Hilcorp Invests $400M in Utica Play’s Northern Tier

YOUNGSTOWN, Ohio — Houston-based Hilcorp Energy Co. sees opportunity where others don’t as it plans to drill more natural gas wells this year in the northern tier of the Utica shale in Ohio and western Pennsylvania.

“We’re optimistic that oil and gas development will remain successful in this part of the Utica,” says Justin Furnace, spokesman for Hilcorp. “In 2014 alone, we spent $400 million in development of the play.”

The oil and gas company is the most active driller in the northern tier of the Utica, which lies beneath Mahoning, Trumbull and Columbiana counties in Ohio and Mercer and Lawrence counties in Pennsylvania.

Indeed, few companies have taken a chance on the northern Utica, instead shifting their interests to the southern tier of the play – particularly to Belmont, Monroe or Harrison counties. Aside from Hilcorp, those companies that initiated drilling programs in the north – BP America and Halcon Resources Corp., for example – have since either abandoned their interests, suspended exploration or not pursued new development because of lackluster well performance.

But Hilcorp hasn’t slowed in the three years since it entered the northern Utica as evidenced by the solid reinvestment in its operations here.

“A lot of that money was spent locally on new employees, contractors and landowners,” Furnace says. The office it opened in New Castle employs 22, he says, noting Hilcorp hired seven new staff members last year.

To date, Hilcorp has drilled 40 horizontal wells in Lawrence and Mercer counties in Pennsylvania and Mahoning and the northern portion of Columbiana County in Ohio. “Our focus for the first half of 2015 is going to be in Pennsylvania, along with a few wells in Columbiana,” Furnace says.

Precisely how many of these wells are in production and connected via pipelines is undetermined, he adds. But those in production have generated promising returns. “We’re finding a mix of both dry gas and liquids.”

Hilcorp, a private company based in Houston, isn’t required to publicly disclose earnings reports or overall production figures. However, all oil and gas well production in Ohio is reported quarterly to the Ohio Department of Natural Resources and twice a year to the Pennsylvania Department of Environmental Protection.

During the third quarter, Hilcorp’s seven wells at its Poland Township Carbon Limestone Landfill site in Mahoning County collectively produced 1.7 billion cubic feet of natural gas over that 92-day period. Hilcorp’s Poland CCL2 6H well produced 379.4 million cubic feet of gas while two others, the CCL2 5H and 3H wells, produced 360.2 million cubic feet and 352.7 million cubic feet, respectively.

“We’re pleased with the results there,” Furnace says. “And, we anticipate future development in Mahoning County.”

That Hilcorp is considering additional oil and gas exploration in Mahoning County is significant in the wake of a series of small earthquakes last spring that were linked to a hydraulic fracturing operation at one of the Poland wells. The temblors caused Hilcorp to shut down its drilling there, but the company put into production the seven wells already completed.

This year, Furnace says, Hilcorp intends to concentrate exploration in western Pennsylvania and portions of northern Columbiana County. “We anticipate being very active in 2015, but we can’t predict with certainty the number of wells that we’ll drill,” he says.

The latest production figures released from the Pennsylvania DEP show that Hilcorp has placed eight wells into production in Lawrence and Mercer counties. During the first six months of 2014, seven wells in Lawrence County yielded 1.6 billion cubic feet of gas. Its most productive well is the Whiting 2H well in Pulaski Township, which yielded 405.2 million cubic feet of gas.

The single Hilcorp well placed into production in Mercer County is in Lackawannock Township. The James 1H well produced 179.3 million cubic feet over 181 days during the first half of 2014.

Recently, the DEP awarded Hilcorp a new permit for a well in North Beaver Township in Lawrence County. Since 2012, the company has secured 119 permits for wells in Lawrence County and 56 in Mercer County.

The Hilcorp wells produce a mixture of dry gas, or methane, and natural-gas liquids, Furnace says. The gas is pumped via pipelines from wells to Pennant Midstream LLC’s cryogenic plant in Springfield Township where it’s chilled. The process separates the dry gas from the “wet” gas, with the methane transferred to existing natural gas pipelines in the region. The wet gas is transferred via pipelines to a processing plant in Harrison County where it is separated into products such as butane, ethane and propane.

“Most of our activity is directed towards finding liquids-rich natural gas wells,” Furnace notes, because wet gas commands higher prices than methane.

While much of Hilcorp’s exploration will target western Pennsylvania, a recent flurry of permits awarded the company through ODNR in Columbiana County points to growth here. Since November, Hilcorp has secured 21 permits for new horizontal wells in Fairfield Township.

“Permitting activity does not necessarily translate to the exact level of drilling activity,” Furnace acknowledges. “But, we do hope to drill a few new wells in Columbiana County this year.” Hilcorp has one well in production there, the Salem-Grubbs 1H in Salem Township, which yielded 101.5 million cubic feet of gas between July 1 and Sept. 30.

Columbiana County boasts several highly productive wells in the Utica, especially in its northern tier, according to the latest production figures from ODNR. Chesapeake Energy Corp.’s Albaneso well in Franklin Township, for example, yielded 452.3 million cubic feet of natural gas during the third quarter. The Tritten well in Center Township produced 431.6 million cubic feet of gas.

Fast-falling oil prices have affected the rig count in the Utica, observes Jeffery Dick, chairman of the geology department at Youngstown State University. “From May to September, the rig count was running at about 45 and we projected it would increase by three per year over two to three years,” he says. “Instead, it took a big jump to more than 50 rigs.”

However, the rig count – that is, the number of rigs operating in the Utica shale at any given time – fell sharply during the week ended Jan. 17. According to the ODNR, the rig count in the Utica fell to 43 from 51 those seven days.

New-well permits also slowed that week as ODNR issued just nine horizontal permits, all for the central and southern tier of the Utica.

Even so, Dick says, these drilling operations are becoming more efficient and companies keep finding ways to reduce the expense of exploration and drilling to offset the low commodity prices that prevail. “Spud-to-spud time has been coming down,” he says, referring to the interval between initially drilling a well with a particular rig to the start of another using that same rig.

“Drilling efficiency seems to be making up for decreasing prices,” he notes.

These improvements are critical for Hilcorp, Furnace says, as the company learns from the play and tweaks the drilling and completion process.

“We’re focused on developing what we’ve got in the northern tier and we’re optimistic,” Furnace says.

PICTURED: The gas Hilcorp’s wells produce is shipped to the Pennant Midstream cryogenic plant in Springfield Township. The plant is a joint venture involving Hilcorp and NiSource.

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