Utica Shale, A Major Oil Discovery

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A major new oil discovery in Eastern Ohio and part of Pennsylvania may be about to turn the tables on foreign oil imports. According to some estimates, the Utica shale, a deep rock formation which spans from Ohio to Canada, may hold as much as as 25 billion barrels of crude. One of the leading companies in the new shale play is Chesapeake Energy. The company recently announced that it has production reports from new test wells, along with thousands of older well logs and hundreds of feet of core samples that point to one of the richest finds of oil ever made on American soil. With U.S. demand for crude oil continuing to increase year by year, this is indeed good news for consumers who have seen gas prices skyrocket due to increased demand for oil from developing nations.

Below are maps of the Utica shale from the Ohio Dept. Of Natural Resources, showing thickness throughout Ohio, Pennsylvania and northward toward Canada.

Below is a map indicating the oil, wet gas, and dry gas zones of the Utica Shale.

map source

Potential Economic Impact Of The Utica Shale

All indications thus far show that Ohio will be the focal point for oil drilling in the Utica shale. In Ohio the shale formation lies at a depth of between 3,500′ to 10,000′ below the surface.  Shale is normally considered a very “tight” rock, making it hard for liquids such as oil to flow through it. Because the Utica shale under Ohio is a “mixed carbonate” reservoir, containing a mix of limestone and carbonate rocks inter-bedded with the shale, oil can be more easily extracted from it. Wells in the Utica shale are being drilled sideways at 90 degrees using horizontal drilling methods. After drilling is completed, high pressure water and sand are forced into the deep rock layer to create cracks and fissures and allow the oil and gas to escape into the well bore.  This technology, called hydraulic fracturing, is largely responsible for increasing reserves of natural gas in the United States to the point where prices have become depressed and a 100+ year supply exists. The Utica shale is one of several recent major oil discoveries which include the Niobrara Shale, Eagle Ford shale, Bakken Shale and others. Conservative estimates put the amount of oil in Ohio’s Utica shale play at over 8 billion barrels. According to one industry analyst, over 25,000 wells will ultimately be drilled. Lease prices, or the amount which oil companies are paying landowners for the right to explore for 3 to 5 years, have risen as high as $4,000 in Ohio and are still climbing. Once a well is completed, a landowner may receive of royalties from production, at whatever rate they negotiate in the initial lease. In the Eagle Ford shale in South Texas, some wells are producing as much as 1,500 barrels a day. Geologically, the two formations are very similar and production rates in the Utica shale may rival those in the Eagle Ford shale. Landowners who are lucky enough to own the mineral rights beneath their farms could could see income far beyond the initial bonus rates, or leasing price per acre. If you are a landowner in one of the areas where oil companies are leasing up land, it is of utmost importance that you have a qualified attorney review the terms of the deal. Details such as the amount of your bonus payment, amount of future royalty payments, whether or not you allow the oil company to explore multiple depths, (or just the Utica shale), can literally be worth millions of dollars. For example, you may decide to lease your land to one oil company for only Utica shale exploration and retain the right to lease the Marcellus, which is several thousand feet above, to another oil company in the future.

So far companies such as Enervest, Chesapeake Energy and Devon Energy are not disclosing initial production figures, since the race for available land is still on.

Professor Jeffrey Dick, of Youngstown University predicts that the Utica shale will create hundreds of jobs in Stark, Carroll, Portage, Columbiana, Trumbull, Ashtabula and other counties of Ohio. Chesapeake Energy estimates the value of oil in their acreage in Utica shale in Ohio and other states to be worth up to 20 billion dollars. That figure only applies to the amount of oil that they believe is contained in their acreage, not the entire Utica shale play, which reaches as far north as Quebec, Canada.  Ohio refineries are already gearing up to receive thousands of barrels of crude oil and millions of cubic feet of natural gas per day and this could lead to a “rust belt revival” of that industry.

Terry Fleming, of the Ohio Petroleum Council stated that the Utica shale is found under 72 of Ohio’s 88 counties. The most intensive exploration programs are planned for the Eastern side of Ohio, where a “sweet spot” containing large amounts of oil and natural gas liquids occurs.

Challenges To Development Of The Utica Shale

One thing that the new shale play in Ohio has going for it vs. the Eagle Ford shale in Texas is the fact that there is much more water available for frac jobs. Each new Utica shale well will require up to 6 million gallons of fresh water to drill and hydraulically fracture. Luckily for Ohio, there are major rivers which can be tapped as a source of fresh water. Once the well is “fracked” much of this water will return to the surface, along with oil and gas. Production equipment on the surface separates the water from the petroleum products. This “frac water” must be properly disposed of, since it contains a small amount of hazardous chemicals. Luckily for oil and gas companies, Ohio already has a number of disposal wells in existing oilfields which can be utilized to inject the contaminated water deep underground into zones which do not contain either petroleum or fresh water. An alternative to disposing of frac water in deep wells is to clean it up and remove any chemicals. Companies such as EcoSphere Technologies have developed systems which can clean produced water from oil and gas wells, and return it to municipal water or agricultural water standards.  Another challenge to the development of the Utica shale will be  gearing up the Ohio Department Of Natural Resources to deal with all of the new drilling. A recent report from the Ohio DNR stated that Utica shale drilling operations will be “much more than we are used to in Ohio”.  The footprint of the new wells will be larger, more frac equipment will be used, and more trucks and equipment will ply the state and county roads. State and county governments will have to gear up fast to prepare for the changes coming their way.  Residents of Ohio and other states in the Utica shale play are about to experience change such as they have never seen in their lifetime.

For more information on this major oil discovery in Ohio, a good resource is Utica Shale News

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