Saturday, September 20, 2014

Winter 2014/2015 Temperatures - A Wild Card in Natural Gas Prices

Natural gas prices at the mercy of mother nature
Those that follow the natural gas prices in the U.S. know well the impact of a colder than average winter like what we experienced in the winter of 2013/2014. Hedges help to mitigate swings in natural gas spot prices, but storage deficits and draw will eventually hit when contracts expire, and no one can escape a sustained price swing for long. The 2013/2014 winter shocked natural gas storage and set many records. By the end of March, storage levels reached a 10-year low. And February saw the largest natural gas demand ever. Storage recovery still lags, but thanks to the Marcellus Shale, Utica Shale, and others, we are almost there, and just in time with winter around the corner. The chart below from the U.S. EIA illustrates a few things worth noting.

1) As the last two years shows, demand starts to outstrip supply in mid to late October, when storage starts to take a hit. Then, after sustaining us through the winter (or just barely so in early 2014),  a build up begins in preparation for the next winter. It does not take much imagination to appreciate that this is a delicate balance.
2) The winter of 2014/2015 saw a huge dip in storage, though a simple line projection puts us back where we need to be (for an average fall and winter) at about the same time the seasonal draw in storage is set to begin.


Source: U.S. EIA















U.S. natural gas price history and average temperature correlation
As pointed out, natural gas prices are driven in part by storage reports (or in their anticipation due to cold weather forecasts or other factors).  Last winter's huge draw on storage created some large price spikes as seen in the graph below.

Source: U.S. EIA













And while many remember the winter of 2013/2014 as bitterly cold, overall, when looking at the 48 contiguous states the departure was only one degree below normal (source: NOAA), though where it was colder mattered, with larger populations impacted. In Illinois the average temperature departure for February was -9.7 degrees F (source: NOAA). Other departures for February 2014 included New York (-1.9 deg F.), Pennsylvania (-3.7 deg F.), Ohio (-5.7 deg F), and Michigan (-6.4 deg F.).

A lesson in predictions from the winter of 2013/2014
Scientists often struggle to forecast  the weather from one day to the next, and longer range forecasts in the 7-10 day range can be simply awful. I remember reading from some forecasters back in October and November of 2014 that the 2014/2015 winter in the Midwest and Northeast were going to be anywhere from average to a bit warmer than normal, and then... it was one of the coldest on record in many parts of the country! And of course they had to come up with some "excuse" for why they got it so wrong. A name did the trick, it was all the fault of the "polar vortex". When forecasters get it wrong there is always an excuse, from polar vortex to a dip in the jet stream to  an unexpected weakening of El Nino. But all of this does not hide the fact that they missed it. The fancy name or scientific jargon for why the scientists missed it does not change the fact.

Predictions for Winter 2014/2015
Some are saying that the winter of 2014/2015 will be extremely cold and similar though not quite as severe as last winter. Others are saying that it will be about normal "unless" a polar vortex or two sets up. "Unless a polar vortex or two sets up"?, that's like saying we are going to see average temps this winter unless we see colder temps this winter. Wow, what a prediction, hard to miss that one.

One common way of predicting is by looking at what is happening now, "Hey, we are seeing some of the earliest snowfalls on record in some cities, maybe this means that it will be a colder than normal winter." And we are seeing early snowfall and early cold weather in many parts of the U.S., so maybe we will see a cold winter. I would bet on a colder winter based of the early cold weather and snow, but some might call that too simplistic of an explanation because I did not use the word jet stream, vortex, or Nino in my explanation.

A word to the wise, don't mess with Mother Nature (or think that you can predict her with any certainty I would add).

Thursday, September 18, 2014

Active Drilling in Ohio's Utica Shale, Map

When operators set out to drill a single well in Ohio's Utica Shale they are investing an estimated 5-7 million dollars. As a result of such investment, drilling activity is a good indicator of where operators believe the money is, or could be.  The latest activity report shows some investment happening by Halcon and Mountaineer Keystone in Trumbull and Portage counties respectively. Time will tell if the investment pans out and if these operators are able to crack the code and find the right formula to economically produce the wells. And for landowners looking to reap some of the rewards, the northern drilling activity is a welcomed sign, though these two wells are but a small bet, and only 2 of 230 wells drilling in Ohio at the date of this post. See MAP of all wells currently drilling below.

The map below shows surface locations (white squares) and bottom hole locations (red), along with well paths. Underneath this map I've included a link to a map of all wells in the Utica shale (surface locations only), from permitted only, to drilling, drilled, and producing. This map has a blue filter tab in the upper left that allows you to create filters to interrogate the data and display based on some criteria, for example (what operators have wells drilled but waiting to be produced in an individual county or township), and so on.

Wells drilling as of September 13, 2014


Click here to see a map of all horizontal wells in the Ohio Utica / Point Pleasant.
(Surface locations only, zoom in to see separate wells on a pad). Note that some wells are permitted only and may not show any activity currently visible on the ground.

Wednesday, September 17, 2014

Side by side - Top oil and gas producing wells in the Utica Shale in Q2 2014

There are many ways of analyzing and comparing oil and gas production of wells in the Utica / Point Pleasant Play in Ohio.
Maps clearly show the general separation of higher oil production to the west and higher gas production to the east. Surprisingly, some Noble County wells made it on both maps.

