“I heard someone say that the Utica is homogeneous. They don’t know what they’re talking about—it’s not homogeneous. Geology plays a role, and you have to use different completion techniques.”
Walker, along with three other Utica shale experts, shared insight and current intelligence from this fast-moving play with 3,380 industry professionals at Hart Energy’s DUG–East conference in Pittsburgh in November.
EnerVest is a privately held company built on deploying institutional-investor capital. The company found itself in the right place at the right time regarding the rise of the Utica. Now it is in cahoots with leading shale player Chesapeake Energy Corp., because the Oklahoma City producer bought out EnerVest partner Anschutz Exploration for a 50% position in 628,000 acres.
“In hindsight, that farm-out (to Anschutz) looks like a major mistake, because it included the Utica,” Walker said. “But since Chesapeake bought out Anschutz, we’ve been able to partner with the company that is No. 1 or No. 2 in nearly all the shale plays. They know more about shale than anyone else. We’ve found this to be an excellent partnership.”
EnerVest, which holds an additional 400,000 acres, 100% owned in the play, along with Chesapeake, has been at the leading edge of evaluating the resource potential and producibility here. With 20 cores in hand, Walker said, “We have more data based upon our drilling and our cores than anyone in this play, but we still have a lot to learn.”
Meet the Point Pleasant
As Walker suggested, organic content in eastern Ohio is extremely high and the organic matter is very rich, according to panelist and consultant Jackie Reed, with Reed Geochemical Consulting, Hilton Head, South Carolina. Reed worked with Houston-based GeoMark Research Ltd. on a major new Utica study. The company used a collection of high-density samples of sediment and oil across Ohio. Recently released to clients, “It caused a lot of excitement within that group.”
In fact, Reed used superlatives such as “astounding,” “incredible” and “shocking” when referring to the amount of hydrocarbon potential indicated from GeoMark’s study. “Nine hundred milligrams of hydrocarbons per gram of TOC (total organic carbon) is huge,” she said. “The initial hydrocarbon potential from this is very large. This is very uncommon for a marine shale or carbonate.”
But while the Utica shale definitely holds significant hydrocarbon potential, the majority of hydrocarbons are being generated in the lower Point Pleasant formation, she revealed.
“The Utica does have organic content in it, but it is modest when compared with the Point Pleasant. We would guesstimate about a third of the resource is in the Utica, and two-thirds are in the Point Pleasant.”
The Point Pleasant, an interlayered limestone and shale unit, underlies the Utica and is in part an equivalent facies. It is most prevalent in eastern Ohio and is the current target of operators in the region. Carbonate content across the area exceeds 40%.
“This is very high, folks,” Reed said. “It makes a big impact when you think about what fracing will do to production in this area.”
Larry Wickstrom, the division chief and state geologist for the Ohio Department of Natural Resources Division of Geological Survey, concurred with this evaluation. While the Utica shale covers a wide swath from Tennessee into New York and Canada, the best geology is in Ohio, he said. “The big difference is the Point Pleasant formation. That’s what gives us some of the best production in Ohio.”
Illustrating his point with a core sample from Coshocton County, he pointed out the rich blackness of the rock, which is interlayered with organically rich limestone and shale. “It just looks like it’s going to ooze oil out of it.”
And that is what has operators rushing to Ohio. The Utica-Point Pleasant play, like the prolific Eagle Ford shale in Texas, has three defined hydrocarbon windows. A more geologically mature band of dry gas trends through southeastern Ohio and into western Pennsylvania, abutted by a diagonal strip of liquids-rich wet gas and condensate-rich rock from northeastern Ohio into south-central Ohio, trending to light oil and black oil moving west through the state.
As of November 14, 59 horizontal well permits have been issued in Ohio, and 13 drilled.
Leading the exploration charge is Chesapeake. Its early wells and permits have followed the rich-gas stripe in the middle. Early wells are concentrated in Carroll and Harrison counties, hugging close to an existing high-Btu line to carry the product. Two reported wells in Carroll County had initial potentials of about 1,000 barrels of natural gas liquids (NGLs) per day, while one in Harrison County topped 1,400 barrels. Those rates are theoretical, based on volumes that could be recovered if the rich Utica gas is processed for maximum ethane recovery.
Ken Mariani, EnerVest senior vice president and general manager, joined Walker for a question-and-answer discussion. He classified the natural gas liquids produced here as a true condensate with about 60-degree gravity. “It’s a rich NGL that you could probably put in your gasoline and run on it.”
Having carbonates in the 50% to 60% range in the Point Pleasant formation “gets us very comfortable from a completions standpoint” with the ability to frac the wells effectively, he said. “We’re hoping to have similar results to what we’re seeing in the Eagle Ford.”
Added Walker, “I can say with certainty the NGL window will be a significant contributor to a lot of the people in this room.”
