Analyst Says Ohio Figures Misleading, Predicts Surge in Gas, NGLs

(NGI's Shale Daily: May 24, 2013) Analyst Says Ohio Figures Misleading, Predicts Surge in Gas, NGLs

Although investors were disappointed by the Utica Shale production figures released last week by the Ohio Department of Natural Resources (ODNR), a surge in production should be at hand in the play as infrastructure comes online, according to an analysis from RBN Energy LLC.

In a blog post Monday, RBN analyst Sandy Fielden also predicted that midstream companies in the Utica will face a host of new challenges as significant condensate production comes online.

Last week, the ODNR reported that 87 wells in the Utica collectively produced 12.84 Bcf of natural gas and more than 635,000 bbl of oil in 2012. Industry experts responded by saying they were disappointed with the results, but conceded that a clearer picture was beginning to emerge over the location of the play's sweet spots for oil (see Shale Daily, May 20; May 17).

"Actually, the news is not all bad and we need to look deeper to understand the results and the real opportunities in this play," Fielden said. "Part of the reason that the ODNR results are misleading stems from the fact that 2012 drilling in the Point Pleasant shale formation in Northeast Ohio -- the sweet spot for producers -- was targeted in that part of the shale that produces primarily wet gas and not oil."

Fielden said producers were attracted to the oil window along the western edge of the Utica, but they weren't as successful there because the oil was locked in low-pressure formations. That, in turn, led the producers to target the wet gas area of the play in search of natural gas liquids (NGL).

"But when the analysts see data that indicates higher natural gas production they conclude that the Utica is a gas play rather than an oil play and expectations are reduced," Fielden said. "That is because low natural gas prices relative to oil mean that 'gas' plays don't generate the same excitement in the financial community as oil plays.

"However, it seems likely that the wet gas area of the Utica will produce large volumes of NGL and condensate. While these liquids may not be quite as valuable as oil they do provide considerable uplift over and above the price of natural gas."

Fielden cited 1Q2013 production figures from Gulfport Energy Corp. as reason to remain optimistic (see Shale Daily, May 9). According to Fielden, the Oklahoma City-based company, the third largest producer in the Utica, reported its first 14 wells averaged an initial production of 807 b/d of condensate, 7.8 MMcf/d of natural gas and 946 b/d of NGLs. Broken down, the production mix was 36% condensate, 36% gas and 28% NGLs.