Blue Racer Project Awaits Results from Northern Utica

PITTSBURGH -- An executive from one of the major midstream companies developing the Utica shale in Pennsylvania and Ohio says it still wants to develop a processing network in the northern tier of the play, but won’t move forward until producers feel more confident about oil and gas production there.

"When you look at Trumbull and other counties where there's been a lot of drilling going on, the results haven't been as good," compared to wells drilled 100 or more miles to the south, observes Jack Lafield, CEO of Caiman Energy and Blue Racer Midstream.

Blue Racer, a partnership between Dominion and Caiman Energy II, is building a pipeline and processing network throughout eastern Ohio's Utica shale, Lafield said Thursday at the Hart Energy Marcellus-Utica Midstream Conference.

Initially, Blue Racer announced intentions to construct a cryogenic plant in Petersburg, in southeastern Mahoning County. However, Lafield emphasizes, such a project isn't likely to move ahead until producers start seeing results from wells drilled in the region.

A map displayed on the company's website still demarks a location in southeastern Mahoning County as the site of its Petersburg Complex.

"We still have plans," Lafield says. "We're just waiting on production and the producers to be more comfortable with their delineation of the field itself."

This might take some time, he acknowledged, noting that producers in the north are “taking a step back,” and re-assessing well completion techniques and experimenting with new technology that could help extract more oil and gas from the tightly packed shale.

One problem in the northern geology of the play is that the Point Pleasant formation – considered the most lucrative of the Utica -- pinches thin as it moves through areas such as Trumbull County.

"I think the rock is there, and it's still going to be good," Lafield says, "but it's going to take a little different technique up in that northern area."

Blue Racer's confirmed processors are slated to serve the southern portion of the Utica -- Monroe, Harrison, Belmont and Noble counties, for example -- and not the northern regions of the play such as Mahoning and Trumbull counties, he reports.

"The south has turned out to be the core," Lafield reports. "We're seeing that those areas like Noble and Guernsey counties as having the best of the best in the Utica."

Processing plants are essential for the production of natural-gas liquids (NGLs) because producers need to separate "dry" gas, such as methane, from "wet" gas. Dry gas is pumped back into the utility lines, while NGLs are sent fractionation plants and transformed into separate products such as butane, propane and ethane, which are then marketed worldwide.

Blue Racer is building a new processing plant in Lewis, Ohio, in Harrison County, and another one further south in Berne, in Monroe County. Across the state line in West Virginia, the company is adding capacity to its plant in Natrium.

By 2015, Lafield says, Blue Racer should have the capacity to process 600 million to 800 million cubic feet of gas per day. Eventually, capacity could grow to two billion cubic feet a day. "We think that's about 40% of the Utica rich production."

To date, Blue Racer has about $700 million in capital committed toward developing the Utica, Lafield reports.

"The good news is that you're going to see the Utica become a world-class field just like the Marcellus," he says.

Other midstream companies agree, and are stepping up their efforts to capture the Utica market as producers become more proficient at gas extraction.

"They just seem to get better and better," Scott Garner, said of the producers now exploring in the Utica. Garner is vice president, corporate development at MarkWest Energy Partners LP. "The producers are continually refining their technology,” he said. “They just continue to improve."

MarkWest is the most prolific midstream company in business in both the Utica and Marcellus. Since oil and gas exploration in the Marcellus shale took off in 2008, and accelerated in Ohio's Utica shale in 2010, the company has invested $6 billion in midstream and processing infrastructure in this region, Garner reports.

And more is on the way. This year, Denver-based MarkWest anticipates it will spend another $2 billion on midstream processing, most of which will be devoted to their holdings in the Utica and the Marcellus.

It's therefore likely the company will have to increase processing capacity if it wants to accommodate the natural gas and NGLs producers are finding in eastern Ohio, southwestern Pennsylvania and the western West Virginia, he says.

That means ongoing construction of new processing plants and pipelines, especially in the southern tier of the Utica and the liquids-rich areas of the Marcellus in southwestern Pennsylvania.

The Marcellus alone holds enough gas to supply the entire United States 21 years, and the energy production forecast over a 50-year period equates to 324 nuclear power plants capable of producing one gigawatt of energy each, Garner told the conference.

To date, MarkWest holds the capacity to process 2.2 billion cubic feet of gas per day between its cryogenic and fractionation plants in western Pennsylvania and Ohio, Garner reports. By the end of this year, capacity should increase to three billion cubic feet per day, and to 3.7 billion cubic feet per day by the end of 2015.

Producers such as Range Resources have reported strong results from wells in southwestern Pennsylvania, especially in liquids-rich Washington County, as have Utica producers such as Denver-based Antero Resources and Gulfport Energy Corp. of Oklahoma City in the southern portion of that play.

In the Marcellus, the company operates a large cryogenic and fractionation plant in Houston, Pa., and its Keystone and Sarsen processing complexes to the north in Evans City, Pa. in Butler County.

Three additional plants, the Mobley, Majorsville and Sherwood plants, provide service to Marcellus producers in West Virginia.

In eastern Ohio's Utica, MarkWest is spending well over $1 billion to build a fractionation plant in Hopedale, in Harrison County, a new processing plant in Seneca in Jefferson County, and a large cryogenic operation in Cadiz, in Harrison County.

The first phase of Cadiz in is operation and has signed customers such as Antero and Gulfport to process their gas from wells in the Utica.

“Utica's early phase is growing very rapidly,” Garner says. “We see continued opportunity. We don't see an end to it yet.”

Copyright 2014 The Business Journal, Youngstown, Ohio.
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