Utica from the Media’s Perspective

Jim Willis - Marcellus Drilling News

Bob Downing – Akron Beacon Journal

Rick Stouffer – Gas Business Briefing

Peter Behr – EnergyWire

I’d like you to go on a little tour with me. Last September I was invited to tour some shale well sites in Dimock, Pennsylvania. Yes, that Dimock—a small township of 1,497 people in Susquehanna County in northeastern PA made famous in the documentary Gasland and more recently in FrackNation. Dimock is about 40 minutes from where I live in Binghamton, New York.

It was a perfect early fall day with blue skies and the temperature about 65 degrees. I took this picture. This is the kind of scenery I was treated to as I meandered down country roads to Dimock. Rolling hills, lots of farms, plenty of fresh air. Cabot Oil & Gas had invited me to go on a tour of some of their operations around Dimock. So I arrived at a small office building owned by Cabot and hopped into a CNG-powered Chevy pickup with my tour guide Bill DesRosiers and we took off.

Not far from the Cabot office we turned off onto State Route 2024 and went riding cross country. Of course, it’s all cross country around Dimock. This map doesn’t show it well but we went up and down hills. At one point we flew by an intersection and Bill pointed to the right and said “that’s Carter Road.” THE Carter Road, where some families sued Cabot for supposedly contaminating their drinking water from fracking. About a mile after Carter Road Bill turned off and we took a hard-pack gravel drive up a short hill to this spot.

As we crested a little knoll, this is what I saw. It’s a well pad completed about three years ago. You can see three of four wells in this picture I took. Bill told me what I was looking at. He explained the wellhead itself is called a Christmas Tree because the valves and knobs on it make it look like a Christmas Tree. I asked what those white containers are. Those hold a chemical used to make sure the Christmas Tree valves don’t freeze up. The gas is under tremendous pressure and the temperature of the gas is quite cold and when it hits the warm air topside it can quickly lead to the formation of ice in the wellhead. Something like that. So those white containers hold a chemical used to regulate the temperature of the Christmas Tree wellhead. Even though in this part of northeastern PA the gas coming out of the ground is “dry gas” or methane only, it still contains a little bit of water in it. So this machinery back here separates out the water and stores it in these tanks over here. Trucks come by about once a week to empty the tanks. Finally, the whole thing is monitored 24/7 with little radio transmitters that send a signal back to the office. And yes, those transmitters are powered by solar panels!

This is a closer pic of the Christmas Tree wellhead. If you’re more than a couple of hundred feet away from it, you can’t even see it! As we stood there Bill told me this. He said that Cabot drilled and still operates about 3,000 vertical gas wells in West Virginia. He said Jim, these four horizontal wells you’re looking at here? They produce more natural gas in a single day than all 3000 of those vertical wells in West Virginia produce in a day. My jaw hit the ground. I don’t know about you, but I was shocked. Startled. I remember thinking to myself, now I know why shale is not just another new energy source—it’s an energy revolution. And that revolution has come to Ohio and the Utica Shale. If I turned around and faced the opposite direction away from the wells, this is what I saw…

Beautiful rolling hills. Hayfields. Farms and houses. Not an industrial waste land. Not Love Canal come to Pennsylvania. I saw beautiful countryside. There’s a little bit more to this story, but I’m going to make you wait until the end to hear it.

Who am I? My name is Jim Willis, and I’m the founder and editor of Marcellus Drilling News, what I call a news slash blog site that covers the story of shale drilling in both the Marcellus and the Utica Shale. Monday through Friday I read, research, curate, aggregate and write about what’s happening with shale gas drilling in the Marcellus and Utica Shale, and I spend about 5 hours a day doing it—what I call my first full-time job. If you do something for five hours a day and you’re not getting paid for it, it’s an unhealthy obsession. If you do something for 5 hours a day and you get paid for it, it’s a brilliant business model. So in May of last year I started charging a monthly fee to read full stories--$5.95 a month. Today, 10 months later, I have 900 paying subscribers. What that says to me is that this is a white hot issue and there’s a lot of people interested in it. I get about 35,000 unique, different people each month visiting my site over 60,000 times and clicking to read my stories over 100,000 times. Not all of them subscribe—quite a few find me from Google searches. With MDN I try to inject some humor, sarcasm, and hopefully some whit in the writing I do. I take a side which I guess is what makes my site different from a mainstream media or regular news site. I’m proudly pro- but safe drilling. My shtick, my angle is to look at the drilling issue through the eyes of a landowner or small businessperson. What would they be interested in knowing? I guess if I could sum it up, I try to answer the “why” questions. Not just what happened, but why it happened—what it all means. Make sense of it. And if it’s technical, break it down into understandable terms. So I’ve been watching this space for a few years now—I’ve watched it take off in Pennsylvania and West Virginia, and over the past year, I’ve watched it take off like rocket in Ohio.

