Consol President Calls Valley Utica Shale’s 'Ground Zero'
PITTSBURGH -- The president of Consol Energy Corp. expects "really exciting things for the Mahoning Valley" in the near future as the energy giant accelerates oil and gas exploration in this region over the next year and a half – exploration unlikely to stop at the Utica shale.
"The Mahoning Valley is ground zero for this play," says Consol President Nick DeIuliis. "This is just Step One, but there are going to be other horizons in the Mahoning Valley for years to come."
Pittsburgh-based Consol and its partner, Hess Energy of Woodbridge, N.J., plan to drill more than 20 wells in the Utica over the next 12 to 18 months throughout nine counties in eastern Ohio, DeIuliis tells The Business Journal. What's more intriguing is that as new technology is introduced and more investment made, it's likely that future wells could unlock gas and oil trapped in other shale formations. That could present a significant potential for long-term growth in the region.
"It's not just going to untap the Utica potential for eastern Ohio and the Mahoning Valley," DeIuliis says. "It will also allow untapping horizons above and below the Utica."
The Utica/Point Pleasant shale formations, 7,000 feet below Ohio, have attracted the biggest names in the energy business to eastern Ohio. Shell Oil, BP Energy, Chesapeake Energy Corp., and Devon Energy are among the heavy hitters doing business in the region.
Much of Consol's investment depends on the production results from its position in the Utica formation, DeIuliis says. "If we're even somewhat close to our projections, which we believe we're going to be, we think the capital investment will exceed hundreds of millions of dollars and approach billions of dollars, frankly, over the five- to 10-year drilling horizon," he remarks.
And with investments of this scale compounded by other energy companies doing business here, jobs are going to follow, DeIuliis says. "It's not going to be dozens of jobs or hundreds of jobs," he notes. "It's going to be thousands of jobs."
Manufacturers, suppliers, restaurants, vendors, hotels, real estate and service businesses all stand to see a considerable boost in business as a result of shale exploration here, he says. "It's good to see these opportunities in the Marcellus and Utica in the Mahoning Valley, where those jobs are increasingly being filled with people from that region."
Consol Energy was founded nearly 150 years ago primarily as a coal mining concern. As such, over the decades the company has amassed a sizeable amount of acreage in eastern Ohio and western Pennsylvania. Other acres were acquired by the company's purchase of Dominion Resources' exploration and production resources in the Utica.
Last year, Consol and Hess forged a partnership that called for Hess to pay $593 million to Consol for its position in southeastern Ohio.
Consol land that once was the heart of a thriving coal-mining region is finds itself in the epicenter of a productive source for oil, "wet" gas, and natural dry gas such as methane.
The company is drilling a vertical well in Ellsworth Township in Mahoning County, reports Harry Schurr, general manager of the Consol/Hess Utica joint venture. Two other horizontal rigs -- one in Noble County, the other in Portage County -- are also in the exploratory phase.
Once the vertical leg of the Ellsworth Township well is drilled, a horizontal rig would be placed at the site to begin that phase of the drilling process. "As soon as the vertical rig gets done with the uphole portion, then we'll bring a horizontal rig there,” Schurr says. “It takes a lot of effort to get the rigs here and set up."
That well, just off U.S. Route 62 in Ellsworth Township, should be completed in late August or early September, and testing should begin shortly thereafter.
Consol's first well in the Utica was drilled in Tuscarawas County, Schurr says. That well is completed and is in its testing phase. The company anticipates it will have 16 wells drilled by the end of 2012.
Consol has 86,682 acres under lease in Trumbull, Mahoning, Tuscarawas, Noble and Portage counties. In Trumbull County, Consol has 9,142 acres under contract, while in Mahoning County the company has 11,162 acres under lease. Most of its acreage is in Portage County, where it holds 25,443 acres under lease.
Consol's partner, Hess Energy, has acquired 75,647 acres in Guernsey, Belmont, Jefferson and Harrison counties in southeastern Ohio.
"The ramp-up will be largely dictated on success," Schurr says. He cautions that the Utica play is in its infancy, and that Consol is in the early stages of the exploration phase of the play. "The exploration is your first well, or your first couple of wells, in order to establish if there's hydrocarbons and what kind of quantity you have," he says.
Once the initial exploration phase is finished, the next step is to further verify early data from the first well in the delineation phase. "Delineation further confirms what you've found in the results of the first well,” Schurr explains, “and helps you get a handle on what type of economics you might be seeing and helps you fine tune completion practices."
The last phase is development. Here a company starts to realize full assets in the play and begins to bring other wells online, tying them into a pipeline network. "It's where you see real growth occur," he says. "Right now, we as a company are in the exploration phase. We're comfortable in what we're finding."
Consol has also extensive interests in western Pennsylvania, to wit, drilling activity in the Marcellus shale, Schurr reports. Both are extensive shale plays, and both have a vast repository of dry and liquids-rich gas. The Marcellus -- a formation that extends from West Virginia, through the heart of Pennsylvania, and into western New York -- contains what observers say is 15 trillion cubic feet of natural gas, most of it dry methane. But, in the southwestern part of the state, the gas trapped in the Marcellus is liquids-rich and produces resources such as ethane, which commands a much higher market price today than dry gas.
That's why drilling in areas such as Washington County, Pa., hasn't abated, as energy companies are shifting exploration to "wet" gas regions that contain ethane, butane and propane, which are far more profitable commodities than methane.
The Utica shale, Schurr says, is especially attractive because not only does the play hold dry and liquids-rich gas, there's also the strong possibility of tapping into a wide reservoir of oil. "The economic driver right now is pushing us toward the oil window," he reports. "Oil is $90 to $100 a barrel. Natural gas is $2.50 per thousand cubic feet. The economic of drilling the wells are much better for us than the dry gas windows."
Matt Henderson, shale gas asset manager for the Marcellus Center for Outreach and Research at Penn State University, says that development trends in the Utica should mirror that of the Marcellus.
"The Utica/Point Pleasant exploration is still in its embryonic stage," he says. "Looking at some of the examples of the Marcellus, you get a better understanding of how this process works."
Henderson relates that the data emerging from the Utica are comparable to the Marcellus, but the costs might be slightly less since energy companies are learning from their experiences in Pennsylvania. "The Utica, with its wet gas, is more favorable right now and it's going to be more favorable for the next several years."
And, Henderson adds, other shale formations above and beneath the Utica and Marcellus are just now starting to show favorable results, an indication that oil and gas exploration will be a long-term player in the economy of this region. "We're talking decades, even at the current drilling rates right now. We're looking at a 50-year play, maybe a 100-year play, when you throw in some of the other shale plays out there."
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