The Utica Shale — How Desperate Is Ohio?

Source: Decline of the Empire

I didn’t expect to do an update on the Utica Shale of eastern Ohio so soon after I posted The Next “Oil” Miracle Will Be In Ohio on December 29. But a recent study written by some academics recruited by the Ohio Shale Coalition has forced my hand. They’re making me do it! The Huffington Post tells the story in Ohio Shale Drilling Could Boost Economy, Study Claims.

COLUMBUS, Ohio (AP) — An academic team enlisted by Ohio’s business sector released a study Tuesday that finds oil and gas drilling will mean more than 65,000 jobs and an almost $4.9 billion investment in the state’s economy by 2014.

Findings of the eight-month study were released to the media and members of the Ohio Shale Coalition, a partnership of energy interests spearheaded by the Ohio Chamber of Commerce.

The group commissioned the study in hopes of displaying the benefits to Ohio’s ailing economy of a boom in shale drilling, including the controversial practice of hydraulic fracturing, or fracking.

A team of economics, energy and geology experts from Cleveland State University, Ohio State University and Marietta College’s Department of Petroleum put together the report.

It found that by 2014, about $4.9 billion would be invested in Ohio’s economy by the industry; almost 66,000 jobs would be created or “supported” by industry growth; $433 million in local and state taxes would be generated; and energy companies would be paying wages and benefits totaling $3.3 billion.

Altogether, the industry will generate $1.7 billion for Ohio’s economy this year, $5.8 billion next year, and nearly $10 billion in 2014, the research found. Gross state product could grow by 1 percent, a significant increase from the 0.6 percent average for the past 13 years.

“This really has the potential of being transformational,” said Ned Hill, dean of the urban affairs college at Cleveland State University and one of the researchers.

The projected economic impact listed in the study

The astute observer of the oil & gas industry will want to know if there’s any production data to support these astonishing projections. And there is! Actual data! The study cited Initial Output of First Three Ohio Utica Shale Wells: Wow! from The Ohio Manufacturing Association.

In a meeting at the OMA offices, David Mustine, General Manager for Energy JobsOhio, Governor Kasich’s point person on development of the Marcellus and Utica shale oil and gas plays, reported to the Ohio Steel Council this week that the first three Utica wells have produced volumes that exceed expectations.  This very good news for Ohio and Ohio manufacturing.

Chesapeake Energy Corporation on Wednesday disclosed initial horizontal well drilling results in the wet gas and dry gas phases of the Utica shale play in three wells in eastern Ohio and one in western Pennsylvania.

And here’s that data—

A well in Harrison County achieved a peak rate of 9.5 million cubic feet (mmcf) per day of natural gas and 1,425 barrels (bbls) per day of natural gas liquids and oil (liquids), or 3,010 barrels of oil equivalent (boe) per day; a Carroll County well achieved a peak rate of 3.1 mmcf per day of natural gas and 1,015 bbls per day of liquids, or 1,530 boe per day; and a Carroll County well achieved a peak rate of 3.8 mmcf per day of natural gas and 980 bbls per day of liquids, or 1,615 boe per day.

The results are so strong that Robert Chase, chairman of petroleum engineering and geology at Marietta College, said “We have nothing to compare them to in Ohio.”

Wow! These numbers are not all that impressive in terms of natural gas liquids production. (And oil?) Nonetheless, we’ve been assured that peak oil is no longer a threat because of shale formations like the Utica. And of course we don’t know what the decline rates in these wells will turn out to be. That said, we have nothing to compare them to — in Ohio.

Aubrey K. McClendon, Chesapeake’s Chief Executive Officer commented, “The company is targeting a development program with average drilling and completion costs of approximately $5.0 – $6.0 million per well. Chesapeake is currently drilling with five operated rigs in the Utica Shale play and plans to increase its operated rigs up to 10 rigs by year-end 2011, up to 20 rigs by year-end 2012 and up to 40 rigs by year-end 2014.”

How many wells do you have to drill to produce significant amounts of dry natural gas and natural gas liquids at the cited production rates? And the answer is … lots!

From the study — “While speculative, these numbers are in keeping with other projections for Ohio. They are also more conservative than those seen at a comparable stage in the development of the Eagle Ford.32 The time frame contemplated in this study – 2011 to 2014 — will not likely see the peak of drilling and production activity. If drilling follows the pattern of the Eagle Ford, it is likely to level off at between 1000 and 2000 wells per year after 2014. Accordingly, this study will not likely capture the full economic development opportunity for Ohio, which is anticipated to happen some time after 2014.”

This speculative future miracle is coming at a time when natural gas companies, including Chesapeake, are suspending drilling operations and shutting-in production because it is impossible to make a profit producing shale gas with natural gas prices so low. See my post Shale Gas Production Is NOT Profitable At The Current Price.

The alert reader will have already noted the use of the word “speculative” in the study text accompanying the projection of wells drilled (Table 3 above). And we want to be fair here at DOTE, so let’s cite the study once again.

Understanding the economic impact of a potential new source of hydrocarbons in Ohio is complex, particularly in light of the speculative nature of the early, but promising, production numbers…

At the time this report is being published, only a handful of wells have been completed in the Utica Shale in Ohio…

[My note: we have initial data for three wells in Ohio, and no doubt Chesapeake is drilling the most prospective areas first.]

… although many more have been permitted. Few production numbers have been made publicly available. Accordingly, projections for oil and gas production to be realized in Ohio from shale formations are at best speculative. Nevertheless, flow tests and public announcements suggest that early prognostications of significant potential for oil gas liquids and gas production are on target. Fossil fuels comprise the most basic and critical energy resource that fuels the Ohio economy… (page 5)

So how desperate is Ohio?  You be the judge.

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