According to the Ohio Department of Natural Resources’ Division of Oil and Gas Resources Management, Eastern Ohio has seen 72 horizontal wells drilled. Permitting for a total of 236 wells have been approved, with Carrol County receiving the most activity, with 83 sites permitted.
After setting records last year for permitting, Ohio continues to see a boom in oil and gas exploration despite a lower natural gas price. In comparison, last year saw a total of 27 permits issued from July to September, while prices were hovering around $3.50 per Mcf, as opposed to the current price of $2.33 per Mcf.
What’s yet to be known is the breaking point of when these wells become uneconomic. Critics questioned the surge last year, but this year’s numbers show that there’s not a slowdown coming. A previous forecast by the Ohio Oil and Gas Association anticipates that the state will gain $14 billion in income and 200,000 jobs by 2015.
Plenty of attention rests on Chesapeake Energy (CHK: NYSE) which last year announced a major find in Ohio’s Utica Shale, initially believed to boost the company’s value by $15-20 billion. Whether the giant continues to value these assets the same way is still up for grabs, as Chesapeake is in the midst of attempting to sell up to $14 billion worth of its assets this year to pare down its debt. In order to comply with credit-line covenants, CHK must raise $7 billion before the end of the year, and another $2 billion next year. According to Jefferies analyst Biju Perincheril, that strategy could include selling off some of Chesapeake’s prized assets that includes Permian Basin fields in west Texas, Mississippi Lime fields in Oklahoma and Kansas, and maybe even some undeveloped oil-shale fields in Ohio and south Texas.
At this stage, however, there has been no official stance made on a possible sale by Chesapeake of its Ohio holdings, and judging by the ramp-up of drilling activity, motions are being made to accommodate the ongoing boom. While drilling persists, much of the attention is going to move to the lagging pipeline infrastructure already in place.
Of the companies looking to expand the region’s pipeline network are Chesapeake, EnerVest, Dominion East Ohio and MarkWest Energy (MWE: NYSE). Large volumes of oil and gas flowing at high pressure from the shale formation will require new lines in order to accommodate additional production.
“The existing infrastructure is definitely outdated,” Steven M. Downey, Vice President of Business Development and Marketing for EnerVest told the Canton Republic.
Chesapeake’s Ohio Director for Corporate Development, Keith Fuller, added that the company has considered utilizing the existing pipeline structure, “but most of the existing gathering systems do not have adequate capacity for typical Utica shale production rates.”
So with new pipelines sorely needed, the state of Ohio gears up for the added activity. State senators passed Senate Bill 315 last month, which includes recommendations for changes to Ohio’s oil and gas drilling rules, and sets design standards for pipelines that transport gas from horizontal wells.
Landowners in the State have found mixed reactions to the increased activity. While some skeptics challenge the validity of the techniques utilized to perforate the Utica, others are reaping the benefits of the surface rights required for pipeline right-of-ways. Gone are the days of receiving $1 per foot (under $500 per acre), as companies are now offering upwards of $15 per foot, or $6,500 per acre to secure right of ways.
Pipeline construction and drilling of Utica wells are both still in the early stages. Gas-gathering pipelines plans are currently being developed, with Chesapeake and other operators drawing up plans. Other companies, however, are still remaining on the sidelines waiting for more wells to be drilled before committing to pipeline construction.
Both MarkWest and Oklahoma-based Gulfport Energy (GPOR: NASDAQ) have committed to gas-gathering and transmission pipelines through joint ventures in Harrison County (12 drill permits this year), Guernsey County (8 drill permits) and Belmont County (none listed from the Ohio Department of Natural Resources’ Division of Oil and Gas Resources Management).
Dominion East Ohio has already converted an existing transmission pipeline for carrying wet gas, which commenced delivery last August. The wet gas is carried to a Dominion facility in Monroe County (16 wells permitted this year), before being shipped to a processing plant in Hastings, West Virginia. Further plans are also in place for Dominion to build a natural gas processing and fractionation plant in Natrium, West Virgina, where liquid natural gas is broken down into various chemicals. The facility is scheduled to open in December, with expectations of processing 200 million cubic feet of dry gas and 36,000 barrels of wet gas each day.
Expectations on the Utica are high, with plenty of work to go. But in eastern Ohio, the drilling activity remains rampant, and there’s plenty of pipe still left to go into the ground.
G. Joel Chury TheHydrocarbon.com