The Utica Shale Won't Be Held Back for Long

It hasn't been easy for oil and gas producers as they've drilled into the Utica Shale of Ohio. Producers have faced a number of issues, including finding the play to be much less oily than hoped, while facing push-back when using water for fracking even as production is being held back by a lack of infrastructure. This has made several producers think twice about whether the Utica will ever develop into a top-tier play.

While producers can't do much about what resources are found underground, the infrastructure issues appear to be coming to an end. That's great news for the region, as Chesapeake Energy  (NYSE: CHK  )  has long since said that the lack of infrastructure is what is holding the Utica Shale back from displaying its true potential. Consider that Chesapeake has drilled 249 wells into the play, yet just 66 are currently producing. The company still had 86 wells waiting on pipelines, while 97 were in various stages of completion. To have more than a third of its wells just waiting for infrastructure is a problem.

MarkWest Energy  (NYSE: MWE  )  has taken this as a challenge and will soon be the top infrastructure provider in the region. During the year it plans on bringing a 100,000 barrel per day fractionation facility on line with truck, rail, and pipeline access. This facility will also have access to fractionation facilities in the Marcellus Shale. This addition broadens a portfolio that already houses multiple facilities capable of refrigeration, cryogenic processing, and fractionation. As you can see from the following slide, the company has a number of projects under construction to meet the growing needs of producers in the region.  

Source: MarkWest Investor Presentation

Outside of MarkWest, Dominion Resources (NYSE: D  ) , through its Blue Racer Midstream joint venture, is investing heavily to provide infrastructure to the play. The company is adding to its high-pressure gathering system which will have handling capacity of up to 2 billion cubic feet per day. The venture is also adding up to 2 billion cubic feet of incremental processing capacity in the region. As production grows the venture can be expanded further to take advantage of those opportunities.

These infrastructure additions are important for Gulfport Energy  (NASDAQ: GPOR  )  which is pouring nearly all of its resources into developing the Utica's assets. If its wells provide the type of production it is expecting, this infrastructure build-out will prove critical to Gulfport's ability to deliver its product to market. The additions are also important for Rex Energy (NASDAQ: REXX  ) which is investing more than 30% of its more than $255 million 2013 capital budget to develop its acreage in the Utica.

As more wells have access to infrastructure it will really give us a clearer picture of the Utica's potential. MarkWest is really leading the way as it is developing the leading position in the southern core of the play. By the end of next year it should have over 900 million cubic feet per day of processing capacity along with 100,000 barrels per day of fractionation capacity. The good news here is that the Utica's potential won't be held back much longer. 

This will also help Chesapeake Energy as the company refocuses its efforts in the play. Having access to infrastructure will enable the company to sell its production which will only increase the value of its acreage in the region. To learn more about Chesapeake and its enormous potential, as well as the problems the company still faces, 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.


Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 04, 2013, at 5:29 AM, Khizhim wrote:

    What is the exact source of the image which Matt has included with his commentary? Funny you should ask; I have it right here. As you can see, it's taken from page 21 of a MarkWest "Investor Presentation" which is identified as prepared for an "Investor & Analyst Conference" on May 29, 2013 The 92-page PDF of the presentation is chock-full of interesting and informative slides of this type. It's now the most recent "Investor Presentation" which is listed on the MarkWest "Presentations and Webcasts" page, at:

    http://investor.markwest.com/phoenix.zhtml?c=135034&p=ir...

    The address of this specific PDF is:

    http://investor.markwest.com/phoenix.zhtml?c=135034&p=ir...

    Matt, would it be possible for you to provide this type of information in the future when you include small copies of screen shots of images? Can you identify sources more explicitly, or even give us directly, clickable text links to the online documents, so we can obtain full-sized copies for ourselves, and so we can browse through these presentations in order to see the rest of their content?

  • Report this Comment On June 04, 2013, at 5:35 AM, Khizhim wrote:

    Mea Culpa. Correction: The direct address of the 92-page PDF of the 5-29-13 MarkWest Investor Presentation is:

    http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9N...

  • Report this Comment On June 05, 2013, at 12:02 PM, TMFmd19 wrote:

    Khizhim - I can look to incorporate links in the future. Thanks for mentioning it.

    Matt

  • Report this Comment On June 07, 2013, at 7:56 PM, Khizhim wrote:

    Thanks, Matt.

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