3 Companies Betting Big on This Emerging Shale Play

The great thing about America's shale oil and gas revolution is that new shale plays keep popping up from time to time.

Currently, the two hottest shale plays are arguably North Dakota's Bakken and Texas' Eagle Ford. These oil-rich formations are especially attractive because the price of oil is high, providing producers with a major incentive to keep drilling.

But there's a downside to these plays. Because they've already proved their mettle and boast at least a few years of very impressive production history, land lease prices and production costs are sky high. That's why energy companies continue to search for the next big resource play, hoping to establish a substantial acreage position while the land is cheap and competitors few and far between.

A case in point is the Utica, an emerging shale play that spans several states, though the majority of drilling activity so far has been focused in Ohio. Initial assessments suggest that the Utica's resource potential could be on par with that of the Eagle Ford.

Based on encouraging initial test well results, several energy companies have expressed enthusiasm about the Utica's prospects. Let's look at three major ones.

Chesapeake Energy
First up is Chesapeake Energy (NYSE: CHK  ) . After discovering the Utica in 2010, Chesapeake remains one of the most active operators in the play. As it stands, it is the largest leasehold owner, boasting approximately 1 million net acres. To date, it has drilled a total of 184 wells in the play, of which 45 are currently producing.

Chesapeake's well results so far have been quite impressive, with several of its wells reporting daily production rates in excess of 350 bbls of oil per day. Two recent well completions in the company's core drilling area in Carroll County, Ohio -- the 8H Houyouse "15-13-5" and 8H White "17-13-5" -- posted rates of 465 bbls and 390 bbls of crude oil per day, respectively.  

Though the company was initially very bullish about the play's oil potential, it has since scaled back its expectations. It even recently announced that it no longer views the Utica as central to meeting its oil production growth target for the year, though it remains optimistic about the play's dry gas and gas liquids potential.

Going forward, it will be focusing its drilling efforts primarily in the wet gas window of the play inside of its joint venture with Total (NYSE: TOT  ) , where it commands 450,000 net acres. Within this area, the company is projecting expected ultimate recoveries of five to 10 bcfe.  

Magnum Hunter Resources
Next up is Magnum Hunter Resources (NYSE: MHR  ) , a Houston-based energy explorer and producer. In February, the company closed on the acquisition of about 15,500 gross leasehold acres located primarily in Noble County, Ohio, through Triad Hunter, its wholly owned subsidiary. That brings Magnum Hunter Resources' total position in the Utica shale to a little over 61,000 net  acres.

The company has announced plans to drill at least four Utica test wells in Ohio this year. If results are encouraging, it will develop its leasehold position further later this year. The company is currently constructing its first pad in Washington County, Ohio, that will probably be used to drill the four horizontal wells.  

Gary C. Evans, Magnum Hunter's CEO, expressed his enthusiasm about the company's position in the Utica, saying, "The Utica Shale of Ohio will be a major focal point for our company this year as we prepare to drill our first well in this exciting new resource play." Depending on the results of its test wells, the Utica may prove crucial in helping the company increase production and cash flow, while reducing its uncomfortable level of debt.

Gulfport Energy
Last but not least is Gulfport Energy (NASDAQ: GPOR  ) . Most recently, the company announced that it will purchase roughly 22,000 acres in the eastern Ohio portion of the play from Windsor Ohio, an affiliate of Wexford Capital, a Connecticut-based investment manager focused on energy and natural resources. This most recent purchase, announced last month, will bring Gulfport's total acreage in the Utica to around 128,000 acres, making it one of the dominant names in the play.  

Encouraged by impressive initial results, Gulfport CEO James Palm touted the Utica as having "exceptional potential." Not surprisingly, the company plans to allocate the vast majority of its capital budget for 2013 toward its operations in the play. It plans to drill roughly 50 gross wells this year, many of which will be situated on pads adjacent to existing wells.

Final thoughts
Going forward, these and other companies' enthusiasm about the Utica may be partially vindicated by production data scheduled to come out shortly. One of the major reasons there's such a paucity of data for the Utica is that Ohio reports production statistics only annually, as opposed to quarterly as most other states do.

Well, the Ohio Department of Natural Resources will release that annual data next month, which should provide investors with a meaningful glimpse into the play's potential. The DNR report will include data on between 50 and 60 wells drilled in Ohio's Utica last year, including each well's output, its location, and its operator.

These statistics should offer a better understanding of where some of the most productive zones lie and which companies have managed to secure the most promising acreage. For those interested in this data, be sure to check it out next month on the Ohio DNR website.

Chesapeake may have scaled back its expectations about the Utica's oil potential. But it still has several core holdings to help it transition away from natural gas production and toward oil. Will the company manage to meet its oil production target and boost cash flow? Or will it languish under the weight of its heavy debt load? To answer that question and to learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy, and as an added bonus, you'll receive a full year of key updates and expert guidance as news continues to develop.


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