Natural gas: Drilling through the mysteries of the Utica Shale

One of the bookends for these disparate judgments is Chesapeake Energy’s Buell well in Harrison County southeast of Canton. The Buell well started production a year ago, with a combined daily production of oil, dry and wet gas equivalent to 3,000 barrels of oil. About half of the production was liquids.

The find fired the enthusiasm of Chesapeake CEO Aubrey McClendon, whose company has 1.3 million net acres of potential drilling sites in Ohio under lease. McClendon’s widely quoted assessment then was that oil and gas production in the Utica play could total $500 billion over time — “the biggest thing economically to hit Ohio since maybe the plow.”

The Buell well is currently producing 1,040 barrels of oil equivalent per day, and other Chesapeake wells in Harrison County and adjacent Carroll County are also delivering good results, the company reported this month. “We love what we see on the wet gas side,” McClendon said. So do officials at other companies, including Gulfport Energy and Antero Resources.

Gulfport said its Wagner well in Harrison County produced 17.1 million cubic feet of natural gas per day (equal in heat value to 2,850 barrels of oil), plus 432 barrels of oil and 1,881 barrels of natural gas liquids. “It has great deliverability,” said Tom Martel, chief geologist with Corridor Resources in Nova Scotia, who authored a paper on the Utica and comparable Canadian shale areas. “There is no question the production out of these [wet gas] wells is stellar.”

By contrast, shallower traditional Ohio wells that do not utilize hydraulic fracturing typically deliver 50,000 cubic feet of gas per day and less than 1 barrel of oil, said Gulfport, which intends to drill 200 wells in that area in the next four years.

The other bookend is the announcement by Devon Energy Co. that results from two wells drilled in Medina and Ashland counties west of Akron “were not encouraging,” without providing details. These projects were testing the western edges of oil-bearing shale in those counties, and given the premium price that oil receives over gas, the reports of failure undermined the rosiest Utica scenarios, at least for now, some analysts say.

The Devon wells “were so far west [that] it wasn’t a complete surprise that it didn’t work,” said Biju Perincheril, an energy analyst with Jefferies & Co. Inc. Devon says it will keep drilling.

Geologists explain that the Utica Shale tilts from shallower depths in central Ohio to deeper ranges along the Ohio-Pennsylvania border, where some wells have penetrated 2 miles or more below ground. The current sweet spot 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 mid-state may not have enough internal pressure to deliver oil effectively and profitably.

Figuring out the ‘oil window’

“Probably the biggest question is: How does the oil window work? We’re still waiting on data,” Perincheril said.

“It’s not that they’re abandoning the west, but the commentary has slowed down as they’re tried to figure it out,” said Ronald Mills, an analyst with Johnson Rice & Co. It is too soon to judge Utica’s oil potential, Chesapeake’s McClendon told analysts this month.

The first caveats about the potential Utica Shale output came from the state’s then-top geologist, Larry Wickstrom. In a 2011 report, Wickstrom and colleagues had assessed the Utica and linked the Point Pleasant Shale play at 17,000 square miles, nearly equal to the size of the Eagle Ford play in southeastern Texas, a top hot spot for unconventional oil and gas exploration.

Then, in March, Wickstrom surprised industry officials with an updated assessment that narrowed the play’s footprint considerably. Wickstrom’s PowerPoint presentation before the Ohio Oil and Gas Association on March 16 listed parts of a dozen Ohio counties with “excellent” or “very good” prospects, based on an analysis of rock core samples. All or parts of two dozen other counties in the play were rated “fair” or “poor.” Much of the “oily” part of the Utica Shale was low-rated.

Wickstrom’s presentation emphasized that the assessment was very preliminary and incomplete. There could be good finds within a “poor” region and failed wells in a “good” one. Only more drilling could answer the question, he said.

Industry and officials did not welcome the downbeat assessment. Companies hoping to sell acreage would not want that news. Nor would landowners hoping to sign leases and earn royalties. (Encore Energy Inc. in Kentucky, for example, has announced its intention to sell up to 175,000 leased acres in five southeast Ohio counties — two of which lie outside the revised Utica boundaries in the new Wickstrom map.)

