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Stacked Pay? An Update on Dry Utica

Being able to drill multiple horizons in a play, as emphasized in regions like the Permian and STACK, increases the drilling location inventory and longevity of a play. What about Appalachia? Utica production has primarily been focused in Ohio; however, the resource spans well into Pennsylvania and West Virginia, states where drilling has primarily targeted the Marcellus. Since the Utica sits under the Marcellus, this gives producers in the region the potential for ‘stacked pay’ opportunities, providing upside to drilling inventory and production. Since the Utica gets relatively deeper and drier moving east, it’s often referred to as ‘dry Utica’ in Pennsylvania and West Virginia. Despite several noteworthy wells with impressive IP rates, since it is deeper, economics can be hindered by higher costs. EQT, who produced the monstrous, well-known Scotts Run dry Utica well, suspended their deep Utica testing program in the middle of last year to focus on the Marcellus. Lately, though, discussion of the dry Utica is making an appearance in producer earnings, particularly with the ‘stacked pay’ potential it provides. Two companies, CNX Resources and National Fuel Gas (Seneca Resources), report actively developing this resource in their outlook.

Looking at horizontal wells that have started producing since 2013, it is clear that dry Utica development in Pennsylvania and West Virginia is still in its infancy, with less than 200 producing wells tagged as targeting the Utica/Point Pleasant formation, compared to over 5,500 Marcellus wells, as shown in the figure below. Note this is leveraging data identifying the target formation as reported to the states. Key operators which brought on dry Utica wells in 2017 include: Shell, JKLM, and National Fuel Gas, all focused in central and northeast Pennsylvania, and CNX Resources, which is focused further south in Westmoreland County, Pennsylvania.

Looking at production data, the overall average IP rates in 2017 for Utica/Point Pleasant wells are in line with the Marcellus. Focusing on the key operators targeting the Utica, the average IP rates in the Utica for CNX Resources, National Fuel Gas and Shell are all higher than the Marcellus, with CNX and Shell materially higher. CNX Resources brought on two highly productive wells at the end of last year. Note, however, there are far fewer wells for Utica which makes it difficult to understand how things may trend if more development occurs.

Going one step further, the relative economics of Utica wells in Pennsylvania and West Virginia appear less favorable than the Marcellus, as shown in the figure below. However, operators with development plans that include the Utica generally have Utica wells that are outperforming their Marcellus wells. CNX Resources, National Fuel Gas, and Shell are likely to continue to develop the Utica if well performance trends continue.

Ultimately, the dry Utica remains a very small portion of overall drilling activity in Pennsylvania and West Virginia, but the resource potential is there, particularly as several producers continue to delineate this acreage. Over the long term, the dry Utica provides upside to production out of Appalachia. Check out the Upstream Outlook and Northeast Gas Outlook to continue following production trends in the Utica, and the E&P Positioning Report to understand how economics are evolving in the region.

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Marissa Anderson is the Manager of Data Analytics at BTU Analytics, LLC. She has diverse experience in the energy industry including fundamental analysis, investor relations and engineering. Prior to joining BTU Analytics, Marissa was a Senior Investor Relations Analyst with MarkWest Energy Partners, L.P., and a Senior Energy Analyst with Bentek Energy where she focused on the Natural Gas Liquids market. Marissa holds a B.S. in Chemical Engineering from the Colorado School of Mines, an M.S. in Global Energy Management from the University of Colorado Denver, and is a licensed professional engineer in the state of Colorado.

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