Utica Shale needs ‘nodding donkeys’ to unleash bonanza

Energy prospectors in Ohio’s Utica Shale will need to install pump jacks or other specialized well equipment to coax crude to the surface, increasing costs to harvest an estimated 5.5 billion barrels of oil.

In the oil-soaked section of the Utica formation beneath central Ohio, underground pressure is insufficient to force crude to the surface in commercial quantities, said Jim Pritt, a member of the Utica drilling team for EnerVest Ltd., the largest oil and gas producer in the state. Drillers haven’t encountered similar low-pressure problems on the eastern side of the state, where output is mostly natural gas and gas liquids such as propane, he said.

Energy companies including Chesapeake Energy Corp. (CHK), Devon Energy Corp. (DVN) and Range Resources Corp. (RRC) began drilling wells in the Utica region about two years ago in a bid to replicate the shale-oil bonanzas of North Dakota’s Bakken formation and the Eagle Ford Shale of Texas. Pump jacks, known as “nodding donkeys,” are an 87-year-old technology normally used to prolong the life of oilfields nearing depletion.

“In the Utica’s oil window, you’re going to need to look at moving some tools in to help lift the oil out,” Pritt said during a gathering of energy-industry executives in Columbus, Ohio, on Oct. 2. “We’re still basically just learning” about the formation.

New wells in the Bakken formation of North Dakota and Montana generate enough pressure to flow on their own for as long as two years before pump jacks or other so-called artificial-lift equipment is needed, Jeffrey B. Hume, executive vice chairman of Continental Resources Inc. (CLR), the dominant Bakken operator, said in an e-mailed statement yesterday.

Utica Rush

Chesapeake, holder of the most drilling permits in the Eagle Ford Shale, isn’t using pump jacks or similar tools on a widespread basis on oil wells in that part of Texas, Jim Gipson, a spokesman for the Oklahoma City-based company, said yesterday. Smaller explorers such as Forest Oil Corp. (FST) and Goodrich Petroleum Corp. (GDP) have been using artificial-lift techniques since last year to elevate production rates from some wells in the formation.

Energy explorers have flooded into the Utica region, snapping up drilling leases and trucking in drilling gear from other parts of the U.S. to stake claims in one of the last untapped North American oil reservoirs. Ohio regulators issued 103 Utica drilling permits during the second quarter, a nine- fold increase from a year earlier, according to data compiled by Bloomberg Industries.

$484 Billion

The Utica formation holds recoverable reserves equal to 5.5 billion barrels of oil and 15.7 trillion cubic feet of gas, assuming drillers can extract 5 percent of the hydrocarbons in place, according to a 2011 estimate from the Ohio Department of Natural Resources. The recoverable crude is equivalent to more than twice the proven reserves of Yemen, according to BP Plc. At current prices, the oil would have a value of $484 billion.

The U.S. Geological Survey estimated the formation holds 590 million to 1.39 billion barrels of undiscovered, recoverable crude, according to a statement released today.

Pump jacks and other artificial-lift techniques such as gas injection are used to increase pressure at the base of oil wells so crude will flow into the hole at a faster rate, increasing production. The pump jack was invented in Texas in 1925.

Closely held EnerVest accounts for 25 percent of Ohio’s oil and gas output by virtue of non-shale wells acquired during the 1990s, according to the company’s website. The Houston-based explorer holds leases to 700,000 net acres in the Utica formation, the third-largest position after Chesapeake and Range, based on a Bloomberg Industries data.

Anadarko’s Success

Pritt said the company’s geologists are still in the process of mapping the extent of the oil- and gas-rich sections of the formation. The Utica is a sheet of stone as much as 530 feet thick that underlays most of the eastern half of Ohio, he said.

EnerVest is seeking to “monetize” some of its Utica assets by finding partners who will help shoulder drilling costs, Pritt said. Chesapeake agreed last month to sell some of its Utica leases as part of a $600 million package of asset sales. Chesapeake didn’t disclose details of the transaction.

Collapsing Prices

Before now, energy companies focused most of their efforts on the eastern side of the Utica, where the underground pressure is higher and more than sufficient to push gas and gas liquids to the surface, Pritt said. Collapsing prices for gas and liquids have accelerated the shift to the western side of the formation where there’s more higher-profit crude.

“There have not been enough wells drilled in the Utica oil window yet to draw any comparisons to the Eagle Ford or Bakken” regions, Andrew J. Byrne, an analyst at IHS Inc. (IHS), said in a telephone interview from Boston yesterday.

Anadarko Petroleum Corp. (APC) has had the biggest successes so far in the oil-prone section of the Utica, Byrne said. During the first quarter, The Woodlands, Texas-based company’s Brookfield well had initial 24-hour production equivalent to 731 barrels of crude, 82 percent of which was comprised of crude and an oil-like substance called condensate, he said.

“The initial production rates we’ve seen other operators reporting are very promising,” Jody C. Jones, Chesapeake’s manager of environmental and regulatory affairs, said during a presentation at the Ohio energy conference on Oct. 2.