Good News for These Utica Drillers?

For most of last year, companies drilling in Ohio's Utica shale complained that there wasn't enough gathering and processing infrastructure available in the play. As a result, many held back on bringing new wells on line, which kept production growth muted.

Going forward, however, things are expected to change as new infrastructure projects come online. Some $2 billion worth of projects have already been announced, while an additional $2 billion are expected to be revealed shortly. Let's take a closer look at one major new venture and the Utica operators that stand to benefit from it.

MarkWest: a leader in Utica infrastructure
Late last month, MarkWest Utica EMG, a joint venture between MarkWest Energy Partners (NYSE: MWE  ) and The Energy and Minerals Group (EMG), announced an additional expansion of its natural gas infrastructure system in the Utica shale.

The company will be building an additional 200-MMcfd cryogenic gas plant at its Seneca processing complex in Noble County, Ohio -- its third such facility in the region. The plant aims to support the rapidly expanding drilling programs of Antero Resources, Gulfport Energy (NASDAQ: GPOR  ) , and other operators located in the southern core of the play.

Markwest's first two cryogenic plants are slated to come online in the fourth quarter of this year and will support rich-gas production from Antero, Gulfport, Rex Energy (NASDAQ: REXX  ) , PDC Energy, (NASDAQ: PDCE  ) Consol Energy, (NYSE: CNX  ) and others. Once all three cryogenic gas-processing facilities are operational, MarkWest's Seneca complex should have processing capacity totaling 600 MMcf per day.

Meanwhile, MarkWest is also developing its Cadiz complex in Harrison County, which is heavily supported by production from Gulfport Energy. It also recently started up its 125-MMcfd Cadiz 1 plant, the first major cryogenic processing plant in eastern Ohio.

Currently, Markwest's Cadiz complex can process as much as 185 MMcfd, including a 60-MMcfd interim refrigeration plant. By mid-2014, with the completion of Cadiz 2 -- a 200-MMcfd plant -- and the removal of an interim plant, the Cadiz complex should have a capacity of as much as 325 MMcfd.

Potential winners in the Utica
As you can see, MarkWest commands a dominant infrastructure position in the Utica, which will only increase over the next several months. By the middle of next year, its midstream system in the play will consist of "more than 300 miles of gathering, five processing plants totaling almost 1 bcfd, and 100,000 b/d of C2+ fractionation capacity," according to a company statement.

In addition to infrastructure providers like MarkWest, other winners from the build-out of gathering, processing, and fractionation infrastructure in the Utica are the producers themselves. First up is Chesapeake Energy (NYSE: CHK  ) , the play's largest leaseholder and most active driller.

Though the company has much more riding on the Eagle Ford and the Greater Anadarko Basin than it does the Utica, it still plans on allocating about 11% of its drilling and completion capex this year to the play. Once new infrastructure comes online, Chesapeake expects to more than quadruple its average first-quarter natural gas volumes in the Utica this year.

Magnum Hunter Resources (NYSE: MHR  ) is another company that stands to benefit from new infrastructure in the play. Through recent acquisitions, it has boosted its total position to around 81,000 net acres. Having recently spudded its first Utica horizontal well in Washington County, Magnum expects the play to remain "a major focal point" this year.

Rex Energy, (NASDAQ: REXX  ) which is allocating more than 30% of its roughly $255 million capital budget for the year toward the Utica, stands out as another beneficiary of improving infrastructure. But the company that is perhaps most levered to the play is Gulfport Energy. (NASDAQ: GPOR  )

Indeed, Gulfport is quite clear about its big bet on the Utica, writing in its most recent investor presentation that its "large acreage position in Utica provides higher exposure per share than any C-Corp peers." With management planning to allocate three-quarters of the  company's budget toward the Utica this year, Gulfport is one company that should benefit handsomely from the flurry of new gas infrastructure slated to come online this year and next.

As Chesapeake Energy forges ahead with its ambitious plans for the Utica, Eagle Ford, and Great Anadarko Basin, will it 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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