Hilcorp Hums with Utica Wells at Ohio-Pa. Border

PULASKI Township, Pa. -- Those who dismiss the prospects of oil and natural gas in the northern tier of the Utica shale need only travel along High Hill Road in Pulaski Township in Lawrence County, Pa.

There, along a quarter-mile stretch of mostly tree-lined countryside, pipeline and horizontal well development is very much alive in this section of the Utica, just across the Ohio state line from northeastern Mahoning County.

Within this area, three well pads owned by Houston-based Hilcorp Energy Co. are either in production, being drilled, or under construction  – concrete evidence that not all energy companies have abandoned this section of the play.

“Other than the noise, the dust and heavy traffic, it’s not too bad,” says Brad Susen, who lives next door to the Pulaski-Davis well site, which is under construction. “A semi-truck took out a power line by accident,” he adds, gesturing to the road.

Knee-high cornfields are now bisected with cleared pathways that make way for sections of 6-inch pipe laid end-to-end in preparation for welding. The pipeline curls south from the Davis pad, under High Hill Road and then west through meadows leading to another well site – the Pulaski-Kester well – just off Brown School Road and High Hill.

Another well nearby – the Kinkela pad – just off North Valley View Road, is already in production.

“We’ve seen extensive development in the northwest corner of the county,” observes Lawrence County Commissioner Dan Vogler. “It’s mostly in Pulaski and Mahoning townships right now.”

Early in the development of the play, Vogler said, other major energy companies – especially Royal Dutch Shell – took an interest in the southern portion of the county near the Beaver County line. However, there’s minimal activity today from those companies.

“Since then, the bulk of the activity has been all Hilcorp,” he says.

The plan in Lawrence County is to connect Hilcorp wells and feed them into a larger header line, which will transport the gas to Pennant Midstream LLC’s Hickory Bend cryogenic plant in Springfield Township in eastern Mahoning County.

Pennant Midstream, a joint venture between Hilcorp and NiSource Midstream, has finished construction on the first phase of the plant, NiSource confirms. The plant separates dry gas, such as methane, and natural gas liquids that can be processed into products such as butane, ethane and propane. Dry gas is pumped into existing natural gas lines while the wet gas would be transported from Hickory Bend to Utica East Ohio’s Kensington plant in Columbiana County via a natural gas liquids line now under construction.

Spokeswoman Sarah Barczyk says the plant is ready to process, and anchor producer Hilcorp should be shipping gas to the plant sometime this month “when the plant will be placed into full operation.”

Lawrence County’s Vogler says the county has little authority over oil and gas issues, noting much of that rests with the Pennsylvania Department of Environmental Protection and some regulatory power in the townships.

“We are advised in writing when a well site is being developed and the planning department is made aware of it,” Vogler says.

He says it’s difficult to quantify the economic impact the industry’s had across the county as measured by the number of workers, real estate improvements resulting from bonus payments to farmers, or  service and retail growth because neither the state nor county levies a sales tax.

“They’re patronizing restaurants, working at the sites, using local vendors,” he says. “But, it’s hard to determine how much is generated here.”

However, the county does collect revenues from a statewide impact fee enacted two years ago, Vogler says. “Every time a well is drilled, the company is assessed a fee.” A portion of that fee goes back to the communities where the well is drilled, while another percentage is shared across all 67 counties in Pennsylvania.

“We’re looking at getting about $285,000 this year” as a result of the impact fee, he reports.

Hilcorp has decided to play all of its cards thus far in the northern Utica, bucking a trend that sent most oil and gas producers to the more lucrative southeastern counties of Ohio, where some wells have produced eye-popping returns.

CNX Gas, a division of Consol Energy Inc., said last year it would concentrate on its holdings in southern counties and devote its resources there rather than continue to develop assets it holds in Mahoning and Trumbull counties. Chesapeake Energy has done much of the same.

Others have abandoned the play altogether.

Earlier this year, BP America announced it was pulling out of the Utica, placing all of its leasehold acres up for sale in Trumbull and Mahoning counties. Halcon Resources Corp. reported earlier that it too would suspend its drilling program in the Utica for at least a year.