MarcellusDrilling.com Marcellus & Utica Shale News

With me today are three other people—experts—who have also been watching the shale energy space in Ohio. I’ll let them introduce themselves in a few minutes. I’ll just mention we have Bob Downing, a reporter with the Akron Beacon Journal. I’m a fan of Bob’s writing and I follow it closely. He’s broken some extremely important Utica stories—one in just the past couple of weeks that he’ll share with you. And we have Rick Stouffer, editor of Platt’s Gas Business Briefing—really one of the must-have publications for the energy industry. Rick is an expert and he’ll have some great material to share with us. And late-breaking, Peter Behr is also joining us on the panel. Peter is a reporter with EnergyWire. He previously worked for 25 years covering energy for the Washington Post.

www.Ohio.com www.gassbb.com

When we were fleshing out ideas for what we might talk about on this panel, we thought it would be interesting for us to put our heads together and talk about some of the biggest and most important stories to happen in the Utica Shale in 2012. From earthquakes to taxes to protests to hugely productive wells, there were a lot of stories to come out of the Utica in 2012. Everyone will have their own opinion. For me, the biggest story in the Utica was the sheer size of it. The enormous growth that happened in 2012. I call it, “The Utica Shale grows up.”

What was THE biggest Utica Shale story of 2012?

The Utica Shale Grows Up

We’ve seen quite a few maps yesterday and today. I’ll add a few more to provide some context to what I believe is the #1 one story from 2012. This map is from a 3-volume research report that I publish called the Marcellus and Utica Shale Databook. This map shows the boundary of the Utica Shale, the dark purple line along the left. The lighter purple area that’s shaded in shows where the Marcellus Shale can be found. As you can see, the shale play of interest—the Utica/Point Pleasant and to some degree the Marcellus, is found in about the eastern 1/3 of Ohio.

Let me illustrate the growth of drilling in Ohio with a few maps from the Databook. Here’s a map that shows permits issued in Carroll County for all of 2011 (Databook Vol. 1). As you can see, the only company receiving permits in 2011 for Utica horizontal wells in Carroll for 2011 was Chesapeake Energy. The purple dots are well pads or potential well pads. Each purple dot can have from 1 to 10 wells drilled in that location. Over on the right, the first number is the total number of permits, and the second number in parentheses is for the number of unique well locations. So Chesapeake had 19 permits issued for 19 different wells for all of 2011 in Carroll County.

This map shows permits for horizontal wells issued for January through June 2012 in Carroll County (Databook Vol. 2). You can see Chesapeake picked up 63 new permits for that period and those 63 permits were for 58 unique, different locations or wells. We also have Enervest and RE Gas picking up a handful of permits.

And this map shows Carroll County permits issued for July through December 2012 (Databook Vol. 3). Chesapeake now gets another 101 new permits for 93 locations. Some permits may be for wells previously permitted—it takes more than one permit to drill a well. The point of these maps? It shows the progression of activity. If you want to know where drilling is about to happen, watch where the permits are being issued. Permits preceded drilling. When drilling begins, a lot of activity begins. Permits precede drilling, and drilling precedes pipelines and infrastructure. One follows the other like spring follows winter and summer follows spring. Again, permits are the key signal to watch.

Here’s one more example—this one is Harrison County. Just 2 permits in 2011.

Things start to pick up in the first half of 2012. Chesapeake has 12 permits, Gulfport has 7, and Hess 5.

And by the second half of 2012, Gulfport has really picked up steam with 25 permits for 13 locations and Chesapeake with 22 permits in 19 locations.

Perhaps this chart will better explain just how much the Utica “grew up” in 2012. It shows by year the number of horizontal Utica permits issued, and the current status of the wells for which the permits were issued. Permits issued in 2012 jumped 443% from 2011—or 4.4 times as many permits in 2012 as 2011. Just to complete the rest of the data, for the first month and a half of 2013 another 60 permits were issued. So far, as of Feb 16th, there have been 529 permits issued since 2010, and 242 of those wells have now been drilled—roughly half.

