The 'monster' beneath the Marcellus

Range Resources Corp. tested the shale well with the best ever initial flow rate in the Appalachian Basin and possibly the country in December in Washington County. But the “monster well,” as financial analysts called it, wasn’t hiding in the Marcellus.

Production rates for wells, like Range’s, that have been drilled into Pennsylvania’s Utica Shale — the lesser known cousin of the Marcellus that can run a mile deeper than its kin — have been raising eyebrows in recent months.

Activity in the Utica is generally focused in Ohio, where the shale produces oil and wet gas that contains valuable hydrocarbons like ethane and propane along with methane, the primary component of natural gas. Still, some companies have also been prospecting for wet Utica gas in Lawrence, Mercer and other Western Pennsylvania counties.

But recently operators have reported remarkable production results for dry gas — mostly methane — from wells hundreds of miles east of the heart of Utica development in Ohio.

In September, Royal Dutch Shell announced two Utica discovery wells in Tioga County in northeastern Pennsylvania, far from where the Utica was thought to be most productive, that were comparable to the best Utica wells in southeastern Ohio. One of the wells had a peak flow rate of 26.5 million cubic feet per day of natural gas (MMcf/d) .

For context, the median initial flow rate for Pennsylvania Marcellus wells was 5 MMcf/d in mid-2013, according to a Morningstar report released last year. Though it’s not unusual for rates to exceed that median.

The “monster” Utica well that Fort Worth-based Range Resources drilled in Washington County, the Claysville Sportsman's Club Unit #11H, produced an average 24-hour test rate of 59 MMcf/d in December.

In March, Houston-based Seneca Resources Corp. announced that its first exploratory Utica well on state forest land in Tioga County had a 24-hour peak production rate of 22.7 MMcf/d of natural gas.

Those results, combined with other notable dry Utica wells clustered around the Ohio River in West Virginia and Ohio, have redefined the boundaries of the Utica’s potential.

“They were really stunning,” Irene Haas, energy analyst for Wunderlich Securities, said of the first test reports. “The first one, you go, ‘OK, it’s a fluke.’ But then when you start lining them up, there is a really great trend there.”

In a December report to investors, Wunderlich Securities wrote, “If we connect the dots, the Utica-Point Pleasant dry gas belt could be huge with the potential to be the next mega dry gas trend, rivaling the Marcellus. This is mind blowing to us, and, if true, we do not know what to do with more dry gas from this region.”

Exploration of the Utica and its close geological neighbor the Point Pleasant shale is still in its infancy in Pennsylvania. The overwhelming majority of the state’s unconventional wells tap the Marcellus Shale, the world-class, gas-rich rock layer that sparked the state’s shale gas boom.

Fewer than 100 Utica wells were producing gas in February, the most recent state reporting period, out of nearly 6,000 total unconventional wells that produced gas that month.

One of those Utica wells was, for the first time, among the state’s best in terms of total and average daily production for the period. Shell’s Watkins 820 #21H in Tioga County averaged 24.1 MMcf/d in February, better than all but four Marcellus wells.

Not enough Utica wells in Pennsylvania have been producing gas long enough to draw any conclusions about their consistency or how much gas will ultimately be recoverable from the wells.

“They’re new,” said James Ladlee, associate director of Penn State’s Marcellus Center for Outreach and Research. “We don't know how they are going to hold up over time.”

Despite the promising early results, no one expects the Utica in Pennsylvania to be developed at the breathless rate that the Marcellus was in its busiest years.

Utica wells are deeper and more expensive to drill. More importantly, natural gas prices have declined as production from the Marcellus overwhelmed demand and outpaced the development of pipelines to take the gas out of the region to more lucrative markets.

“Back then, the Marcellus was the only superstar-type play occurring in that part of the northeast, and then it turned out to be a victim of its own success,” Ms. Haas said.

“I think to the extent that the dry Utica will develop, it will probably be at a more measured pace,” she said. “The last thing everybody wants is to create more dry-gas-on-dry-gas competition.”

Most operators that are embracing the Utica in Pennsylvania see it as an efficient opportunity to draw more gas from geological layers beneath well pads that are already targeting the Marcellus. In the industry, exploiting several gas-rich layers beneath a single parcel of land is known as stacked pay.

“Most all our Utica wells are expected to be drilled on Marcellus pads making use of the existing infrastructure,” Ray Walker, Range’s chief operating officer, said during an earnings conference call last week. “Essentially, we can drill the wells like a very efficient manufacturing process.”

Consol Energy President and CEO Nicholas DeIuliis said during an earnings conference call last week that the Cecil-based company this year plans to drill or participate in two dry Utica wells in Greene and Westmoreland counties, one dry Utica well in Marshall County, W.Va., and several dry Utica wells in Monroe County, Ohio.

“We're drilling these wells from existing pads,” he said. “That highlights the vast potential of our stacked pay opportunity.”

Other companies drilling Utica test wells this year include Canonsburg-based Rice Energy Inc., which started drilling its first Pennsylvania Utica well in western Greene County and expects to see production from it during the fourth quarter this year.

Downtown-based EQT Corp. told analysts on April 23 that it has finished drilling its first dry gas Utica well in Greene County after struggling with higher than expected reservoir pressures for several months. It plans to hydraulically fracture the well in June then drill another Utica well in Wetzel County, W.Va. later this year.

The company could drill up to four more Utica wells this year depending on its results, EQT’s president for exploration and production Steven Schlotterbeck said.

“This year will certainly be a year of testing the Utica,” he said.

Laura Legere:

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