2 Companies Driving the Surge in Utica Shale Production

According to new data released by Ohio's Department of Natural Resources, energy companies drilling in the state produced more than twice as much oil and gas from the Utica shale in the third quarter of 2013 as they did in the entire year of 2012.

In the three months through September 30, 245 wells produced 1.3 million barrels of oil and 33.6 billion cubic feet of natural gas, the Columbus Dispatch reported on Wednesday, with the average Utica well producing 5,439 barrels of oil and 137 million cubic feet of gas.

By contrast, 85 wells produced 635,876 barrels of oil and 12.8 billion cubic feet of gas for the full-year 2012. The figures were released as part of a new law that requires companies drilling in Ohio's Utica shale to release production figures on a quarterly basis, as opposed to annually.

At any rate, two companies really stood out in terms of their performance: Gulfport Energy (NASDAQ: GPOR  ) , which boasted the top five gas-producing wells and the top producing oil well in the third quarter, and Chesapeake Energy (NYSE: CHK  ) , which lay claim to five of the top ten  producing oil wells.

Chesapeake Energy
During the third quarter, Chesapeake's net production in the Utica averaged approximately 164  million cubic feet of natural gas equivalent per day, representing a staggering 91% sequential increase. As of the end of the quarter, the company was operating an average of 11 rigs in the play and had drilled a total of 377 wells, including 169 producing wells and 208 wells that were awaiting a pipeline connection or were in various stages of completion.

Though the majority of Chesapeake's oil production growth next year will be driven by its operations in the Eagle Ford and the Greater Anadarko Basin, the company expects the Utica and Marcellus shales to be significant contributors to natural gas and NGL production growth, especially as gas processing and pipeline takeaway capacity in the plays improves over the next few quarters.

With the Utica East Ohio processing plant at Kensington, part of a joint venture between Access Midstream Partners (NYSE: ACMP  ) , EV Energy Partners (NASDAQ: EVEP  ) and M3, having added its second train in December  and with Enterprise Products Partners' (NYSE: EPD  ) Appalachia-to-Texas Express, or ATEX, pipeline expected  to begin commercial service this month, Chesapeake and other Utica producers will be able to significantly increase ethane volumes to the Gulf Coast in 2014.

Gulfport Energy
After recently adding  9,000 acres to its position in the Utica, Gulfport now boasts 154,000 gross leasehold acres in the Utica. During the third quarter, the company spud  14 gross (10.05 net) Utica wells and produced 662,000 barrels of oil equivalent, more than double its level of production in the second quarter.

Gulfport's first Utica dry gas well, the Irons 1-4H  well, delivered extremely strong initial results, posting an average 24-hour sales rate of 30.3 MMCF of natural gas per day in the third quarter. And considering that the company's five wells in Belmont County  were the top producing gas wells in the third quarter, Gulfport certainly appears to have some of the best acreage within the dry gas window of the play.

With roughly 87% of its $675-$725 million 2014 E&P capital program  allocated to its drilling program in the Utica, Gulfport expects to drill roughly 85 to 95 gross (64 to 71 net) Utica wells this year. And with plans to spend an additional $225 million to $275  million on Utica leasehold acquisitions during 2014, investors can expect the company to become even more leveraged to the play's success.

The bottom line
Though the sharp increase in third quarter production is promising, it also suggests that the Utica may be more gas rich, and less oil rich, than some experts had predicted. However, it may still be too early to draw any final conclusions as to the Utica's resource potential and oil/gas mix solely on the basis of third quarter data. That's why investors would do well to track well results from Gulfport, Chesapeake, and other major Utica producers in the coming quarters, as these will provide greater insight into the play's resource potential.

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