OH Utica/Pt Pleasant Shale Wells Status of Wells as of Feb 16, 2013

2010 Drilled – 1 Producing – 1 TOTAL PERMITS: 2

2011 Drilled – 14 Drilling – 1 Inactive – 2 Not Drilled – 2 Permitted – 22 Plugged – 6 Producing – 39 TOTAL PERMITS: 86

2012 Drilled – 133 Drilling – 13 Inactive – 1 Not Drilled – 4 Permitted – 197 Plugged – 4 Producing – 29 TOTAL PERMITS: 381

2013 (1.5 months) Drilling – 1 Not Drilled – 1 Permitted – 58 TOTAL PERMITS: 60

Horizontal Permits: 529 Horizontal Wells Drilled: 242

Once wells are drilled, natural gas and gas liquids and oil starts to flow. I took a look at just the natural gas portion for both the Marcellus and the Utica Shale and back in January I went out on a limb and made some predictions. So far one of them has come true. I predicted that Pennsylvania’s Marcellus Shale gas production would hit 2 trillion cubic feet for 2012. The numbers for PA came out last week and it was 2.1 tcf. I said that West Virginia’s production of shale gas would double and hit 455 billion cubic feet. Still waiting to hear on that one. And finally, my toughest prediction, but one that I think will bear out: I said that the Ohio Utica Shale would see about 67 billion cubic feet of natural gas produced for 2012. Ohio’s numbers come out next month, so keep a sharp eye out. Permits are way up. Drilling is way up. And I believe production will be way up. That’s why “the Utica Shale grew up” is the biggest story of 2012.

Although we didn’t have time to cover all of these stories, here is a list of some of the more interesting and important stories from 2012 for the Utica Shale. I threw out some of these to the panel for comment...

Protesters Get Violent, Shut Down OH Frack Water Plant http://mdn.bz/2zYsqS GreenHunter brine storage/transfer facility in Washington County, near New Matamoras overrun by 100 protesters. One errected a 30' tower and climbed it and stayed there for hours. Vandalized the facility. May be charged under the anti-terrorism act. Being a politically incorrect blogger, I call them nutjobs. 7 of the 10 people arrested weren't even from Ohio! What do you guys know about it? Big OH Company Will Leave Town if Anti-Drilling Resolution Passes http://mdn.bz/2zHlDV Philpott Energy & Transportation Company/Rubber company says if New Brunswick (near Cleveland) passes a resolution calling on the state to support home rule, an overtly anti-drilling resolution--they will locate new construction for a major expansion outside of the city limits denying the city a big future tax revenue source. Hard ball? Justified? Not justified? Patriot Water in Warren, OH Objects to ODNR Directive http://mdn.bz/2z1RRx Seems to me that there's been bad blood between the ODNR and Patriot Water Treatment of Warren, OH going all the way back to June 2011. ODNR has been trying to shut down this shale wastewater treatment plant because after they treat the water it's then taken to the Warren municipal water treatment plant for final disposal. ODNR denied renewal of a permit, Patriot appealed... it's been a mess. The latest skirmish comes with the story about D&L Energy and their wastewater dumping. Apparently D&L was sending some of its wastewater to Patriot and ODNR ended that. What is the story between Patriot & ODNR? Muskingum Watershed District Signs with Antero for $40.3M Bonus http://mdn.bz/2ylxyH The Muskingum Watershed District just signed a big deal with Antero Resources to least 6,500 acres around Seneca Lake. But in June of last year the Watershed District first voted to sell water to shale drillers, then pulled back and said they wouldn't sell any water until a study was completed by the U.S. Geological Survey. Then in September they reversed again and said they would sell some water. What's the deal with the Watershed District? Is someone yanking their chain? Did the U.S. Geological Survey ever complete the long-awaited water study?

