The Deep Utica: Update On The Utica Through The Eyes Of EQT; Another "Sleeping Giant"? -- October 23, 2015

Disclaimer: in a long note like this, there will be typographical and factual errors. In addition, opinions and forward-looking comments, as they say, are interspersed with facts; it is hard to keep them all separate. If this information is important to you for any reason, go to the source. This is simply to help me understand the oil and gas industry in North Dakota and put it into perspective. And, yes, there is a short answer quiz at the end of the post. Good luck.

A huge "thank you" to two readers who helped me with this post.

Updates

October 27, 2015: this is the story, I believe, that Jim Cramer reported on in one of his video segments, yesterday, Monday, October 26. The WSJ is reporting:

Natural gas prices plunged Monday to their lowest level in more than three years on concerns that the market will remain oversupplied this winter.

Adding to investors’ fears, some companies are hinting at a new production boom.
Most of the growth in natural-gas production in recent years has been in the Marcellus Shale in Pennsylvania and West Virginia. Some industry experts say the Utica Shale, which stretches into Ohio and also lies underneath the Marcellus in some places, could be just as bountiful.

EQT Corp.said in an earnings call Thursday that it has drilled wells in the Utica with very high production rates. EQT’s shares fell more than 7% that day.

“A year ago, it would have been hard to imagine a more prolific play than the Marcellus,” said David Porges, EQT chief executive, on the call. “However, if the deep Utica works, it is likely to be larger than the Marcellus over time.”

This comes on top of already-booming production. Total output rose to a record of 74.9 billion cubic feet per day in September, according to the latest Energy Information Administration estimate.

Original Post

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 A New Natural Gas Play

3Q15 EQT transcript.

See first comment at this post.

I know nothing about EQT. This is the business summary of EQT at Yahoo!Finance:

EQT Corporation, together with its subsidiaries, operates as a natural gas company in the United States. It operates in two segments, EQT Production and EQT Midstream. The EQT Production segment explores for, as well as develops and produces natural gas, natural gas liquids (NGLs), and crude oil primarily in the Appalachian Basin. As of December 31, 2014, it had 10.7 trillion cubic feet of proved natural gas, NGLs, and crude oil reserves across approximately 3.4 million gross acres, including approximately 630,000 gross acres in the Marcellus play. The EQT Midstream segment provides natural gas gathering, transmission, and storage services for the company’s produced gas, as well as for independent third parties in the Appalachian Basin. This segment owns and operates approximately 8,200 miles of gathering lines and 176 compressor units with approximately 225,000 horsepower of installed capacity. The company was founded in 1925 and is headquartered in Pittsburgh, Pennsylvania.

Highlights of the 3Q15 EQT transcript (linked above):

• 3Q15 earnings: a loss of 33 cents/share vs an 83-cent decrease from earnings in 3Q14
• earnings: impacted by lower commodity prices
• expenses high consistent with volume growth
• midstream results: operating income was up 21%
• the call started off with an update on the company's first deep Utica well, Scotts Run  591340
• 24-hour IP: 72.9 million cubic feet = 12,000 boe
• steady flow at this rate
• cumulative total: 2.6 billion cubic feet in first 3 months = 430,000 boe in three months
• forecast: in eight months, 1.23 million boe
• EUR: 15 billion cubic feet = 2.6 million boe ("Our current reservoir modeling suggests an ultimate expected recovery for this well in a range between 13.9 Bcf and 18.8 Bcf or a range of 4.3 Bcf to 5.9 Bcf per thousand foot of lateral.")
• 2nd deep well, Pettit 593066: at 12,000 feet; ready to begin lateral
• 3rd deep well, the Big 190 well: just spud
• cost for these deep wells: $12 - $14 million, as much as $17 million, about $2,500/foot
• deep wells at 13,000 feet vs 10,000 feet (latter, $1,500/foot)
• due to economics, will suspend operations except core Marcellus assuming the deep Utica works
• bottom line: looks like company is moving to deep Utica; vice Marcellus
• takeaway capacity may not be sufficient
• better economics: higher volumes, more concentrated (geographically) - "tighter area"

From all this, a reader provides these thoughts on the implication of this:

• if the deep Utica pans out, the area in Appalachia to be drilled will shrink, geographically
• a "small corner" of Appalachia has the potential to deliver most of North America's gas
• within the basin, non-core Marcellus and Upper Devonian would become non-competitive (or the core Marcellus will shrink)
• takeaway capacity could be an issue much longer than expected
• longer term, it may be desirable to have separate gathering systems for Marcellus and dry Utica because of the higher pressure of the Utica
• if the deep Utica pans out, and once takeaway capacity meets supply, other plays will be impacted negatively (Haynesville, Fayetteville; conventional gas prospects, GOM gas and Canadian gas have all been negatively impacted)

Bottom line for me: the "deep Utica" is a new term; the "deep Utica may move the needle for natural gas production in North America in the next 3 to 5 years if it pans out.

I will be watching for RBN Energy to talk about the "Deep Utica."

By the way, does the "Deep Utica" remind anyone of anything closer to home, say, perhaps, Glen Ullin or Linton, North Dakota? One hint: North Dakota's Winnipeg Shale runs very, very, very deep, about 12,000 feet down, well below the Bakken and just below the Red River (which I've always considered the "deepest" formation in North Dakota to be drilled). 

[At $2.00/mcft, 15 billion cubic feet = $27.5 million
at $20/boe , 2.6 million boe = $52 million]