Fatefully for him, Wickstrom also apparently surprised his bosses at Ohio’s Department of Natural Resources, which both regulates and promotes shale drilling. The 29-year veteran was removed May 9 as chief of the department’s Division of Geological Survey, after five years in that post. He has since retired.

His evaluation on April 12, obtained by reporter Russ Zimmer of the Media Network of Central Ohio under the state’s public records law, complained among other things that Wickstrom developed the new map “changing public perception about the shale play” but did not provide it to the division administrator until four days later.

“Outside scientific reviews of this new map question its accuracy and numerous landowners across southern Ohio are concerned about how the map may be used to devalue potential future mineral rights leasing,” the evaluation said. Those outside reviews had not been released as of last week.

Attempts to contact Wickstrom were not successful. Ohio DNR spokeswoman Heidi Hetzel-Evans said, “chiefs routinely serve at the pleasure of the director, and we don’t generally discuss personnel issues like that.” Wickstrom’s former colleagues at the Geological Survey would not discuss his situation.

“Our rig count continues to increase, and we see new companies continuing to come into Ohio,” Hetzel-Evans added. Any assessments now, however, are absolutely conjectural. “We are two to three years away from a good idea of what production we can expect out of the Utica Shale.”

Utica’s mysteries

This spring, Wickstrom and colleagues estimated that the Utica Shale’s potentially recoverable reserves could range from a low of 3.75 trillion cubic feet of gas and 1.31 billion barrels of oil to a high of 15.7 trillion cubic feet gas and 5.5 billion barrels of oil. The exploration is still too new to permit closer assessments, experts agree.

“In general, the Utica has been less intensively drilled over the years because it’s so deep,” said John Conrad, president of the gas-drilling consulting firm Conrad Geoscience Corp. in Poughkeepsie, N.Y. “We have a much better understanding of the Marcellus Shale,” which is several thousand feet shallower, he said.

Even the potential of the wet gas, Utica’s most promising product, is obscured for several reasons.

Ohio reports shale production annually — the next data are not due until next spring. On the production side, drillers have begun resealing wells for two months immediately after fracking to allow the fracking water to be absorbed into rock pores, opening an easier path for gas and oil production, notes Mills. “That has pushed the results out and left more of a question mark about the play than during the original excitement last year,” he said.

And the wet gas production won’t reach full capacity for another year or two, when new or reconfigured pipelines and processing units are in place to export gas liquids — ethane, propane and butane.

There are also intrinsic questions about the ultimate amount of shale oil and gas that can economically be recovered in the next decades, says the federal Energy Information Administration.

The current EIA annual outlook says that U.S. shale gas production could range from as low as 10 trillion cubic feet (tcf) a year in 2035 to twice that amount, depending on critical, unpredictable variables of prices, regulation, demand and technology.

EIA’s 2010 annual outlook using 2008 data estimated the technically recoverable shale reserves in Appalachia at 59 tcf, excluding economic factors. The next year, the boom in Marcellus exploration caused EIA to raise the estimate to 441 tcf, against the current annual U.S. gas consumption of about 26 tcf. Then, more constrained drilling results from representative Marcellus wells caused EIA to drop the estimate to 187 tcf this year.

“Many of these plays have only been drilled in what one would call sweet spots, so it’s not clear what other parts of the formation are able to produce,” said EIA analyst Philip Budzik in a June interview. “Most of these wells have had relatively short production times, so we don’t know what their long-term production rates are,” he said.

Another part of the riddle: shale gas and oil wells typically behaving very differently than conventional wells with production that ramps up — and then drops off — much more quickly.

“If you look at the [shale production] curve, it shoots up first. It comes down hard. Then there is the long tail,” lasting 20 years or more, Gheit said. The financing of shale oil and gas creates a bias for extracting the bulk of the production quickly, but then wells will continue to provide smaller rewards for a long time. “It’s like sitting on a toll booth,” Gheit said.

“But some shales drop off precipitously, and others hold up quite a bit longer,” Martel said. The difference can be critical for the project’s economics. “These are subtleties you don’t know until you produce the wells for a period of time.”

All of this leaves questions buzzing around the Utica play.

“So far, it has not lived up to expectations,” Gheit said. But time will tell.

Source of the article: http://www.eenews.net/energywire/2012/08/20/1