Oil in question
No doubt the wet-gas targets here will rival the oft-compared Eagle Ford, at least as promoted by early entrants, but bigger questions in the play center on the black-oil window. Going west, the hydrocarbon molecules grow larger and the depth—thus pressure—lessens.
“Understanding permeability and pressure are two key components to producibility,” Mariani said. “Farther west, producing bigger molecules is going to be the challenge.”
To get a thorough analysis of permeability data, the company is studying seven full cores, about 2,500 linear feet. “We have a lot more questions than answers now.”
Pressure proves problematic in the western region as well. The core immature oil area is at about 1,100 feet depth. “You’re going to get to a point where you just don’t have enough pressure to produce it,” Reed notes.
That’s in contrast to the pressure regime moving eastward through Ohio, where the rock becomes overpressured as it plunges in depth toward Pennsylvania. “That has us excited,” Mariani said. “When you have 30% to 50% more pressure, you can cram more hydrocarbon molecules in that rock.”
Walker acknowledged a range of unreported results in both the NGL and oil windows, and emphasized completion technique has more to do with the variances than rock properties. “We’re still learning a lot about how to complete them.” But in the oil window, where EnerVest has participated in drilled but yet-unreported wells, he said, “I’m very encouraged.”
Completion technique in the oil window will determine the recovery factor. The company is even considering CO2 fracture stimulations and other techniques that would use less volume and be more efficient with the sand transport. “We’re in the infancy of experimenting,” Mariani said.
Devon Energy Corp. is now drilling the most western Utica well in Ashland County in the oil window. “This is an important one to watch,” said Wickstrom. “We’ll finally get a look at the producibility” of the oil window.
Wall Street’s view
Michael Bodino, director of energy equity research for Global Hunter Securities, is known for taking deep dives into emerging plays to better understand which public companies have upside value. And while he doesn’t have it “wrestled to the ground yet,” he anticipates the thickness, porosity and organic content in the Utica compares favorably with other similar plays.
“We feel like it stands shoulder to shoulder with the Eagle Ford and may actually be a little bit better in places.”
Wall Street seems to think similarly: most companies involved in the Utica have had 40% to 70% upward moves in stock prices, “in spite of the choppy equity markets.”
And like his counterparts, Bodino points to the Point Pleasant for maximum value. “It’s important that the industry focus on the Point Pleasant member. We’re getting a lot better data, better-quality rock and a higher probability of economic success out of that member.”
Not only is the Point Pleasant a laminated black shale that is rich in organic matter and very calcareous, it also features a low clay content, good porosity and low water saturation. “The fracability is quite high.”
In the core, Bodino targets estimated ultimate recoveries (EURs) per well to fall between 500,000 and 1 million barrels of oil equivalent (BOE). At the mid-range, that equates to a 50% rate of return. “Over the next six months, we’ll have the data we need to conclusively make the call and lay out the economics.”
Bodino sees hope from data emerging in the southern region, which has seen a surge of leasing activity since August. “The Point Pleasant is there and it’s thick. It looks very good on limited data. We’re about to get a lot of data out of the southern region of this play.” Anadarko Petro - leum Corp. has permits and is actively drilling in Guernsey, Muskingum and Monroe counties.
But while the Point Pleasant pinches out moving north in Ohio, EnerVest’s Walker said that doesn’t mean the Upper and Middle Utica are not going to be productive in the northern counties. “It just means you’re going to have dry gas.”
Alas, the anticipated prospectivity of the play may have already squeezed out opportunities for smaller operators, Bodino said. Large and well-financed companies such as Royal Dutch Shell, Chevron Corp., Anadarko and Devon are at the front of the line, contrary to a typical play cycle led by smaller operators.
“The players are different. We’re seeing a lot of the larger companies on the leading edge of this play,” noted Bodino. “It’s going to be harder for the small guy to compete in this play for access to processing and infrastructure, simply because the play is already dominated by larger players.”
Going forward
Acknowledging limited production data, Ohio’s Wickstrom is conservative when extrapolating recovery potential. Using a volumetric approach, with a 1.2% recovery factor, he figures the state holds 2 billion BOE underground. At 5%: 8 billion BOE.
Putting that into perspective, he said, the remaining conventional reserves in Ohio are only about 1 trillion cubic feet of gas and about 50 million BOE. “You can see just this one interval is going to totally change our way of thinking. This is our economic recovery.”
Chesapeake’s recent press release disclosing well results estimated a 25 billion BOE recovery projected on a maximum theoretical yield. That figure, declared Wickstrom, “is a little more optimistic than I am. The truth probably lies somewhere in between.”
Getting there will take time. “We’re at months, not years” in understanding and developing the Utica, said Walker. “When you’re in a new play you’re doing a lot of science projects, and some of these wells are very costly. We’re going to be doing science projects for at least another year or two—we’re not going to be pad drilling for awhile.”
Bodino added, “2012 is about evaluation—getting our heads around the rock, understanding the producibility and how to optimize the development around your acreage. This is a 2013 development.”
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