The Utica shale may not ring any bells for the average investor. But, utter that name around energy industry professionals, and you're sure to rouse a lively debate.
An up-and-coming shale oil and gas play, the Utica stretches across Ohio, New York, Pennsylvania, Virginia, and West Virginia, though drilling to date has centered primarily in Ohio. Due to some major similarities with Texas' highly productive Eagle Ford play, energy companies are buzzing about the play.
Unfortunately, however, relatively very little is known about the Utica's true potential due to Ohio's lack of transparency in reporting production data. But, for those who have invested in companies with major operations in the Utica, especially those more leveraged to the play like Gulfport Energy (NASDAQ:GPOR), Rex Energy, and Magnum Hunter Resources (NYSE: MHR), new, soon-to-be-released data should provide a much better glimpse into the play's potential.
Next month, the state of Ohio will publish a comprehensive report detailing the Utica's well results for 2012. These results are sure to have major repercussions for the handful of companies that have plowed millions of dollars into the play.
Let's take a closer look at why Ohio has been so secretive, the specifics of the data it will soon reveal, and implications for some of the Utica's major drillers.
Limited production data and regulatory constraints
Currently, Ohio state regulators request Utica operators to disclose production statistics only on an annual basis, whereas virtually every other state in the country publicly discloses production statistics and drilling data on a quarterly basis.
Moreover, major drillers in the Utica have only disclosed information about half of their producing wells in the Utica, according to an analysis by Reuters. In addition, much of the data is limited, and drillers aren't required by law to release results on a per-well basis.
As Reuters highlighted, lawmakers last year were pushing to include a clause within a new energy bill that would have required Utica producers operating in Ohio to publicly release energy production statistics on a quarterly basis.
But, following discussions with oil and gas industry executives, lawmakers rejected the inclusion of the clause. In fact, the new law actually prevented Ohio's government from releasing the quarterly production data it obtains from Utica producers operating in the state.
Crucial data to watch
At any rate, the time is upon us for that annual data to finally be publicly disclosed. The Ohio Department of Natural Resources (DNR) announced that it will be publishing a comprehensive report next month that will include new data from Ohio's oil and gas wells.
Producers operating in the Ohio Utica are required to submit production data to the department on March 31, information which it will subsequently make available on its website in April. Though the department did not provide a specific date, it published the data last year on April 2.
The information provided will include only those wells that produced hydrocarbons in 2012, which equates to roughly between 50 and 60 wells. That's a lot more data than last year, when the DNR published production data from only five wells.
Interestingly, that sparse collection of data is the only information officially disclosed by the state since drilling began in 2011, though several producers have provided production data for individual test wells.
That just goes to show you how important the new information will be; its release is sure to be closely watched by traders, investors, and the industry at large. Specifically, the new report will include data on output over the lifetime of each well, as well as other important information such as the well's location and operator.
Companies to keep an eye on
The company that has the biggest presence in the Utica is Chesapeake Energy (OTC:CHKA.Q), which discovered the play in 2010. As it stands, Chesapeake remains the Utica's largest leasehold owner, boasting approximately 1 million net acres. Though the company recently said it no longer views the Utica as central to reaching its oil production target, it obviously still has a major stake in the play.
Other lesser-known players include Gulfport Energy and Magnum Hunter Resources. Gulfport, which boasts about 128,000 net acres in the play, owes a debt of gratitude to the Utica. Ever since it announced having drilled its first three Utica wells back in June of last year, its share price has skyrocketed by nearly 200%. Encouraged by high peak rates for its wells, the company remains highly optimistic about the Utica's potential.
Magnum Hunter, which closed on an acquisition last month that boosted its acreage position to a little over 61,000 net acres, is also bullish on the Utica's future. Though it hasn't drilled any wells in the Utica yet, despite entering the play in 2010, it plans to drill at least four Utica wells this year with expectations for further development based on those initial well results. It won't have any well results listed in the DNR report next month, but the performance of its upcoming test wells will be interesting to track.
When production data is revealed next month, investors would be wise to keep an eye on Chesapeake and Gulfport's results, as well as results for Anadarko, Rex Energy, and CONSOL Energy, among other Utica drillers. The data should offer investors a better understanding of which zones are likely to be most productive going forward, and which companies are most aptly positioned in the play's most lucrative regions.