Not many people had heard the terms “Utica shale,” “fracking” or “natural gas liquids” as recently as a few years ago.
That’s changing quickly. Development in Ohio’s Utica shale formation is still in its infancy, but its huge potential for jobs and the state’s economy is becoming clearer.
To date, 45 Utica shale wells are in the production stage in Ohio and those sites, which employ horizontal drilling and hydraulic fracturing, or fracking, are yielding staggeringly big numbers for natural gas, oil and such natural gas liquids as ethane, butane and propane.
In fact, those 45 wells are producing enough natural gas to equal 40 percent of what’s being produced by the 64,000 existing vertical-only wells in Ohio, said Tom Stewart, executive vice president of the Ohio Oil & Gas Association in Granville.
“That’s something that has really happened, and it tells you how big the Utica shale is,” he said.
The fact energy companies like Chesapeake Energy Corp. and Anadarko Petroleum Corp. are very active in Ohio is “a flabbergasting development,” Stewart said.
Major oil companies, including BP, Exxon-Mobil, Chevron and Shell, are all major players in eastern Ohio, he said. Five years ago, that would have been unthinkable.
“What’s happening is Ohio may be slow, but it’s a methodical process and the results are very significant,” said Christina Polesovsky, associate director of the Ohio Petroleum Council. “It takes time to get things moving, and the Utica shows great promise.”
Additional drilling companies continue to be drawn to Ohio, state spokeswoman Heidi Hetzel-Evans said, and permitting requests remain steady.
As 2012 drew to a close, the Beacon Journal examined the oil and gas industry in the state, particularly the drilling in the Utica shale formation in rock thousands of feet underground in eastern Ohio.
Last year was marked by big investment, exploration, testing and preliminary development. A glut of natural gas nationwide, which has driven down prices for the commodity, has slowed actual drilling in Ohio in recent months.
Leasing also has slowed, with the 16 biggest companies now holding drilling rights on more than 4 million acres in eastern Ohio.
In 2012, Ohio toughened its drilling rules and added inspectors.
Lines hardened between those who support horizontal drilling and those who are concerned by what they view as threats to clean air and water. Injection wells for fracking wastes also remained in the news after earthquakes in the Youngstown area.
This year promises to be one of additional build-out, with much-needed pipelines and processing facilities coming online and more wells, perhaps as many as 500, being drilled in Ohio.
The lack of needed infrastructure to get Utica products to market must be addressed to reaccelerate development in Ohio, energy companies have said.
Large investment
It was only two years ago that Chesapeake Energy began drilling its first Utica shale natural gas well in Ohio. Today, the company has invested $3.3 billion in the state and has drilled 134 wells.
The company, based in Oklahoma, and its partners intend to drill about 200 more wells in 2013.
Chesapeake has seen its employment in Ohio grow from 40 in January 2011 to 550 people who live in Ohio, Keith Fuller, the company’s senior director of government affairs, said in a company statement. Their salaries total $32 million annually.
“Chesapeake has been operating in Ohio for a little more than two years now,” he said. “In that time, we have experienced tremendous growth that has benefitted both state and local economies, as well as landowners in the eastern part of Ohio.”
Chesapeake and other drillers typically pay landowners one-time signing bonuses based on acreage plus a percentage of royalties — generally ranging from 12.5 to 20 percent — from what the wells produce. Signing bonuses in Ohio have topped $6,100 an acre in some counties.
“Having grown up in this part of Ohio, it is exciting to see so many locals benefit from the increased jobs, investment and personal wealth associated with Utica shale development,” Fuller said. “And we, at Chesapeake, look forward to further expanding the benefits of this economic opportunity.”
The company also has spent more than $58 million on Ohio road improvements tied to its wells, Fuller said.
The company said it has donated nearly $1 million to local charities.
In late September, Chesapeake had 32 of its 134 total wells in production; 37 were waiting on pipeline; and the 65 others are in various stages of completion.
Chesapeake has released production data from only six wells: in Carroll and Harrison counties. It must provide data on the new 2012 production to the Ohio Department of Natural Resources this spring.
Chesapeake has said that 28 of the first 87 wells it drilled in Ohio are producing in excess of 1,000 barrels per day of oil equivalents — a combination of natural gas, oil and natural gas liquids.
Chesapeake calls Carroll, Columbiana and Harrison counties its “core of the core,” and CEO Aubrey McClendon said his company is “absolutely thrilled” by early results from those areas.
Permits surging
Through Dec. 15, Ohio had issued 485 Utica shale permits — 177 of them in Carroll County, Ohio’s No. 1 drilling spot. Nearly 200 wells have been drilled.
Ohio had two Utica shale permits filed in 2010, 87 in 2011 and 388 in 2012 (a total could grow based on final figures), said Mike McCormac of the Ohio Department of Natural Resources’ Division of Oil and Gas Resources Management.
Each Utica well, tapping oil and gas at depths between 3,500 and 10,000 feet, can cost $5 million to $10 million.
Total Utica production in Ohio remains modest: less than 10 billion cubic feet of natural gas per day.
But the U.S. Geological Survey estimates that the Utica shale might contain as much as 61 trillion cubic feet of natural gas, plus 16 million 42-gallon barrels of natural gas liquids and 1.4 billion barrels of oil.
The United States uses about 24 trillion cubic feet of natural gas per year, with the average house using about 70,500 cubic feet of natural gas annually.
Companies are all fine-tuning their Ohio holdings.
Chesapeake has said it intends to sell off noncore areas in eastern Ohio. EnerVest, through its EV Energy Partners, has decided the cost of developing the Utica shale was more than it wants to invest. It is selling 539,000 acres of its Ohio land holdings that might be valued at $6 billion. That sale is expected in early 2013.
Other companies are buying available acreage to add to their holdings.
Additional drilling
Going into 2013, McCormac, from the ODNR, expects additional drilling and attention in Belmont County, where, to date, only 11 permits have been approved.
That’s because Gulfport Energy Corp. in November reported it has the No. 1 gas-producing well in Ohio, in the western part of the county.
Interest also is growing in Guernsey, Monroe and Noble counties, McCormac said. Those three counties together account for 63 drilling permits to date.
One of the biggest mysteries surrounding the Utica shale in Ohio is where drillers might find viable reserves of oil, a lucrative commodity that has been elusive.
Most of the companies believe it will be found west of the liquids-rich area stretching from Columbiana to Noble counties, but no one has been able to pinpoint the oil hot spots yet. Current and anticipated industry growth in Ohio led the state to beef up its staff.
Ohio has seen its employment related to oil-gas development grow from 35 to 110, McCormac said. The state is confident it has the needed rules and inspectors to oversee the Utica boom, he said.
Stewart and others say the biggest concerns moving forward are the possibility of tighter federal restrictions on fracking and additional state rules and a bigger severance tax.
Gov. John Kasich has proposed a bigger severance tax that would be turned into an income tax refund for Ohioans. That proposal awaits action in the next session of the Ohio legislature.
“That’s a huge concern and will have a big impact on our industry,” Stewart said.
Bob Downing can be reached at 330-996-3745 or bdowning@thebeaconjournal.com.