Shale Formation in Ohio, Pennsylvania, West Virginia Could be
Another Energy Barn Burner
Pittsburgh Post-Gazette
18 September 2011
By Erich Schwartzel
As executive vice president of the Ohio Oil and Gas Association,
Thomas Stewart has had a front-row seat -- but never an invitation
-- to the natural gas party happening in Appalachia's Marcellus
Shale.
"Up until now, we've all just been watching what a wonderful time
you're all having in Pennsylvania," he said.
That "until now" clarification comes courtesy of the oil and gas
in a different black rock underlying major portions of the Buckeye
State.
The Utica Shale, another relic from the primordial era, is deeper
and thicker than its Marcellus counterpart; but enthusiasm for its
reserves already has energy executives and landowners staking a
claim and making sure another trillion-dollar opportunity doesn't
pass them by.
Two major drillers, Chesapeake Energy of Oklahoma City and Consol
Energy of Cecil, recently announced exploratory plans for the
Utica Shale, evoking a sense of deja vu from the early, quieter
days of Marcellus development.
Attention so far has fixed on Ohio and the Utica's oil-rich
regions, but gas found in the Utica below southwestern
Pennsylvania and northwestern West Virginia are considered "very
worthwhile," said Nick DeIuliis, president of Consol Energy.
Under a joint venture with New York-based Hess Energy, Consol
initially will focus on the "dry gas" portions of the Utica Shale,
where extracted gas doesn't come with additional compounds like
ethane attached. Hess plans to operate in the liquid-heavy zones
of Consol's 197,000 Utica acres, said Mr. DeIuliis.
The deal between the two companies was worth $593 million -- a
bargain in the regional shale industry, which has become
accustomed to dealing in billions of dollars.
Mr. DeIuliis credits the recent interest in the Utica Shale to a
combination of price points: The land is still unexplored and
therefore cheaper than Marcellus acreage, and the price of oil is
hitting record levels.
Oil is currently trading at nearly $100 per barrel, so it's "not a
shock" that the Utica has sparked interest, said Mr. DeIuliis.
Consol is counting on the tapping of the resources there being a
"30- to 40-year opportunity for our shareholders."
There's a lot of acreage still left: The Utica covers a larger
swath of land than the Appalachia-centered Marcellus, heading as
far south as Tennessee and as far north as Canada.
In parts of southwestern Pennsylvania, about 5,000 feet separate
the two formations. In Ohio, they're closer together, with between
2,000 and 3,000 feet of other formations separating them. Both
proximities would allow companies to "double-dip" into both
formations from the same well site.
Companies would most likely drill in the Utica first and then work
up to the Marcellus, said Robert Ryder, a petroleum geologist with
the U.S. Geological Survey in Reston, Va.
The Utica is nearly 100 million years older than the 350
million-year-old Marcellus Shale, and reaches depths of nearly 2.5
miles. It also tends to be thicker than the Marcellus rock,
topping out at nearly 900 feet, or about as thick as the Trump
Tower in New York City is tall.
The 450 million-year-old rock now getting its 15 minutes of fame
started as an ocean floor resting beneath a shallow pool of water,
said Mr. Ryder. "It was a place that allows a lot of organic
material to live, and more and more sediment gets piled on top."
The rock contains hardened zoo plankton, smaller plants and
microscopic organisms -- all fossilized remains that turn into
Texas tea if given 450 million years.
The Utica Shale's closer proximity to the heat of the Earth's core
allowed oil to develop. The Marcellus Shale has "the ingredients
to form oil," said Mr. Ryder, but geologists haven't found any
substantial amount.
And while domestic enthusiasm for the Utica Shale has focused on
its oil reserves, energy firms have already extracted natural gas
from Utica drilling sites in Quebec using the hydraulic fracturing
technology that splinters rock and allows natural gas to escape.
Wall Street interest took off in late July, when Chesapeake Energy
CEO Aubrey McClendon announced to shareholders that his company
had quietly accrued 1.25 million acres of land in the Utica Shale
that it believed to be worth between $15 billion and $20 billion.
The company raised its drilling budget by $500 million to $6.5
billion this year, in part to account for the Utica development.
Mr. McClendon even went on CNBC's "Mad Money" show to talk up the
discovery with host Jim Cramer, positioning himself and his
company as the first Utica stakeholders.
Consol Energy soon followed, causing industry watchers to draw
parallels to when exploration in the Marcellus Shale was in its
infancy.
"Marcellus is a young adolescent that's coming of age and, so far,
so good," said Mr. DeIuliis. "The Utica is just a toddler ... ; it
feels so much like the Marcellus did three years ago."
The Utica Shale didn't catch anyone by surprise -- experts have
been aware of it for a while -- but successful use of the
hydraulic fracturing technology in the Marcellus Shale led
companies to eye the other play."It played out at the rate
everyone anticipated," said Mr. DeIuliis.
Landowners across Pennsylvania have already hedged their bets on
using the Utica Shale for a second payday, said John Smith, an
attorney at Smith Butz LLC in Southpointe.
"On the leasing front, we separate Utica from Marcellus," he said.
That gives landowners the chance to sign two leases on the
separate shales underneath the same property.
"It's just like leasing new ground," he said. "You could
conceivably have a number of different companies leasing different
layers of ground."
Mr. Stewart, of the Ohio industry group, praised his state's
lawmakers as welcoming to the industry and said some of the
drilling growing pains -- namely, community outcry over the
controversial fracking technique -- might be mitigated by the
region's history with extraction.
"All of Eastern Ohio is very used to seeing oil and gas
development, and seeing drilling and completion operations," he
said. "That's a yawner for them."
What has become a subject of debate is whether to tax the
industry, with many proponents seeing a driller tax as a possible
antidote to the budget shortfalls facing small communities across
Ohio.
Mr. Stewart's organization has also seen increased interest from
shale cottage industries, such as industry consultants, law firms
and environmental groups.
But the on-the-ground side effects like crowded restaurants or
overbooked hotels haven't hit just yet.
"It'll accrue at a more moderate pace than what happened in
Pennsylvania, in a more -- what's the word? -- rational way," he
said.
Erich Schwartzel: eschwartzel@post-gazette.com or 412-263-1455.