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Ohio, The Crossroads of the Shale Revolution Part 1

June 9, 2016 | By Warren Waite

The most prolific basin of the shale revolution has undoubtedly been the Marcellus, but its younger cousin, the Utica, is yielding the more impressive results during the energy price downturn. Ohio has become the crossroads of the shale revolution as the surge in Utica production and Marcellus volumes move west and south on expanded and newly built pipeline infrastructure.

For the last five-plus years and counting, Pennsylvania’s share of Marcellus production has reigned supreme. West Virginia’s Marcellus Shale production placed second, and Ohio’s Utica Shale lived in the shadows. However, in November 2015, Ohio produced 3.3 billion cubic feet per day (Bcf/d) of dry gas to overtake West Virginia’s 2.9 Bcf/d for the first time ever, according to PointLogic Energy data.

The Utica has now moved up to second chair in terms of Northeast production. This week’s Get the Point takes a closer look at the production trends in the Utica and is part one of a two-part series. The next article in the series will focus on how all that supply will fare with a slew of upcoming midstream projects aimed at moving gas west and south through the Buckeye State.

Over 99% of Ohio’s production comes from the counties represented in PointLogic’s Utica producing area (see orange shaded counties in the map below). Technically, the Utica Shale’s geology is about twice as big as the Marcellus and spans north through Quebec, Canada and southeast into West Virginia. However, it sits a few thousand feet below the Marcellus, making it more expensive to drill. Fortunately for Ohio, it becomes shallower near the Pennsylvania State line aiding the economics of this portion of the play.

Utica Producing Area

Prior to 2013, Ohio dry gas production consistently averaged about 0.2 Bcf/d on an annualized basis. Then by mid-2013 new production volumes started showing up on pipelines such as Dominion Transmission and Tennessee Gas Pipeline (TGP), and there was no turning back. By 2015, Ohio was producing roughly 2.6 Bcf/d, a staggering 1,112% increase from 2012 levels.

Marcellus/Utica Production History

Since December 2015, total Appalachian gas production in Ohio, Pennsylvania and West Virginia has grown by 3.0 Bcf/d, or 17%, while at the same time the Baker Hughes rig count for the same tri-state area fell by 95 rigs, or 73%, to the current 35 rigs that are operating today. The phenomenon of rising production and falling rig counts are covered in more detail in a prior Get the Point posting “Plummeting Rig Counts.”

Marcellus production is still growing, albeit at a much smaller pace. On an annualized percentage basis, the Utica Ohio is growing at a faster rate than its easterly counterparts. Annual production growth in the Utica rose 103% (0.22 Bcf/d) in 2013; 205% (0.88 Bcf/d) in 2014; 98% (1.3 Bcf/d) in 2015; and 36% (0.93 Bcf/d) 2016 year-to-date (see graphs below). 

Annual Production and Percentage Growth

Compare that to Pennsylvania, which increased by 45% in 2013 and at lower annualized rates of increase in the following years. Thus far in 2016, Pennsylvania Marcellus production is up 10% compared to 2015. The breakout year for Pennsylvania was in 2011, when production exploded 129%, adding 2 Bcf/d in just one year. So far this year, Pennsylvania has added 1.3 Bcf/d of new production, or 10% more than 2015 levels. West Virginia production is more or less flat to 2015 production rates.

Utica Production is Highly Concentrated

Unlike Pennsylvania, where strong production growth has occurred in both the dry portions of the state such as the Northeast PA-Dry producing area, and in the NGL-rich portions such as the Southwest PA-Wet, Ohio’s growth has been more concentrated. 

The Utica Shale has three main windows with different hydrocarbon mixes from a typical well: more oil-weighted, wet gas (rich in natural gas liquids or NGLs) or dry gas. Producers active in the Utica have further subdivided the oil window into Condensate West/East, Wet Gas into West/East, and the Dry Gas window into West, Central and East. Below is a visual of this stratification provided by Gulfport Energy alongside the locations of its wells and those of its competitors. 

Windows of Utica

The overwhelming majority, 87%, of Utica production comes from five select counties in the wet window: Belmont, Carroll, Monroe, Harrison and Noble Counties (see Ohio map at the beginning). On a wellhead basis, these five counties accounted for 2.35 Bcf/d of the 2.69 Bcf/d of Ohio production in 2015, according to Drilling Info data. It should be no surprise that all of the 11 active operating rigs today are located within a subset of these five counties. There are currently six rigs in Belmont, four in Monroe and one operating rig in Carroll, according to Baker Hughes data. 

