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Shale: where we are now
By Kalea Hall
YOUNGSTOWN
If you are looking for the Valley’s shale gas boom – look elsewhere.
Experts say geology and better business sent oil and gas companies to southern parts of the state.
“They will eventually come back up here,” said Professor Jeffrey Dick, chairman of the department of geologic and environment sciences at Youngstown State University.
“You just have to be patient.”
THE BEGINNING
In 2010, the Valley saw landmen arrive and offer landowners money to lease their property for oil and gas exploration.
“There was sort of a gold rush mentality in 2009 and 2010 and a lot of it was the image portrayed by the companies,” said Atty. Alan D. Wenger, chairman of the oil and gas group for Harrington, Hoppe and Mitchell. “Our clientele understood that this is not a sure thing and they should protect themselves.”
Wenger and others represented several landowners propositioned by landmen.
“We literally had hundreds of landmen flooding in and going door to door,” he said.
Then came the drilling and plans to place pipeline, which has settled down.
Dealing with leasing companies is now focused in southern Ohio counties such as Belmont.
Some focus has switched from handling leases to royalty payments, Wenger said.
Initial leases signed in 2010 with a five-year limit would be up this year. Those in the Valley with leases are wondering what to expect.
“We are hearing a lot of concern from landowners,” Wenger said. “We are counseling folks on that.”
Dick gave three reasons for why the focus of the Utica play shifted south: geology, seismicity and location.
“Based on their findings they concentrate on where they find their best stuff,” Dick said. “Production is better to the south.”
Dick explained the farther north the thinner the Utica Shale play is, and there is evidence of more faults cutting through the Utica and the Point Pleasant formations. The faults give a pathway for fluids to leak out of the Point Pleasant and through to the Utica; as fluids leak out the pressure decreases and this causes lower production for oil and gas companies.
“In the southern part of the Utica, it forms a very good seal because it is relatively thick and has very few faults cutting through it,” Dick said. “As a result, these wells produce much greater amounts of gas, liquids and oil.”
In addition, less-populated areas were favored by companies over more densely populated communities.
Then came the issue of earthquakes.
In 2011, a magnitude-4.0 earthquake was connected to a D&L injection well in Youngstown. The injection well that held brine, a waste that comes from hydraulic fracturing — the process of using water, chemicals and sand to blast into shale rock thousands of feet below the surface for natural gas and oil — was suspected of causing 11 earthquakes that year. ODNR banned injection wells within five miles of the well after the 4.0 quake.
Then, in 2014, a Vindicator story connected a 3.0-magnitude earthquake in Poland Township to a hydraulic fracturing operation by Hilcorp Energy Co. at the Carbon Limestone Landfill.
The connection was later validated by an Ohio Department of Natural Resources investigation into it and subsequent quakes.
ODNR said fracking was a “probable” trigger of the quakes and indicated that fracking aggravated a small, previously undetected fault.
After that earthquake, in April 2014, ODNR announced a new permit procedure for horizontal drilling that stated any new permit within 3 miles of a known fault or area of seismic activity greater than a 2.0 magnitude requires companies to install sensitive seismic monitors. If those monitors detect a seismic event in excess of magnitude 1.0, the operation would be stopped for an investigation.
“[The companies] don’t want to take that risk,” Dick said.
Despite these factors, the Valley is still an integral part of this process because of its manufacturing market.
Vallourec Star’s pipe mill in Youngstown was built in response to the need for small-diameter pipe used in fracking. Today, the plant employs about 700.
Dick said in order for the Valley to have a larger part in the play, more infrastructure is needed to support the established industry. For example, a cracker plant could be built to convert ethane — a natural gas liquid — into ethylene and polyethylene, which are used to make plastics. Shell has tentative plans for the first ethane cracker plant in the Northeast U.S. in Monaca, Pa., in Beaver County.
PRODUCTION
As of Jan. 31, 1,791 drilling permits have been issued by ODNR and 1,341 wells have been drilled in the Utica.
Mahoning County had permits last issued in November 2013 to Chesapeake Exploration LLC in Milton Township. The Geatches Mah well had zero oil and gas production to report during the third quarter of production from July 1, 2014, to Sept. 30, 2014, according to ODNR.
Hilcorp Energy Co. operates wells in Poland with seven producing wells, most of which are natural-gas producers, according to the third-quarter production report. One well reportedly produced 11 barrels of oil in the third quarter.
“Producers have not been successful in extracting the oil from the rock,” said Irene O. Haas, managing director for equity research for Wunderlich Securities Inc.
Justin Furnace, director of external affairs for Hilcorp, said that the company is pleased with its results in the Mahoning Valley region.
“As with any play, the more wells you drill, the more you learn about the sub-surface,” Furnace said. “We hope to use that knowledge to create additional efficiencies in our operations and improve our results. We have received a lot of support from our landowners and in the communities we operate, which has enabled us to continue development.”
Just last month Hilcorp applied for a dozen permits in Fairfield Township, Columbiana County, where the company already has other permitted wells. The dozen permits do not necessarily mean one dozen wells will be drilled, Furnace said.
“However, we do plan on drilling a few wells in Columbiana County in 2015,” he said. “The results of those wells will inform our plans for Columbiana County in 2016 and beyond.”
Chesapeake has several permitted wells in the county, and many are producing. Hilcorp, Chesapeake and Atlas Noble LLC all reported production in the county during the third-quarter.
In Trumbull County, the first well was permitted in June 2012 in Vienna Township to CNX Gas Co. LLC. Permits were issued to companies as late as August 2014 in the county. Third-quarter reports showed 10 wells with production results.
FUTURE
Now, with the drastic drop in the price of oil — 50 percent since last June when it was more than $100 a barrel — companies associated with the oil and gas industry are feeling the impact.
Last Wednesday, the concern with the market hit home when Vallourec officials announced its Youngstown plant would shut down for three weeks in mid-February.
“There have been serious consequences in the Utica because of the marketplace,” said Shawn Bennett, executive vice president of the Ohio Oil and Gas Association.
Improvements in technology and decreases in commodity prices will enable the expansion inside the core areas — Belmont, Noble, Harrison, Carroll counties and others — and adjacent core areas, he said.
With the decrease in the price of oil, companies are going to hone their focus on more mature areas.
“Producers really tend to retreat to the higher grounds,” Haas said. “Typically those [plays] that are more mature. I think the Utica may lose to the Marcellus. The Utica is a great play, just a little young yet.”
Mekael Teshome, an economist for PNC Bank, expects prices to stabilize in the first quarter of 2015, and from there slowly increase.
Hilcorp anticipates growth in the northern part of the Utica. The company spent about $400 million dollars in 2014 developing acreage and expects a similar investment in 2015.
“The pricing environment certainly has an effect on activity for all oil and gas companies, including Hilcorp, but we still remain optimistic about the potential for growth in the area,” Furnace said. “To date, we have over 40 producing wells in the region and hope to bring several more online in 2015.”