Monday, December 30, 2013

Utica Shale drilling activity = Where the money is

Bets are made at the bit
There is no better indicator of where operators believe that the Utica Shale holds the most promise of financial return than is indicated by where those operators are drilling. At about 5 million needed to drill a well and 106 Utica / Point Pleasant wells currently drilling in Ohio, we are looking at roughly 530 million dollars in current bets. The map of wells drilling below shows were those best are being made.

Things can change over time and there is still a great deal unknown about the Utica, but a clear trend is visible. Access to infrastructure and other factors also contribute to drilling locations, but infrastructure is also dictated by drilling locations.

Map of Utica / Point Pleasant Wells Drilling as of 28 December 2013.
Note: click on the map symbols to see operators, well names, counties, townships, and more. A total of 106 wells are being drilled as of the December 28 Ohio DNR report. Zoom in for greater map detail and to distinguish wells that are very close to each other.

Utica Shale Ohio - Dec 28, 2013 Report + What's Ahead

The near-year-end (December 28) report on the Utica Shale has been released by the Ohio Department of Natural Resources.

Wells classified as "drilling" up sharply, 19% in just two weeks. 
Of particular note is that according to the latest Ohio DNR report, wells classified as drilling went up sharply from 89 to 106 from December 14 to December 28 of this year, that is a 19% increase in just two weeks. Chesapeake accounts for almost all of the increase with 16 additional wells classified as drilling during the two-week period. May and June 2013 reports showed only about 14 wells drilling. Chesapeake was not drilling any wells mid 2013 and now shows 40 wells drilling. Clearly Chesapeake is running and not walking in the Ohio's Utica / Point Pleasant Shale Play.

End of 2013 vs. end 2012
With only three days left to report and traditionally slow end-December activity, these numbers will hold up very, very close to the definitive report for 2013.

End 2012: 485 horizontal permits issued, 21 wells drilling, 45 wells producing
End 2013: 1033 horizontal permit issued, 106 wells drilling, 249 wells producing

That puts wells drilling and wells producing each up by about 5 fold from 2012 to 2013.

Economics driving activity up
There is no doubt that economics is a large driver of the increased activity. Several contributing factors include:
  • Natural gas spot price (Henry Hub) is up by about 33% from end Dec 2012 to end Dec 2013(Source: EIA data)
  • Infrastructure improvements that came on in 2013, including processing plants and pipelines, all essential for getting petroleum products to the market quickly and economically. References: Columbus Business First, The Motley Fool. 
  • Focused drilling and better delineation of the Utica's highly productive zones lowering investment risk for operators.
Everything now looks to be in place for more of the same in 2014, with a great deal of production coming online and historically high drilling activity to continue. And now that drilling and production is trending sharply higher, I would not be surprised to see an up swing in well permitting as operators plan to increase activity. Lease negotiations and corresponding offers should also be on the rise.

Note: This is an opinion piece and does not reflect any certainty in actual outcome. The author owns shares in companies operating and working in the Utica Shale in Ohio. Care is taken to present actual numbers as reported by the Ohio DNR but no guarantee of accuracy is granted or implied.