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2Q13 earnings calls were positive for Utica Shale investment

Ingrid Pan, CFA

Why investors should pay attention to the Utica Shale oil play (Part 5 of 7)

(Continued from Part 4)

Positive sentiment about the Utica Shale

The 2Q13 earnings calls of the major players in the Utica Shale reflect positive sentiment toward the play.

Chesapeake Energy

  • “The Utica is outstanding, and we have several other emerging areas that are in the evaluation process that we’ll be looking at.”
  • “First let me say that I really am encouraged by what I’ve seen in the Utica. As Steve noted, we’ve got a lot of wells that we’re getting ready to bring online. And I think the options there, we have a ton of options available to us. And focusing on the best areas there, and getting our capital in line, is part of the program, as we see the Utica to be a very strong asset going forward.”
  • “The well set is performing well. We’re very pleased with the results and anxious to get more of it on this year as we get compression and processing in place.”

EV Energy Partners

  • “When I spoke to you in May, I said that within about two months production from the wet gas window would increase dramatically adding value to our acreage and both have begun to happen. Utica drilling activity has continued to be very strong. Based upon our recent Oil and Gas Investor article that I read, the pace of Utica drilling at this early stage of its history exceeds that of the other major shale plays at a similar stage. This has occurred despite the lack of significant takeaway capacity for the wet gas and liquids.”
  • “At the end of July, per the Ohio Department of Natural Resources, there are 819 permitted Utica wells in Ohio, 460 wells drilled or drilling and 119 now producing. Many operators are active and recently there have been increasing announcements up and down the play. Among these were Halcon’s recent well in Trumbull County, wells in Carroll County and Gulfport wells in Harrison and Guernsey County. The strong majority of the industries Utica drilling activity to-date has been within our Chesapeake, Total, and EnerVest joint venture.”

Gulfport Energy

  • “We always knew that the Western side of the play would probably operationally be different than the East side of the play. So as Jim mentioned, we’re certainly still learning, but if you refer to the type curves that we put out this morning, and you look at—first of all, let’s just go to the west side of the play, the condensate type curve, although we didn’t put it on the slide, the IRRs here are real, very strong, and we’re assuming that a well cost of, I think, $9.5 million and strip pricing. But with the assumptions and with the production that we’re seeing right now, and as you saw, we gave you 30, 60, 90 day rate, and we plotted it on the type curves for the 9 wells we had producing, although all of those wells have not been producing 90 days. But we’re still seeing IRRs of 55-77%. Those are really strong wells. Those are nice wells, and so again, we’re still learning how to produce and operate on this side of the play, but still very pleased with everything we’re seeing.”
  • Note: IRR stands for “internal rate of return,” and higher IRRs represent more profitable projects.

Utica Shale in early stages of development

Chesapeake Energy

  • “The Utica is a long ways from being HBP. But we’ve got long term leases there, so we have done some pad drilling and tried to be in a more focused area in the Utica to get started along pipelines. But no, we’ll have a lot of work to do in ’14 and ’15 to HBP our excellent lease hold position in the Utica.”
  • Note: HBP stands for “held by production,” and is used to characterize acreage that already has oil or gas flowing and being produced from it. Some acreage rights expire if production isn’t achieved by a certain time. Acreage that is “HBP” remains under the company’s control.

CONSOL Resources

  • “We are also transitioning in the Utica Shale from an exploration play to a liquids-rich development play.”
  • Note: This statement means the company is transitioning from a “test-and-see” mode to a “development” mode, where it’s more assured of the success of the play and can commit more capital to the play.

Continue to Part 6

  • Part 1 - Introduction: The Utica Shale is an important emerging oil play
  • Part 2 - Chesapeake Energy and its former CEO suggest huge Utica potential
  • Part 3 - Which major players are investing in the Utica Shale?