Development of the Utica Shale may accelerate over the next few years due to a recent horizontal well drilled by a small cap Canadian company that produced at commercially viable levels.

IN PICTURES: Learn To Invest In 10 Steps

The Utica Shale is a relatively obscure shale formation located in Quebec that also crosses the border into the U.S., and lies below the more famous Marcellus Shale in some areas. The Utica is an Upper Ordovician shale that was deposited hundreds of millions of years ago.

On A Quest
Questerre Energy Corporation (TSX:QEC) said that the St. Edouard No. 1A well produced at an initial production rate of over 12 million cubic feet per day, and settled in at an average rate of 6 million cubic feet per day. The company did not release the number of hydraulic fracturing stages or the lateral length used to complete the well.

QEC is currently working on the Gentilly #2HZ, a second horizontal well targeting the Utica Shale. The company has more than one million gross acres in Quebec that are prospective for the Utica Shale, and also has exposure to the Lorraine Shale and Trenton Black River formations on its acreage.

It's difficult to determine the potential of the Utica at such an early stage of development, but Questerre Energy Corporation estimates that it has 4.36 Tcf or 726 million barrels oil equivalent (BOE) that is recoverable on its acreage.

The company is involved in a joint venture with Talisman Energy (NYSE:TLM) on a block of approximately 720,000 acres, with the company holding a 25% working interest and Talisman Energy the remaining 75%. Questerre Energy Corporation is also in a joint venture on a block of approximately 181,000 acres with Gastem, Inc. (TSX:GMR), another small cap Canadian player.

What's Good About Utica?
One advantage to the Utica Shale is that like the Marcellus Shale across the border in the U.S., the Utica Shale has a close proximity to major markets in the Northeastern United States, which leads to lower transportation and infrastructure costs. Natural gas sold here also sells at a premium price relative to other hubs in the United States.

Other Players
Forest Oil (NYSE:FST) is also involved with the Utica Shale, with 330,000 gross acres under lease, with about 70% prospective for the Utica Shale. Forest Oil drilled several successful vertical test wells in 2007, and had some aggressive development plans for the Utica Shale that were outlined at its 2008 analyst meeting.

The financial crisis seemed to have delayed substantial development here, and Forest Oil does not mention the Utica Shale in its current marketing presentation. The company did acknowledge during its fourth quarter of 2009 earnings conference that the Questerre Energy Corporation well validates its own work in the Utica Shale. Forest Oil also has time left to develop its acreage, as some of its leases run up to ten years.

Range Resource (NYSE:RRC) also has acreage prospective to the Utica Shale, and is currently completing a horizontal well testing that formation.

The Bottom Line
The Utica Shale is at an early stage of development but has a large potential to supply energy to the U.S. and other consumers. Keep this one on your radar screen. (To learn more, see our Oil And Gas Industry Primer.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    Asset Manager Ethics: Acting With Competence and Diligence

    Managers must make investment decisions based on their personal investment process, which in turn should be based on solid research and due diligence.
  2. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  3. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  4. Economics

    Why It Is Important to Follow Crude Oil Inventories

    Discover what oil inventories are, how they are communicated and what important insights they provide into the state of the oil market.
  5. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  6. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  7. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  8. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  9. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  10. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  4. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  5. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  6. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>

You May Also Like

Trading Center