Youngstown Shale Wastewater Dumper Faces Jail and Big Fines http://mdn.bz/2y54SP Hardrock Excavating and D&L Energy in Youngstown, OH, in the dead of night, dumped perhaps millions of gallons of untreated fracking wastewater down a sewer drain outside of Youngstown that eventually ended up in the Mahoning River. I mean, words can't even begin to express the outrage everyone feels about this. What's the latest? Has there been long-term environmental damage? Is the owner Ben Lupo headed for hard time in a federal pen? Gulfport Purchases More Utica Shale Leases for $10K/Acre http://mdn.bz/2xGvxY Last December Gulfport bought leases for 30,000 acres in the Utica Shale for $10,000 per acres. They paid the same per acre price two weeks ago for another 22,000 acres. That's some of the highest per acre prices I've seen. Seems to me like Gulfport has a major crush on the Utica--would say that's a fair assessment? Gulfport’s New Utica Well Produces Mind-blowing 28.5 Mmcf/d! http://mdn.bz/2YGzR7 In August last year we got word that Gulfport's Wagner 1-28H well in Harrison County produced an initial flow rate of 14 million cubic feet of natural gas per day, over 1800 barrels of natural gas liquids, and some 430 barrels of oil. Astonishing. Then at the end of November Gulfport reported what I consider to be mind-blowing results for their Shugert 1-12H well in Belmont County: an initial daily flow rate of 28.5 million cubic feet of natural gas, 300 barrels of condensate, 2,900 barrels of natural gas liquids per day. I guess we know why Gulfport has a crush on the Utica. Mind-blowing Earnings from a Single Utica Shale Well http://mdn.bz/2sDZ4B One more Gulfport story. A professor from West Virginia University ran some numbers for another Gulfport well--the Stutzman well, also in Belmont County. That well is producing 21 million cubic feet of natural gas per day. At $3 Mcf, that's $63,000 per day in revenue. Add in the gas liquids and that one well has an earning power in excess of $100,000 per day.

OH Appeals Court Strikes Down Home Rule for Drilling http://mdn.bz/2w03Hd I think one of the biggest ongoing stories across both the Marcellus and Utica Shale is that of home rule--the right of local municipal governments to control--even ban--shale drilling in their borders. Drillers say it's next to impossible to work if the ground rules are different in every town. Locals say they know best where drilling should and should not be allowed. The Ohio Appeals Court just struck down home rule a few weeks ago. Where does this go from here? Will it be appealed? Is this it for home rule in Ohio? Details of OH Gov. Kasich’s Utica Shale Severance Tax Hike http://mdn.bz/2vhw2c Ohio Gov. John Kasich really really wants to raise the severance tax for oil and gas drilling in Ohio. The industry (and yours truly) says he's nuts! If you tax it, it will mute the economic benefits the industry is creating in the state. But he fires back that "hey, it's not all that much, especially when you look at the rates other states charge." Will Ohio see a higher severance tax in this year's budget? What are you hearing? Why More Ohioans Don’t Work in Utica Shale Industry? Drugs http://mdn.bz/2n2J4Y One of the things I regularly rap Gov. Kasich on the knucles over is his attitude about what he calls "foreigners" coming in to work in Ohio's gas and oil fields. By foreigners he means people from Texas and Oklahoma and Louisina. He wants Ohions in them thar jobs! Of course you need experienced people running equipment, and skilled people welding and so on--at least at first, until others can be trained. But then we had an interesting story not long ago about how half or more of all the Ohioans applying for oil and gas field jobs fail the drug test. What's up with that? What of state are y'all runnin here? Is Shale Brine Dumping Coming to OH Landfills? http://mdn.bz/2sDVC7 Bob, update us on this story you broke at the end of January.

Utica Drilling in a Nutshell: Permits & Wells Drilled, by Driller http://mdn.bz/2qjJWj Who are the players in the Ohio Utica Shale? The #1 player is a no-brainer: Chesapeake Energy. In mid-January when there were still only 498 wells permitted, Chesapeake had 325 of those permits--or 65%, spread across 10 counties. After them comes Gulfport with 28 permits in Belmont, Guernsey and Harrison Counties. CNX has 20 permits. HG Energy and EnerVest both had 16 permits, and Hess had 15. In all there are 23 different companies with permits in the Ohio Utica Shale. BP’s Big Utica Shale Deal, Leases 84K Acres in Ohio http://mdn.bz/2QhKSg In March 2012 BP signed a massive deal with the Associated Landowners of the Ohio Valley (ALOV) for 84,000 acres in Trumbull County. The deal gave landowners $3,900 per acre as a signing bonus and will give them 17.5% royalties on anything produced. Yet BP hasn't even applied for a single permit yet. What's the deal with BP and the Utica? Are they ever going to drill? What have you guys heard? More than $1.2B & Counting on New Utica Drilling for 2013 http://mdn.bz/2qRsST So far, more than $1.2 billion (that we know of) has been budgeted by Ohio’s Utica Shale drillers for 2013. A whopping $7 billion has been allocated for pipelines and processing plants over the next several years. Seems to me that the "big story" for the Utica in 2013 will be midstream and infrastructure. You guys agree with that?