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In Ohio, Utica Shale rig counts may be skewed to favor oil

The most recent map of drilling rigs in Ohio’s Utica Shale play. Triangles designate “oil” rigs at work; circles are “gas” rigs. Map courtesy of the Energy Information Administration, from Baker Hughes rig count data.

©2012 E&E Publishing, LLC
Republished with permission

By Peter Behr

Have prospectors struck oil in Ohio? Again?

That’s certainly what one might think after reading the latest Energy Information Administration report on drilling in the state.

Drawing on the widely read reports on drilling rig activity published by Baker Hughes Inc., EIA said in a “Today in Energy” mini-report last week that there were twice as many active rigs in Ohio’s Utica oil and gas play at the end of October than a year ago. And the big difference was oil exploration.

“The growth in active oil-directed rigs has more than offset the declines in active gas-directed rigs. According to Baker Hughes, about 86 percent, or 24 out of 28 active rigs in the Utica play, were directed toward drilling for shale oil,” EIA said. A year ago, 15 percent were looking for shale oil in the state.

That is a head-scratcher for Ohio’s reborn energy sector. The mother lode in eastern Ohio is believed to be natural gas of the “wet” kind, in which methane pipeline gas is spiked with valuable natural gas liquids — ethane, propane and butane.

Aubrey McClendon, chief executive of Chesapeake Energy Corp., the biggest player in the Utica Shale, said this month it is not a place “where we are going to probably see a huge amount of oil production growth.” He added, “And to the extent the oil works, it will be with some other companies,” according to news reports of his remarks at an energy conference.

Another executive speaking at the same conference in Pittsburgh disagreed. “I suspect that in Ohio, once we get the right completion method, we will have oil wells flowing,” said John Walker, president and CEO of Houston-based EnerVest.

So far, the focus of drilling activity has been wet gas, industry leaders and state officials agree. The expectation of a large amount of gas liquids has prompted commitments to build new facilities to separate ethane and other gas liquids, and ship them to processing plants outside Ohio.

Utica’s first wells have turned up varying amounts of hydrocarbons, with gas clearly in the lead. Gulfport Energy’s Shugert well in Belmont County, Ohio, delivered a daily initial rate of 20 million cubic feet of natural gas and 2,002 barrels per day of natural-gas liquids, which far exceeded the value of the 144 barrels of oil per day the well produced.

The reason for the big spurt in “oil” rig activity is a matter of labeling, with an eye on Wall Street, some industry experts say. The long spell of low prices for pipeline gas has given “dry” gas drilling a bad odor. So some rig operators simply report they are looking for oil.

Oh, just call it oil

Baker Hughes says operators are responsible for labeling their wells as “gas” or “oil.” A well that delivers 50 percent gas, 20 percent gas liquids and 30 percent oil, based on equivalent energy values, could be classified either as a gas or an oil well, depending on whether the value or volume of the output was the measuring stick, the company says. But it’s up to the operator, the company says.

“For the most part, the delineation between oil and gas rigs is a weak relationship,” said Luke Larsen of LCI Energy Insight, a supplier of gas and oil analysis to EIA.

Investors are much more pleased to see a company reporting oil rig activity than gas, and that has tilted the labeling of the rigs in oil’s favor.

“It’s pretty much irrelevant what the rig is designated,” Larsen said. “Nobody is going after dry gas. Of course they’re going to call as many [of them] oil rigs at they can. I hate to say that. But it’s reality.”

Kevin Petak, vice president for gas model marketing at the ICF International consulting firm, said, “Most people who know the source of the rig data are pretty well aware of the reporting issues. They’re not assuming that it’s gospel.”

Ohio’s energy development story began in 1885 with oil, when deposits were found in the state’s northwestern corner. The Utica Shale is a different formation. It tilts from shallower depths in central Ohio to deeper ranges along the Ohio-Pennsylvania border. The geology on the state’s eastern fringe has the right combination of age, depth and pressure to produce wet gas. The less mature oil-bearing sections midstate may not have enough internal pressure to deliver oil effectively and profitably, industry experts say.

Larry Wickstrom, Ohio’s top state geologist at the time, raised eyebrows last March with an assessment that downgraded the Utica Shale potential in parts of the state, including the counties in the western segment of the play where drillers hope to find oil. Devon Energy Co. further dampened the oil outlook, reporting that results from two oil wells west of Akron “were not encouraging” (EnergyWire, Aug. 20).

The mix of Utica’s hydrocarbons, the size of the reserves and their production rates all remain to be seen, industry and government officials agree. Ohio Department of Natural Resources spokeswoman Heidi Hetzel-Evans commented earlier this year, “We are two to three years away from a good idea of what production we can expect out of the Utica Shale.”

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