Category Archives: Utica

What If We Ban OPEC Oil?

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One of Donald Trump’s promises during his campaign was that he would ban oil from all OPEC countries.

This article over at Alberta Oil Magazine discusses some of the implications of doing that.  It points out that we use about 20 million barrels a day, produce about 8.5 million right now, and produced about 9.4 million in 2015 and about 8.7 million in 2014.  We import only 3 million to 3.5 million barrels a day from OPEC countries.

Looking at the EIA reports, we get about four times as much oil from Canada as we do from Saudi Arabia, and almost as much from Mexico as we do from Saudi Arabia.  All told, though, we get about 1/3 of our imports from OPEC countries. We would have to make up that 3-3.5 million barrels a day from somewhere.

If we banned OPEC imports it’s almost certain that OPEC would pick up some customers that non-OPEC countries currently supply, just by cuthing prices.  Those non-OPEC countries would have some additional supply floating around, and would very likely just sell to the US.  Most of the difference we need would be made up from shuffling around suppliers and customers.

Some of the difference would probably be made up by Canadian tar sands, but the tar sand operations would probably take a while to bring production back up.  After the fires in Alberta earlier this year, the oil sands operations took a few weeks to bring back to full operations.  Opening up new areas would likely take a lot more than a few weeks.

Mexico would probably try to take up some of the slack as well, but most oil exploration outside the United States is the old style, requiring months to years to bring significant oil production online.

That’s assuming there will be slack in oil supplies.  Presumably, we would just start buying more oil from countries which already provide us oil.  Of course, there may be treaties and transportation issues that I don’t know about which would limit the amount of oil we could buy from non-OPEC countries.  If something, anything, gets in the way of our acquiring more oil from current non-OPEC sources, then the price of oil will certainly rise and production in the US will increase. Any kind of uncertainty will drive market prices up. 
Any real slack in oil supplies would be taken up by American companies, doing horizontal fracking.  The nice thing about a fracking operation is that it can be up and running in months, sometimes even weeks.  Areas like the Permian and the Bakken which have been heavily explored and leased would be able to bring new production online within months.  That’s not counting DUCs, drilled but uncompleted wells which just need to be fracked or turned in line (open the valves) to start producing.

There is one point about this entire thing that is worrisome for those of us in the Marcellus/Utica area.  Increased oil production brings increased natural gas production.  From the majority of oil wells there is some natural gas produced.  This natural gas isn’t just vented or burned onsite.  It’s sold into the pipeline system, and competes with gas produced elsewhere.  If we do see increased oil production in the US, the associated natural gas production will drive down prices and demand, even if slightly, for Marcellus/Utica gas.

Why West Virginia Hasn’t Been as Heavily Developed as Ohio

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When you spend significant time doing research about the Marcellus and Utica shales you come to realize that there’s a lot more development going on in Ohio and Pennsylvania than there is in West Virginia.  It takes a bit longer to figure out why.  The really short answer is: geography.  The slightly more detailed answer can be found in this article over at Marcellus Drilling News.  I’ve been a subscriber to MDN for years, mostly for their daily news summary, but every once in a while they have a good article of their own.  This is one of them.

To sum it up for those who aren’t subscribers or can’t other wise view the article, the really valuable parts of the Marcellus and Utica shales are those that produce oil and wet gas.  Those parts underlie more of Ohio and Pennsylvania than they do West Virginia.  There are three or four counties (the northern panhandle of West Virginia) that could potentially produce oil and wet gas.  While there is wet gas in other West Virginia counties, the potential is just not the same as it is in Ohio and Pennsylvania.

While there has been a shift away from searching for wet gas lately, the search for oil is still there and drives a lot of decision making.  West Virginia wells just don’t produce much oil and so West Virginia doesn’t attract as much attention from developers and investors.

Consol Energy’s Plans

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A lot of our clients were working on deals with Consol Energy when they stopped operations here in West Virginia.  Now there are rumblings that Consol will start operations back up in the next six months.  The only caveat is that those operations are likely to be focused on the Utica, which is in the northern part of the state, and most of our clients who lost out on deals with Consol had property in the Lewis, Upshur, and Barbour county area.  So, it’s good news and bad news.

We’re keeping an eye out for everyone that was negatively affected when prices took a downturn in 2014 and 2015.  Things are looking up, but they haven’t improved immensely yet.

Utica in West Virginia: More Details

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WVMetroNews has an article by Sunshine Wiles which points out a few things about the Marcellus Shale.  It points out that the Utica is much deeper than the Marcellus, and that we in West Virginia have “some of the lowest energy costs in the country”.

One of the reasons that energy cost is so low is that West Virginia mineral owners tend to sell cheap.  Hold on to your minerals, don’t lease for a couple thousand bucks an acre and a royalty of 12.5% (which is 1/8), and write your legislator about forced pooling to make sure they vote against forced pooling.

Utica Shale just as big as Marcellus Shale

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utica-shale-map

A new study by WVU has found evidence that the Utica shale is much larger than previously believed.  The study says that the Utica could be just as big as the Marcellus, previously believed to be the largest shale play in the country.

The Utica is quite a bit deeper than the Marcellus, between 4,000 and 12,000 feet deeper depending on the region you’re looking at.  It’s shallowest over in Ohio, and dives down at about the West Virginia border, and is at its deepest in New York.  The depth creates additional challenges (translation: expenses) for drillers.

The Utica underlies a lot of West Virginia, and while it’s not being developed heavily in every possible location, it will be someday.  West Virginia lessors need to know that even if the other shale formations that could be produced are never produced, the Marcellus and the Utica are both very likely to be produced.

Utica/Point Pleasant Formation

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EQT is going after the Utica/Point Pleasant in Greene County, PA.  That’s right across the border from our very own Marshall County, Wetzel County, and Monongalia County.  The wells aren’t close to the border, but considering that Antero is also going after Utica/Point Pleasant in Tyler County, it seems likely that the rest of that area should be interesting to producers for the Utica.