Ohio is home to two shale formations, the Marcellus and the Utica. While the former's sweet spot for energy production is located mostly in New York, Pennsylvania, and West Virginia, the best part of the Utica sits under the earth in Ohio. Development of this lucrative shale play is not nearly as far along as the Marcellus, but that is changing fast, creating a multitude of opportunities for investors to cash in.
The state of Ohio
The Ohio Department of Natural Resources estimates that the Utica shale contains 1.3 billion to 5.5 billion barrels of recoverable oil, and 3.8 trillion to 15.7 trillion cubic feet of recoverable natural gas. Ohio's economy is expected to surge as oil and gas companies move to exploit these resources.
A study by Cleveland State University found that shale drilling will add $5 billion to the state's economy by 2014, creating 66,000 jobs.
The Ohio Department of Natural Resources has issued 132 drilling permits over the past six months. Though there are few producing wells in the Utica right now, the ones that are up and running are generating some very promising results. Chesapeake Energy had five wells in eastern Ohio produce 2.6 billion cubic feet of natural gas last year. One well alone produced 1.5 bcf, which is equivalent to 2% of Ohio's total natural gas production.
As a result of the changes coming to Ohio via the energy industry, Gov. John Kasich has developed an energy policy that he hopes will be in place by June 30. The legislation includes rules governing well construction and hydraulic fracturing, as well as new payments that oil and gas companies will have to give to local governments.
The new rules are unlikely to deter investment by the industry, especially the big players. Here are five companies making moves to cash in on Ohio:
Don't be surprised if Chesapeake opts to monetize more of its acreage at some point. At the end of December, the company sold a 25% stake in 619,000 acres to Total for $2.3 billion. Even after its most recent deals, analysts estimate Chesapeake is still $3 billion short of covering expenses this year. To this end, the company announced it expects to generate up to $10 billion in additional transactions this year.
EV Energy Partners
EVEP controls 780,000 acres in the Utica, a portion of which it expects to monetize in the future.
Clean Energy Fuels
Clean Energy's network now comprises 257 stations across the U.S. and Canada. The company plans to open 70 more stations this year across 33 states, including Ohio.
Foolish bottom line
The potential of Ohio's energy future is so enticing that even increasing taxes on commodity production isn't scaring off companies with the means to develop oil and gas resources. Investors reaching the same bullish consensus on the future of the state's energy should also check out another energy stock setting up shop in Ohio.