* April deadline for state to publish energy production data
* Data will reveal output on up to 60 new shale wells
* First major indicator of Utica's progress
By Edward McAllister
NEW YORK, March 25 Shares of Gulfport Energy
were in free fall last spring, dropping 55 percent in
four months, until the oil and gas producer announced it had
drilled its first three wells in the Utica shale formation in
The Oklahoma-based company's value has since more than
doubled, bolstered by a series of company production updates on
those and a handful of other new wells located in what many
believe to be the next frontier in America's oil and gas
The share price gain represents perhaps the clearest example
of how investors, giddy about an expected boom in Ohio's energy
production, have been betting on companies based on some
optimistic, but preliminary, production data.
But next month a more comprehensive state report will
publish new data from Ohio's oil and gas wells that will offer
the most insight yet about whether the Utica is the next big
thing or a potentially fizzling bust for companies operating
Energy producers in the Buckeye State have compared the
Utica to the giant Eagle Ford shale play in Texas and declared
it a boon for a state still weathering an economic downturn.
However, enthusiasm has cooled somewhat since drilling began in
2011, after wells produced more cheap natural gas than the more
On March 31 this year, data from between 50 and 60 wells
drilled in 2012 will be given to the state. It will then be made
available on the Ohio Department of Natural Resources' website
in April, the department said. It did not give a specific date
but last year the report came on the second of the month.
While around 500 drilling permits have been issued in the
state since 2011, only those wells that have actually produced
will be covered in the report. It will show output over the
lifetime of every new well, its location, and its owner,
providing some proof of which acreage, and which companies, are
"It is a meaningful sample of wells that will go a long way
toward giving investors a sense of whether the Utica is the next
big thing," said Morningstar analyst Mark Hanson, who covers
companies operating in the state.
Ohio publishes well data only once a year, making it one of
the least transparent states in reporting energy output. Most
states publish every quarter. On April 2 last year, production
was published from just five wells. That is the only official
state record on the play two years after drilling began there.
Results from the five wells drilled by Chesapeake Energy
in Carroll and Harrison counties showed lower than
expected oil production, and stronger natural gas output, the
state report said.
Since then, a long list of companies, including Britain's BP
, Anadarko Petroleum and Hess Corp, have
acquired acreage in Ohio. Most remain quiet about their progress
for fear that it will push lease prices higher.
"It has to do with the competitive nature of things," said
Mark Houser, chief executive officer of EV Energy Partners
which, together with its parent company Enervest Ltd, owns more
than 800,000 acres in the Utica. "If you have a good acreage
position, you still may want to buy the acre next door. You
don't want to have everything public."
BP, Anadarko and Hess did not respond to request for comment
for this story.
Devon Energy is in the process of selling more than 200,000
acres in the Utica after drilling a series of what a company
spokesman described as "disappointing" wells in what it expected
to be oil-producing acreage. Chesapeake Energy, which did not
immediately respond to calls for comment, has also sold off a
portion of its more than 1 million acres there.
"The little I have seen from the Utica shows it has been a
bit disappointing given the expectations," said Phil Weiss, an
analyst with Argus Research who covers companies drilling there.
"Given that the amount of information is relatively sparse,
people will be paying attention."
PEAK RATE, SHAKE AND BAKE
Meanwhile, smaller companies such as Gulfport, Rex Energy
and Magnum Hunter Resources, with a
proportionately bigger stake in the Utica, have more to lose if
the play turns out to be a dud.
Rex Energy and Magnum Hunter did not immediately respond to
requests for comment.
Of the smaller companies, Gulfport's share price has shown
the most remarkable rise since the first half of last year and
the company in many ways encapsulates both the hype about the
Utica and the difficulty in deciphering its true potential.
(Share price graphic:)
Since June, 2012, when it announced it had drilled its first
three Utica wells, Gulfport's share price has risen 156 percent,
from below $17 to more than $43 on March 18, as the company
began reporting initial flow rates from the new wells.
But as the April deadline for reporting well production
looms, experts will be watching closely for whether Gulfport's
preliminary data holds up to further scrutiny.
"Ultimately, the production and estimated ultimate recovery
of our wells and those of our peers will provide definitive
answers," said Paul Heerwagen, Gulfport's director of investor
The company, which owns 128,000 net acres in the Utica,
published impressive "peak rates" of gas and condensates from
its Utica wells, a measurement of initial flows taken over a
limited time period, usually no longer than 24 hours. A peak
rate is typically much higher than eventual longer term output
that declines over time.
"The peak rate is more a bragging type thing," said Randall
Collum, a natural gas production analyst at data provider
Genscape. "It is nice to know and gives some indication of
potential production, but I would rather get a longer term
During a quarterly conference call with analysts on Feb 27,
Gulfport chief executive James Palm revealed longer term rates
for two wells, which had fallen off significantly from the first
Natural gas output from the Wagner 1-28H well fell from a
peak rate of 17.1 million cubic feet per day reported on August
7 to an average of 5.2 million cubic feet per day after 129 days
of production. Output of gas condensates fell from 432 barrels
per day to 94 bpd.
Decline rates are normal, and Gulfport executives said on
Feb. 27 that output from the Wagner well has increased slightly
since the end of the year.
Gulfport is not alone in reporting peak rates. Rex Energy
chief executive Tom Stabley said he was "very excited" about
output from three new Utica wells in a statement on March 18
that disclosed 24-hour test rates for the wells.
But the speed of the declines in the Gulfport wells, and the
scarcity of longer term data, makes it hard for investors to
judge whether it will be a good long-term investment.
"The first four months show that the peak rate was not
over-representative of what could ultimately be recovered from
the well," said Morningstar's Hanson.
Further muddying the water is a new technique known in the
industry as 'shake and bake' or 'resting', where a well is
plugged for a number of days or months after drilling to
increase pressure in the well. Shake and bake, an unproven
method that companies hope might improve recovery from a well
over its lifetime, can increase initial flows by raising
pressure, said Gulfport's Heerwagen, though it is not yet clear
if it increases flows long term.
So far, more than 500 well permits have been issued in the
Utica since 2011, many of which are expected to begin producing
as new pipelines and processing plants are built to connect
wells to markets as early as this spring.
As more wells are drilled, more information will be made
available - but not for a while. The data on wells drilled in
2013 will remain largely unknown until April 2014.