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. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!