YOUNGSTOWN, Ohio -- BP America is planning to sell off 105,000 leasehold acres it owns in the Mahoning Valley as part of its exit strategy in the Utica shale, a company spokesman says.
"Just because this play doesn't fit in our BP portfolio doesn't mean it's a busted play," said Curtis Thomas, BP Ohio's director of government and public affairs. "It doesn't mean that it's not a perfect play for another oil and gas operator."
BP announced this morning that poor returns from its appraisal well program has caused it to discontinue investment in the northern tier of the Utica shale, especially in Trumbull County, where the company has drilled eight wells.
The corporation issued a $520 million write-down related to its Utica investment as part of BP's first quarter earnings report released today.
Thomas says that at present, the Utica does not meet the corporation's investment criteria and plans to market its Utica assets for sale. The company holds 84,000 acres in Trumbull County and another 11,000 or so acres in neighboring counties in northeastern Ohio.
"Different companies have different criteria," Thomas said. "So, we hope they'll be another company that will come in and they'll look at the property, look at the assets and they'll say that this fits their portfolio."
Thomas emphasizes that BP is proud of the investments it's made in the community, including donations to the region's educational programs. "We've tried to be a good neighbor while we were here," Thomas said. "We're proud of the investments that we made."
BP entered the Utica market two years ago when it signed about 1,900 landowners to oil and gas leases encompassing 84,000 acres in Trumbull County. These leases included bonuses of $3,600 per acre to landowners and 17% royalties on production.
Alan Wenger, a principal at the Harrington, Hoppe & Mitchell, who coordinates the law firm's oil and gas program, helped negotiate the BP deal and it's possible those leases could be reassigned, he says.
"There still could be development from other companies," Wenger tells The Business Journal. "I think they'll market the land and assign the leases."
For example, an energy company might find a way to develop the acreage with less expense and investment, and thus realize more profits in the northern tier of the Utica.
"It's a matter of economic viability," Wenger says. "Companies might be able to develop these more cheaply."
Plus, as technology and drilling techniques improve, this section of the Utica shale can become more viable. "As this comes along, there might be other opportunities," Wenger says.
Most of the lease bonuses have been paid out, but there might be a handful that encountered title issues, which remain unresolved, Wenger says.
The leases include a five-year term with an option to renew and were signed in 2012, Wenger notes. "Those parcels are still under lease and could be developed per the terms of the leases."
Clearly, most of the interest in the Utica shale has shifted from the northern section to counties in the south, where oil and gas production is robust.
Houston-based Halcon Energy Corp. announced last month that it was suspending its drilling operations in the north this year, and is awaiting the results from a handful of wells its drilled in Mahoning and Trumbull counties.
Instead, oil and gas companies are jockeying for position in the southern Utica, where well results are much more lucrative.
"It's the direction things are going," Wenger says.
He says his law firm announced Monday that it intends to open a new office in St. Clairsville in Belmont County, where companies such as Gulfport Energy have developed highly productive wells.
Harrington Hoppe's new office will handle oil and gas work in that region, Wenger reports. "We're also doing some significant work in Harrison County, parts of Jefferson County, too."
Copyright 2014 The Business Journal, Youngstown, Ohio.
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