Average production/day one measure
Average production/day was chosen as the yard stick here. We could have selected total production in the quarter but that would fail to recognize highly productive wells that were in production for just a short time during the quarter. Avg production/day can skew the data to the newer wells that will have higher initial production so there isn't a perfect measure.

Data mounts
Each quarterly report gives us more production and decline curve data for wells. Such data will be a good measure, though even this can be skewed by unique processes used to drill, complete and exploit individual wells. As operators learn more we should see better production curves from adjacent wells. Though even then, there will be a lot left to interpretation. As has been said many times before, we are still in the early days of exploiting and understanding the play.

Map left - Bottom hole locations for wells that averaged more than 150 barrels of oil/day in Q2 2014 (65 wells)
Map right - Bottom hole locations for wells that averaged more than 5,000 Mcf/day of natural gas in Q2 2014 (63 wells). Production cutoffs were somewhat arbitrary and designed to show a good sample of data. All data comes from the Ohio DNR. See page here which includes a note on wells potentially not included in the maps below.

Map color codes show wells increasing in production from yellow to green to blue to red. Click on counties or bottom hole locations for information.

Monday, September 15, 2014

Oil Production in Ohio's Utica Shale - Q2, 2014

Looking at last weeks Q2 2014 production data release from the Ohio DNR we can see where most of the oil is coming from out of the Utica in Ohio, both in cumulative production and production per producing day. Table and maps below. While looking at the data it is important to recognize the fact that counties like Carroll have far more wells, and wells that have been producing longer, so higher total production is not a big surprise.

Newer wells will show higher production in the early months then later drop off sharply. Noble stands out as a county with the highest production/well or per producing day on the average for the quarter, and  though Noble's wells are newer and higher production/day is expected, the new wells in Noble seem to be producing at higher initial rates than early production of Carroll County wells. As a result, Noble County continues to be a standout in oil production in the Utica Shale in Ohio.


















Oil Producing Counties and Production Totals for Q2, 2014 - Ohio DNR data 
Darker shaded counties indicate higher production, click county to view numbers



Oil Producing Counties and Production Totals for Q2, 2014 - Ohio DNR data 
Darker shaded counties indicate higher production per producing day, click county to view numbers.



Production numbers for individual wells in any of the counties can be seen here.

Saturday, September 13, 2014

Utica Shale Belmont County OH - Gas Production King

Gas production most impressive 
Nestled in Southeastern Ohio, just west of Wheeling West Virginia, sits the undisputed King of natural gas production in the Utica Shale. Belmont county holds the distinction of being the location of 12 of the top 14 wells in reported gas production in Q1 2014 and equally holds12 of the top 14 Utica Shale cummulative gas producers of all time in Ohio. The county is first in average gas production/day and second only to Carroll County (which has ten times the number of producing wells) in total natural gas production from the Utica as of Q1 2014 report. See chart below.

Active 2014 permitting points to more drilling and production to come
No wonder Belmont County is second only to Harrison County in the number of Utica Shale permits issued in Ohio so far in 2014 (as of the September 6th, 2014 Ohio DNR report). Relatively high gas production from wells in the county is pumping up profits.Top permitting activity in 2014 in the county is led by Gulfport with 36 and XTO (22), followed by Hess (10), American Energy (8), and Rice (1).

Gulfport holds favorable acreage position, others up and coming 
Gulfport Energy holds 90 total drilling permits in the county with 25 wells producing and 10 drilling. Other operators currently drilling in the county (as of September 6th, 2014) include Hess with 4 wells drilling, XTO (3) and Rice (1). Gulfport also holds the distinction of drilling 13 of the top 15 all time natural gas producing wells in the county.

Top acreage appears to be in western and southern townships
Looking at Q1 2014 production data, top producing wells are situated in western and southern townships, though many of the townships have yet to be probed.

More exploration needed to properly delineate
And while production activity is rolling in for some townships, other are still in the pipeline and are just starting to be tested or are completely untested. For example, XTO holds 13 permits for the far southeast York Township, with all of their permits accumulated this year, but aside from permitting, no drilling has begun according to the most recent September 6th, 2014 Ohio DNR report. Even neighboring Washington Township, just to the West of York, we see only 2 wells producing and 16 as permitted only. All of this indicates that the county is very much in the early days and we don't have a clear understanding of what is to come.

Belmont County Utica Shale map
Legend: Legend: Green=Producing, Red=Drilling, Purple=Drilled, Black or Yellow=Permitted only. White squares indicate surface locations. 


Belmont County map with Townships and well activity

















Gas Production Leaders by County










Note: While all data and numbers presented are believed to accurate and reflect Ohio DNR data there is no guarantee that such is the case. The data presented here should not be used for making any important decision.

Friday, September 12, 2014

Utica Shale Ohio Permits Issued Aug 31 - Sept 6 , 2014

September 6th Ohio DNR update - New Utica Shale Ohio permits issued for the week of August 31st, 2014. 20 new permits issued in total.

New permits by county 
Belmont County  7  - Gulfport Energy (5) + American Energy (2)
Noble County  6  - Antero Resources (6)
Harrison County  4  - American Energy (3) + Gulfport Energy (1)
Tuscarawas County  - 2  Enervest (2)
Guernsey County  - 1  Carrizo (1)

Map of new permits issued for the week
Zoom in to see well paths and more. Click on any element (surface, bottom hole, well path, county, to see data). White square = surface locations. Lines indicate well path to bottom hole locations.