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The lateChesapeake Energy (NYSE: CHK) co-founder and CEO Aubrey McClendon once said that the Utica shale would be the "biggest thing economically to hit Ohio, since maybe the plow." While it has not turned out to be that big, it is the second largest shale-gas play in the country by production. That is remarkable, considering that Chesapeake didn't drill the first well in the Utica until 2011.
The Utica shale 101
While Ohio is the center of the Utica drilling boom, the shale itself underlies not just eastern Ohio, but also most of West Virginia and Pennsylvania, as well as parts of New York, Virginia, and Maryland:
Image source: the U.S. Energy Information Administration.
Given the sheer size of the resource, McClendon once called the Utica a "half-trillion dollar" opportunity for Ohio. While it might never hit that level of economic output, it has fueled remarkable growth in the state's oil and gas production. Last year alone, oil production was up 99.9% to 22 million barrels, while the state's natural gas output surged 110% to 452.9 million cubic feet.
Due to the energy market downturn, Ohio's production will not grow that rapidly in 2016. However, the Utica shale boom is far from over, because there's still a tremendous amount of oil and gas trapped within its rocks. Several producers are working to extract those hydrocarbons, though five companies stand above the rest as the dominant players in the Utica.
The leading Utica shale producers
Data source: Company investor presentations. BOE: barrels of oil equivalent; MMcfe: million cubic feet of gas equivalent.
Chesapeake Energy is by far the top dog in the Utica shale. It is not even close: Chesapeake Energy alone has drilled more wells in Ohio's Utica shale than the rest of the industry combined. It was an early mover in the play after it quietly swept in and spent roughly $2 billion to lease more than 1 million acres in 2010. Those early leases set Chesapeake up with an industry-leading acreage position that it still holds today, with the company's acreage estimated to contain 4 billion BOE in recoverable resources. While Chesapeake is going through tough times right now and only plans to drill a handful of wells this year, it has the acreage position to remain the most dominant Utica shale player for years to come.
Next up is Gulfport Resources (NASDAQ: GPOR), which was also an early mover to lease acreage in the play. As a result, it built up a substantial low-cost position, the bulk of which is in the hydrocarbon-saturated core. Gulfport's acreage currently holds an estimated 1.7 trillion cfe of proved natural gas reserves, which, for perspective, is enough to meet the energy needs of 1.7 million households for 15 years. Gulfport Energy recently reaccelerated its drilling activities and expects to grow its production by 20% to 25% next year. However, if natural gas prices continue improving, it could add more rigs to boost its output by up to 50% in both 2017 and 2018.
Privately held driller Ascent Resources is a unique story. It was initially founded by Aubrey McClendon after he "retired" from Chesapeake Energy to focus on shale plays, with the Utica shale being one of his primary targets. Given its pedigree and significant acreage position, Ascent is a company to keep an eye on in the Utica.
Appalachian Basin-focused Antero Resources (NYSE: AR) built a solid position in the core of the Utica shale. While it has a smaller position than some of its rivals, oil and gas saturate the rocks underneath its acreage. Because of that, Antero Resources has already booked 1.8 Tcfe of proved reserves and estimates that its total resource potential is 7.5 Tcfe. While the company has drilled 131 wells to date, it has another 814 future drilling locations, which should fuel production growth for years to come.
Finally, Utica shale pure playEclipse Resources' (NYSE: ECR) acreage is right smack in the middle of the core, so it has delivered remarkable production growth over the past few years. While Eclipse's production slipped in 2016 as a result of the energy market downturn, it recently boosted its capital expenditures plan to reaccelerate drilling, because its returns are still quite lucrative at up to 63%. That incremental capital is projected to increase Eclipse Resources' output from a range of 225 MMcfe/d to 230 MMcfe/d in 2016 up to 300 MMcfe/d in 2017. The company has ample growth opportunities beyond next year, with its current undeveloped well inventory providing it with up to 22 more years of drilling opportunities.
The Utica shale is turning out to be quite a remarkable shale play. While it quickly ascended to the second largest shale-gas producer in the U.S., it still has a tremendous amount of running room as producers unlock its vast resources. That future growth potential should fuelstrong returns for investors in the Utica's top players.
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