Unlike the quarterly production updates given by most energy producing states, Ohio only releases its statewide production numbers once a year. Investors finally received those much-anticipated production numbers from the state’s Utica Shale last week. Unfortunately, the overall results were rather disappointing — from all appearances the Utica appears to be filled with natural gas instead of oil.
While the numbers being reported by producers have been hinting that this would be the case, the report by the state’s Department of Natural Resources really confirms this to be true. The good news is that it would appear that there is significant natural gas in the Utica; however, unless the price for gas rises significantly this won’t turn into the $500 billion economic powerhouse that producers like Chesapeake Energy Corporation (NYSE:CHK) originally envisioned.
The state’s report included data from the 87 wells drilled last year and showed average oil output of 1,742 barrels per day against 35 million cubic feet of natural gas per day. With numbers like that, a play that was once viewed as the next Eagle Ford Shale because of its three distinct windows isn’t likely going to live up to the hype. That still doesn’t mean that the play is a dud.
In fact, the industry expects it will have drilled 360 wells by the end of this year while bringing 1,000 wells on line by the end of 2015. That’s quite heady growth for a play that just started development in 2011. What we are likely to see is a shift in which companies are bringing all those wells on line.
Chesapeake Energy Corporation (NYSE:CHK), which was the top producer last year with 10 Bcf of gas is already looking to scale back its operations; it has 100,000 acres up for sale. Meanwhile, Devon Energy Corp (NYSE:DVN) which didn’t produce anything from its five wells last year, is already packing up and moving on. The company has put its entire acreage position up for sale.
Other top producers in the play last year include Hess Corp. (NYSE:HES) and Gulfport Energy Corporation (NASDAQ:GPOR) which produced 923 million and 767 million cubic feet of gas, respectively. What’s interesting here is that Gulfport Energy Corporation (NASDAQ:GPOR), which is very much a liquids-focused company, is still betting big on the Utica. This year the company is planning to spend $499 million of its total $580 million capital budget in the Utica.