreage held by production, and can take its time as other operators wrestle with completion techniques. To the south in Noble and Guernsey counties, Anadarko released results on three wells. The first flowed 575 BOE on average the first 20 days, and the other two combined for 220 BOE over 60 days. Some analysts were disappointed, but McClendon was encouraged by the early results.

"There were a lot of people who said we couldn't crack the code in the oil phase of the Eagle Ford as well, and we routinely bring in wells of 500 to 1,000 barrels a day there. So we remain confident about the oil window of the Utica."

"The wet-gas and dry-gas windows are rock solid. We've got production results to confirm what we thought." Tom Layman, Chesapeake Energy

And while the Street may expect 1,000 barrels of oil a day from every reported well, Layman notes that 400 to 500 barrels a day at $100 oil "will end up being very strong economics." He says the company's strongest wells are falling along the wet gas/oil line on the map.

Reason to doubt?

In recent weeks, Wall Street has called into question the viability of the play, drawing conclusions from sparse data points, with released results on fewer than 15 wells.

One reason for the lag in data is the state of Ohio requires operators to report well results only once a year, rather than monthly as do most producing states. Interim data points are voluntary. When Ohio did release results for the first reported Utica wells, gas liquids were not captured in the data—the primary benefit of targeting the wet-gas window—thus giving the impression of lower liquids content.

Another reason for a lag in reported results is because of a completion practice involving shutting in wells for 60 to 90 days for a resting period following stimulation. This dissipation technique, also known as "shake and bake", reduces the amount of flowback water and increases productivity.

"Some of the best wells in the Utica shale play have had significant periods of dissipation," notes Raymond James & Associates analysts Kevin Smith and Darren Horowitz in a research report.

Manuj Nikhanj, managing director and head of energy research for ITG, reported in an April research note that wells in which data are available are the earliest completions and in the gassier side of the play. "In the richer areas of the play, earlier producers did not use the technique of shutting in wells for 60 to 90 days to allow the dissipation of frac fluids."

He referenced EV Energy Partners, which by not using the technique seems to have hindered early wells. "The company also said the new methodology is having a profound effect on well performance, saying it is pleased with how the newer wells are holding up."

Chesapeake too is following this practice, noting that the Buell well was shut in the longest before being brought online.

The silence around results is also due to the ongoing lease acquisition race.

With confusing data points and quiet operators, could the Utica be operationally challenged? No way, according to Layman.

"The wet-gas and dry-gas windows are rock solid." While many additional wells are waiting on infrastructure, "we've got production results to confirm what we thought."

Chesapeake is operating 10 rigs at present and plans to average 13 through 2012 and 22 in 2013. "We obviously like it and will continue to ramp up," says Layman. "It's going to happen."