U.S. hopes for a new shale oil bonanza in Ohio, joining the prolific Bakken and Eagle Ford plays that have raised production to 20-year highs, were shattered on Thursday by the first hard evidence that the Utica formation was primarily gas-prone.
Just two years ago, the Utica had the global oil industry buzzing as companies rushed to buy acreage in the Midwest state in the belief it could hold a $500-billion bounty, as Chesapeake Energy's former CEO, Aubrey McClendon, had proclaimed.
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Now, data from Ohio's Department of Natural Resources (DNR) showed that in 2012, the first full year of drilling, oil output amounted to only 636,000 barrels -- about enough to fill a single small crude oil tanker. On average for the full year, output came to a mere 1,742 barrels a day (bpd) versus 780,000 bpd in North Dakota, where much of Bakken lies.
"This is less impressive than was initially touted," said Mark Hanson, energy analyst at Morningstar in Chicago. "It doesn't look like it's going to be the next Eagle Ford."
State officials sought to put a positive spin on the year's drilling results, which were released on an annualized basis rather than monthly like most other states.
The officials highlighted the "significant" natural gas production of 35 million cubic feet (mmcf) a day in 2012, a sum based on Reuters calculations of annual DNR data. They said the data made a "compelling statement" about the "staggering" amount of reserves in the Utica shale.
But whether or not companies are willing to keep drilling and produce those reserves is a different question. Crude oil flowed from the Utica wells at an uneconomic trickle. Gas prices are low and supplies are abundant, making it a challenge to justify the massive investments needed to bring it to market.
While the news will not come as a surprise to the industry and analysts -- scepticism has grown over the past year as individual companies indicated their first results -- this is the first time a full database of wells has been released.
Ohio publishes only annual well data and in 2011 development of the plays had only begun making the 2012 results crucial to assessing the real potential of the formation. Most other states publish data on a monthly basis.
"The reported volumes of oil are lower than initially estimated, but higher than conventional non-shale oil wells. Oil production will be incidental to gas production in much of the Utica/Point Pleasant play," the DNR said in a statement.
Oil production in the United States, by far the world's largest consumer of crude, has risen to its highest levels since 1992 to 7.159 million barrels a day thanks to the shale oil renaissance in North Dakota and in Texas, home to the Eagle Ford formation.
Signs of waning enthusiasm for Utica appeared last year when dominant companies such as Chesapeake and Devon Energy began selling off acreage in what was originally expected to be oil-rich parts of the play.
This was a change for Chesapeake given McClendon's description of the formation as "the biggest thing to hit Ohio since the plow."
The data issued on Thursday comprised all 87 producing wells in the formation in the state. According to Reuters calculations from that data, the average oil production per well per days the well was active, was 80 barrels a day.
In North Dakota, where production is in full swing, the average daily production per well is 600 barrels.
Nevertheless, drilling in general is expected to accelerate and new pipeline infrastructure will allow wells to bring oil and gas to markets nationwide more cheaply.
Counties in Ohio showed varying potential, Morningstar's Hanson said, pointing out that Harrison County showed some evidence of strong oil production, while Carroll County seemed more gassy.
And the DNR remained upbeat about the data.
"The production from these initial Utica wells makes a compelling statement about the staggering amount of oil and gas resources Ohio's shale may contain," said James Zehringer, DNR's director.
The department expects more than 360 wells to be producing in the Utica this year and 1,000 in 2015. Zehringer signaled production data could become available more frequently in the future.
"As oil and gas production grows, we need to see these production numbers more frequently. This will allow us to adjust to the growing needs and not fall behind from a regulatory standpoint," he said.
(Reporting by Edward McAllister and Sabina Zawadzki; Editing by David Gregorio, Nick Zieminski, Marguerita Choy and Bob Burgdorfer)