Hilcorp Drills Alone in Utica Shale's Northern Tier

YOUNGSTOWN, Ohio -- With BP and Halcon Energy Corp. pulling up stakes in the northern tier of the Utica shale, and Consol Energy and Chesapeake Energy tapering their oil and gas exploration activity here, one exploration company is actually increasing its presence in this part of the play.

Hilcorp Energy Co.'s latest flurry of permit activity just across the Ohio state line in Lawrence County, Pa., demonstrates that despite the cold feet the big energy companies experienced in the north -- and a series of small earthquakes tied to one of Hilcorp's wells in Mahoning County -- the Houston-based company isn't leaving any time soon.

According to the Pennsylvania Department of Environmental Protection, Hilcorp was issued 16 new horizontal permits in a single day, April 21, for wells in Pulaski and Mahoning townships.

Meantime, its midstream infrastructure partner, NiSource Midstream, continues to develop gathering lines across the region that are intended to collect gas drawn from producing and planned Hilcorp wells.

"Our joint development arrangement in the Utica is accelerating," said Bob Skaggs, president and CEO of NiSource Inc. during a conference call with analysts Wednesday. "More than 30 wells will be completed this year, with production dedicated to the Pennant Midstream gathering and processing facilities."

Hilcorp and NiSource are partners in Pennant, which is developing the Hickory Bend system in this section of the Utica. Hickory Bend involves about 55 miles of gathering pipelines that stretch from Mercer County, Pa., south into Lawrence County, and then into Ohio through Mahoning and Columbiana counties.

The $350 million system also includes Pennant's large cryogenic gas processing plant in Springfield Township, Mahoning County, which is used to separate dry gas from natural-gas liquids. Another 17-mile line is planned to send natural-gas liquids to the Buckeye Utica East Ohio's processing plant in Columbiana County.

"NiSource Midstream's NGL pipeline is under construction and remains on schedule for completion in the third quarter of this year," Skaggs said. "The line will ultimately deliver up to 90,000 barrels of liquids per day."

Moreover, the recent series of earthquakes that the Ohio Department of Natural Resources determined was likely triggered by a Hilcorp hydraulic fracturing operation in Poland hasn't appeared to derail the company's efforts to drill in the area.

After the earthquakes -- one of them a 3.0 magnitude tremor that struck March 10 -- ODNR requested that all drilling activity be halted at the site and Hilcorp complied.

"We believe Ohio's response to the concerns are productive and reasonable," Skaggs said. "We don't see it materially affecting Hilcorp's drilling program. They're concentrating most of their current activity in Pennsylvania."

Indeed, Hilcorp's permit activity has only intensified in the weeks following the quakes. Just two days after the March 10 quake, the Pennsylvania DEP awarded Hilcorp seven horizontal permits to drill in Pulaski Township at the Artman farm, about six miles northeast from where the epicenters were recorded in Poland Township.

"Twenty-five wells are now in various stages of drilling, and another 10 wells are in production," Skaggs said.

Pennsylvania DEP records show that Hilcorp's wells in Lawrence County have proven far more productive than BP's experience in Trumbull County.

According to the latest production figures that cover July 1 through Dec. 31, 2013, seven Hilcorp wells in Lawrence County and a single well in Mercer County collectively produced 943,702 per thousand cubic feet, or mcf, of natural gas.

The most productive Hilcorp well so far is in Lackawannock Township in Mercer County, which yielded 312,000 mcf over 153 days. The same well produced 34,100 mcf over seven days during the first half of 2013.

Another well -- the Kinkela 2 well in Pulaksi Township, closer to the Poland site -- produced an impressive 204,400 mcf over 61 days of production during the second half of 2013.

In contrast, BP's most productive well in Trumbull County, the Lennington well, yielded just 20,316 mcf of natural gas over 92 days, according to production numbers released by ODNR for the fourth quarter of 2013. The weak results of its test wells caused BP to cease oil and gas exploration in the Utica and place its 105,000 leasehold acres up for sale.

And, of the three wells that Halcon Energy Corp. has drilled in the northern tier, only the Kibler well in Lordstown has shown promise. Halcon last month announced it would suspend its drilling program in the Utica this year.

"I think that was something that was anticipated," Jeffery Dick, chairman of the geology department at Youngstown State University, says of BP's decision.

The problem with the Utica's northern tier is that it's much shallower in this part of Ohio, Dick says. In southern Utica counties such as Belmont and Harrison, the Utica formation is far deeper, resulting in higher pressure.

"You're looking about a 2,500-foot difference in depth," from the northern Utica to the southern tier, Dick says. "That additional 2,500- to 3,000-foot depth gives a lot more formation pressure to push the fluids out. In the south, they've found what's considered to be an over-pressure situation."

Dick says that Columbiana County still holds promise, especially a Hilcorp well in Salem Township. "I think you'll see more drilling in Columbiana County, but I think it's going to be delayed a little bit in light of the success that's being found in the south."

The Utica is deeper as the formation moves further east and southeast into Pennsylvania, Dick continued. "The Utica is going to be deeper, which gives you more of that pressure, and the further you get into Pennsylvania, the thicker the Marcellus gets," he says, referring to the Marcellus shale formation, which rests above the Utica.

"You have a combination of the Marcellus and Utica plays that you can tap into," he says. "And, you have a different state with different regulations, too."

The regulations placed on the industry following the earthquakes in Mahoning County do not ban drilling, but mandate that energy companies install seismometers within a three-mile radius of an active seismic area.

Should seismic activity rise above 1.0 on the Richter scale, drilling would be stopped until further notice, according to ODNR.

"The way the regulations are written, it gives Hilcorp a framework within which they can continue drilling," Dick says. "It just requires additional seismic monitoring."

Copyright 2014 The Business Journal, Youngstown, Ohio.
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