Chesapeake Energy. 

Few people are as bullish on the future of the Utica shale as the founder and former CEO of Chesapeake Energy (NYSE:CHK), Aubrey McClendon. He famously once called it the "biggest thing economically to hit Ohio, since maybe the plow." More recently, he called it "extraordinary" and said that "pound for pound, it's the best gas rock in the U.S." What's different this time is McClendon is no longer alone in his view on the play, as Royal Dutch Shell (NYSE:RDS-A)(NYSE:RDS-B) recently made a significant discovery that indicates the Utica shale extends well past Ohio.

Drilling down into the Utica shale

McClendon's recent bullish comments on the play came at an energy conference in Texas. His newest venture, American Energy Partners, has amassed billions of dollars in investor money to pour into the Utica and other shale plays in America. However, because the company is private, McClendon's comments offer the only real insight into how successful it is in drilling in the Utica shale.

McClendon's former employer, Chesapeake Energy, also appears bullish on the Utica. At its analyst day earlier this year, Chesapeake called it a world-class asset. The company, which has over 1 million net acres in the play, was an early mover under McClendon's direction; because of that it has developed best-in-class knowledge of the rocks underneath Ohio, as it has taken over a mile of core samples and accumulated more than 600 square miles of 3D seismic data in order to best place its wells. This data has made Chesapeake the most efficient operator in the play, more than doubling its rate of return in the past year, as noted on the following slide.

Source: Chesapeake Energy Investor Presentation. 

The high-return wells indicated on that slide are being drilled in what is known as the wet gas window, which is rich in natural gas liquids such as propane and ethane. However, Chesapeake Energy and other producers are also starting to see strong results in the dry natural gas portion of the play. Chesapeake Energy highlighted these dry gas wells in the following slide.

Source: Chesapeake Energy Investor Presentation. 

Most of these wells were drilled along Ohio's border with West Virginia and Pennsylvania. However, the industry appears to be just scratching the surface of the Utica shale's potential, as recent wells by Royal Dutch Shell are showing strong natural gas production, too. The big difference is that these wells were drilled more than 300 miles to the east in Tioga County, Pa.

Drilling down into the latest discoveries in the Utica shale

Royal Dutch Shell's wells, which are near the Pennsylvania-New York border, could extend the play hundreds of miles further to the east than energy companies previously thought. Shell is particularly optimistic because the initial production rates of its first two wells are as good, if not better, than the wells Chesapeake Energy and others in the industry are drilling in Ohio.

Shell's first well, Gee, had an initial production rate of 11.2 million cubic feet per day when it was completed nearly a year ago. Its second well, Neal, saw peak daily production of 26.5 cubic feet of natural gas per day once drilling finished this past February. Shell has actually been quietly withholding these results because it wasn't ready to broadcast to its peers that it was sitting on a potentially major natural gas discovery. These results, now made public, suggest the Utica shale is much bigger than producers originally thought. 

Investor takeaway

It appears McClendon was not only was right about the Utica shale, but he might have even underestimated its potential. While it isn't loaded with oil as he had hoped, it is loaded with more natural gas than anyone expected. It has the potential to fuel strong returns for Utica shale producers and investors in the years ahead.