Meantime, Hilcorp hasn’t budged. Even a series of small earthquakes that shook eastern Mahoning County in March and were tied to a hydraulic fracturing operation at Hilcorp’s Carbon Limestone Landfill well site in Poland Township hasn’t deterred the company from stepping up exploration in the north. Development of that particular well in Ohio was halted after the quakes hit.

Since January, the Pennsylvania Department of Environmental Protection has awarded Hilcorp 61 permits to drill new horizontal wells in Lawrence County. It’s also awarded the company nine new permits to drill wells in Mercer County, Pa., directly to the north.

However, the Pennsylvania DEP is now considering rules for the first time on drilling in “seismic hazard areas,” in response to the March quakes.

Hilcorp has drilled eight wells at its Carbon Limestone pad in Poland, two of which are listed as producing by the Ohio Department of Natural Resources. Hilcorp also holds significant leaseholds in northern Columbiana County in Ohio and has drilled one well in the region.

Hilcorp’s Carbon Limestone 1AH well produced 132 million cubic feet of gas over 89 days during the first quarter, according to the Ohio Department of Natural Resources. Its Salem-Grubbs well in Columbiana County produced 145 million cubic feet of gas through the entire quarter, records show.

Hilcorp’s most productive well in the northern tier is its James 1H well in Lackawannock Township in Mercer County, Pa., according to DEP records. That well produced 312 million cubic feet of gas over 153 days during the second half of 2013, while the Pulaski Kinkela 2H well produced 204.4 million cubic feet over 61 days during the same period.

The Kinkela pad holds three producing wells at the site, DEP records show. Combined, the pad produced 383.2 million cubic feet of gas during the second half of 2013.

These numbers stack up among the best-producing wells in the northern Utica, according to data from the ODNR and Pennsylvania DEP.

In Columbiana County, Chesapeake Energy Corp.’s Hruby Farms well in Franklin Township yielded 292 million cubic feet of gas during the first quarter of 2014, the most productive well in that county and the overall northern tier of the play.

Jeffery Dick, chairman of the geology department at Youngstown State University, says that the Utica and Point Pleasant shale formations (often collectively referred to as the Utica) become deeper as it moves into western Pennsylvania, which usually results in more productive wells.

“The deeper you go, the more pressure and therefore higher initial production,” Dick says, which is why he suspects Hilcorp is targeting that area. “The Utica is a little deeper as you move east.”

Still, production results in the northern tier of the play are anemic compared to discoveries in the southern Ohio portion of the Utica, especially in Monroe, Belmont and Noble counties.

Eclipse Resources’ Tippen 6HS well in Monroe County, for example, produced an astounding 1.17 billion cubic feet of gas during the first quarter, according to ODNR. Another Monroe County well, Antero Resources’ Gary 2H well, yielded 1.115 billion cubic feet the same time period.

Put into perspective, these two wells in the southeastern Ohio Utica yielded more natural gas than did the 31 producing wells in Columbiana County combined for the quarter, according to ODNR.

Another well in Belmont County, Gulfport Energy’s Irons well, produced 1.054 billion cubic feet during the quarter, ODNR reports.

YSU’s Dick says that despite the overwhelming returns in the southern part of the play, the northern tier is likely to draw more attention later.

“It’s developing in a similar way as the Marcellus [in Pennsylvania],” he relates. “Energy companies often jump on where the good production is first, and over time expand out into the rest of the play.”

The reason for this is shale development and exploration is highly driven by new technology, Dick adds. As these companies become more adept at perfecting completion techniques and oil and gas extraction in the play, they are likely to apply these new technologies elsewhere in the Utica.

“You don’t make these investments in midstream to shut them down,” he says, referring to the Hickory Bend project. “Down the road, you’ll probably see development move up north.”

That may take several years, Dick remarks, adding that analysts probably won’t have a comprehensive grasp on how the Utica is performing probably until the end of 2015. By that time, specialists would be able to assess and analyze rates of decline from producing wells over an extended period.

“It could be a couple of years before we know what’s going on,” Dick says.

Pictured: Osvaldo Ramarez and Ivan Beltran prepare to string gathering pipe to Hilcorp’s Kester well in Lawrence County, Pa.

Copyright 2014 The Business Journal, Youngstown, Ohio.
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