2015 Wellhead Production

Diving further into state-reported well level production data highlights that five main producers account for about 89% of all production in those core counties mentioned above and 87% of production for the entire state of Ohio. The table below summarizes the daily wellhead production rate of Antero Resources, Chesapeake Energy, Gulfport Energy, Hess Ohio Development and Rice Drilling in 2015 for each producer by core county. 

89% of Most Active Utica Production

The most prolific production company in the Utica is Chesapeake Energy, followed by Gulfport Energy and Antero Resources. The financial health of each of the top five Utica producers varies, with some in a better spot than others. (While an equity analysis of these select producers is outside the scope of this report, all five producers are feeling the impact of low natural gas prices and taking the appropriate actions unique to their position necessary to satisfy their stakeholders.) 

Economic Exceptions

Generally speaking, in producing basins such as the Permian, Eagle Ford, Denver Julesburg and the Bakken, the more oil or NGLs one can extract, the higher the internal rate of return (IRR) is for that production.

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However, the Utica and sections of the Marcellus are exceptions to that rule. For example, the best economically producing wells in the Utica are in the Dry Gas window, and more specifically, the Dry East window reigns supreme.

How can this be if oil is worth more than gas and NGLs provide a price uplift for every well completed? It comes down to several variables, but the biggest driver in providing the best rate of return is a well’s initial production rate (IP rate). The more front-loaded a well’s type curve, the quicker that producer will recoup the investment cost and become cash positive net of operating costs, royalties and taxes. The commodity prices of oil or condensate, NGLs and natural gas do matter. However for the Utica, the monster IP rates coming from these horizontally drilled and fractionated wells takes priority.

For example, in Gulfport Energy’s May investor presentation, the company provided the line graph shown below that summarizes the half cycle well economics of a Utica well based on its operating experiences. The x-axis has various price assumptions for oil, NGLs and natural gas. The different cross swatches or windows within the Utica are represented by the applicable lines identified in the legend. The Dry Gas East window has the highest IRR, and then it diminishes as drilling moves west across Ohio. 

Utica Shale Economics

The curve assumptions per Gulfport’s presentation include 24-hour IP rates of 14,000 Mcf/d in the Dry Gas windows, 12,000 Mcf/d in the Wet Gas window and an average of 2,900 Mcf/d in the condensate windows. Information from other companies verifies this scenario: wells with ultra-high 24 hour IP rates have been reported by Range Resources (59,000 Mcf/d) and EQT (72,900 Mcf/d) in the last two years. The point being the IP rate potential continues to improve as producers finetune their drilling techniques in these still relatively early stages of development of the Utica Shale. 

Based on the Gulfport Energy chart above, the post-processed estimated ultimate recovery (EUR) for a typical Utica well has ranged from 5.7 billion cubic feet of energy (Bcfe) in the Condensate West window to 20.7 Bcfe in the Dry Gas East window. Well costs were about $0.9 million higher in the Dry Gas East at $9.6 million, compared to the Condensate window. However, that extra cost becomes less relevant when operating expenses are factored in. In year one of operation it costs $12,500 per well per month in fixed costs for a well in the Dry window, while the fixed costs in the Condensate are nearly double. The variable costs benefit the Dry window again, averaging just $0.05/Mcfe, while the Condensate variables run $0.15-0.17/Mcfe due to the added expenses of processing.


As with its older cousin the Marcellus, producers in the Utica have proved very capable at unlocking production. The difference with the Utica seems to be the enormous productivity of the wells being drilled in the play, besting even the impressive wells drilled in the Haynesville. The implications of bringing these super wells online in large numbers provide enormous potential opportunity for the region, as well as a host of challenges.

The supply and demand balance has quickly changed for the state of Ohio since production took off back in 2013. Favorable well economics from robust well performance and producer efficiencies have continued to bring new production to market despite the low hydrocarbon price environment.

How will Ohio handle all the excess Utica production it produces and all of the Marcellus sourced production that traverses into the state?

Numerous pipeline expansions and new builds are slated to go into service over the next year and half. Will this be enough or too much? What if some of the projects are delayed? What does all this mean in terms of price for the supply hubs within the Appalachian? These are some of the topics we take on in Part 2 of the Ohio, The Crossroads of the Shale Revolution series.

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