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.
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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.
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.)
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