If investors have learned one thing about the Utica Shale, it's that the play is really becoming hit-or-miss. That being said, when a company hits, it's usually a really big hit. That gives both producers and investors hope that the play will turn out to be just fine.
We saw an example in Rex Energy's (NASDAQ: REXX) recent Utica well results. One of the wells produced really good initial production, while a second well underwhelmed. However, just as in baseball, hitting a few home runs can really help win the game.
Rex's first well, the G. Graham 1H, produced an average 30-day sales rate of 1,256 barrels of oil equivalent per day if full ethane recovery is assumed. The product mix was 46% natural gas liquids, 33% natural gas, and 21% condensate. This well, which was drilled to a depth of 12,098 feet with lateral length of about 3,973 feet, was completed using the company's "Super Frac" completion technique. That's important to remember, especially when looking at its other well which used a different technique.
That second well, the G. Graham 2H, performed so far below the company's expectations that Rex didn't provide investors with the sales numbers. This well was completed with a third-party proprietary completion technique, and Rex is reviewing the results. Rex did make one thing clear: It will only be using its "Super Frac" completion technique going forward. Overall, Rex remains very positive on the Utica and sees the potential for 110 additional wells in its northern Utica prospect. If these wells can produce at or above expectations, it has the potential to create a lot of value for Rex's investors.
The problem is that one well's results doesn't mean the rest of the wells will turn out to be any good. Overall well data from the Utica continues to be limited because of infrastructure constraints. Chesapeake Energy (CHKA.Q), for example, has drilled 249 wells in the Utica to date, but just 66 are currently producing. The company has another 86 wells waiting on pipelines, with 97 more in various stages of completion. Chesapeake sees these wells, as well as those yet to be drilled, to significantly add to its production this year. The company is currently producing 60 million cubic feet equivalent per day, but it expects to end the year with net daily production of about 330 million cubic feet equivalent per day. So it expects these wells to deliver great results.
As additional Chesapeake wells come online, it will help investors get a better idea of what to expect. That will also give a company like Magnum Hunter Resources (NYSE: MHR) a lot more confidence as it invests capital into the play. Magnum Hunter just started drilling its first well here earlier this year, and having sold its oil-levered Eagle Ford shale acreage, it needs to find success here to make that move pay off.
Another company that needs more certainty out of the Utica is EV Energy Partners (NASDAQ: EVEP). In addition to participating with Chesapeake Energy on a joint venture in the play, the company has been looking to unload some of its net acres. EV Energy had hopes of selling high last year, when acreage prices were elevated, but its deal fell through. Now the company is looking to split its acreage up into packages to appeal to more buyers. Overall, the delay in results throughout the play thanks to midstream constraints and poor well performance have really hurt the company's ability to complete a sale.
The one company that has the highest hopes for the Utica is current top dog Gulfport Energy (GPOR). Its first 14 wells in the play have turned in initial production rates that have averaged 3,055 barrels of oil equivalent per day. It's wells like those that are giving smaller producers like Rex and Magnum Hunter hope that both can enjoy similar returns from the play.
This looks to be a big year for the Utica, as infrastructure improvements should enable more wells to come online by year's end. Add to that companies such as Rex figuring out which techniques work best, and you can see why many producers still have a lot of hope in the promise of the Utica. While results will probably continue to be lumpy in the short term, in time, we should have a much more consistent results as producers can better target the best spots in the play.
