Hilcorp's Operations Take Lead in Utica's Northern Tier

YOUNGSTOWN, Ohio -- The billions of dollars pumped into eastern Ohio as a result of oil and gas exploration in the Utica shale show little sign of abating, and leading the way in this section of the Utica is Hilcorp Energy Co., Houston.

“The Utica is just beginning its 30 years of development,” says Steve Jacobs, president of Harvest Pipeline Co., a subsidiary of Hilcorp. “We might be one or two years into it.”

Hilcorp and Harvest are driving much of the development in an area that encompasses northern Columbiana County, southern Mahoning County, and Mercer and Lawrence counties in western Pennsylvania.

Although much of the attention from energy companies is now focused on the southern tier of the play -- Oklahoma City-based Gulfport Energy Corp. and Antero Resources out of Denver have struck very strong reservoirs of oil and gas in Belmont, Monroe and Harrison counties -- Hilcorp and Harvest Pipeline have made a sizeable investment in developing the northern section, which they believe holds enough oil and gas to supply the energy industry for decades.

Development in the north is restrained largely because it lacks the proper pipeline and processing infrastructure, Jacobs reports. “What you try to do is build one main, larger-diameter header system,” he says. “And off of it, you have smaller-diameter lines that go from the wells into the main artery.”

The central component of Harvest Pipeline’s efforts in the Utica is its joint venture with NiSource Midstream -- Pennant Midstream LLC. Pennant is building and managing the $360 million Hickory Bend gathering and processing system, and recently announced its new cryogenic plant in Springfield Township is ready for operation.

Hickory Bend’s cryogenic plant accepts natural gas drilled from wells in this region and separates “dry” gas such as methane, from “wet” gas -- that is, gas that is heavier and can be converted into products such as ethane, butane and propane.

The first two phases of the pipeline -- one a line extending from a Hilcorp well pad in Poland Township to the cryogenic plant, and another that runs from northern Columbiana County to the plant -- are finished, Jacobs reports. Full construction on the third phase should begin this spring, he says.

“We’ve just got permit approval from the Army Corps or Engineers to begin construction of the gas line in western Pennsylvania to the Hickory Bend facility,” he adds.

This section of the Hickory Bend system is expected to run 33.5 miles from just north of Mercer, Pa., through Lawrence County, and bend toward the state line, where it will tie into a pipe leading directly to the cryogenic plant, notes Don Mangino, president and business agent Local 964 of the Laborers Union in New Castle.

“Every day they’ve been using more of our guys,” Mangino reports. Associated Pipeline Contractors Inc., Houston, the primary contractor on the pipeline project, runs a large pipe yard just over the state line in Hillsville, Pa., on Kelly Martin Spear Road. “We’ve probably got between 30 and 40 guys out there already, and the weather is brutal. Some of these guys are out there 10 to 12 hours.”

Most of the work on this section entails site clearing and preparation, Mangino clarifies, and not real construction yet. Once the weather breaks and the full build-out begins, as many as 100 of just his members could be working on the project.

“We’re thrilled about it,” Mangino reports. “It’s work, and that’s what we need. It’s a nice big job and it’s going to take a lot of people to get it done.”

Harvest’s Jacobs says that these lines are necessary to draw production out of wells that Hilcorp – and potentially other companies – drill throughout the region. Hilcorp has drilled five to date at its Poland Township site, and the exploration program is likely to accelerate once Hickory Bend is finished.

“It should be complete and operational by May,” Jacobs says. “We’ll continue to develop our wells and do so at a quicker pace.”

A fourth phase of the project is a natural gas liquids line that extends from Pennant Midstream’s plant to another cryogenic plant owned by UEO Buckeye in Kensington, in southern Columbiana County. From the Kensington plant, the natural gas liquids would be shipped to UEO Buckeye’s fractionation plant in Harrison County. There, the wet gas is separated into products such as ethane, butane and propane.

According to the Ohio Department of Natural Resources, Hilcorp holds 12 permits to drill at its Carbon Limestone well pad in Poland and holds another permit for a well in Columbiana County.

Hilcorp was successful in securing thousands of acres in lease assignments, mostly in northern Columbiana County, early last year from Chesapeake Energy Corp., an indication that Hilcorp’s drilling program in this county is just getting started.

The company also holds a significant acreage position in Lawrence and Mercer counties. According to the Pennsylvania Department of Environmental Protection, Hilcorp has secured 18 horizontal well permits in Mercer County since January 2012, and 31 horizontal permits in Lawrence County.

Harvest Pipeline also is constructing in Wellsville a truck offloading operation designed to handle oil and condensate that flow from wells in the Utica.

The terminal, under construction at the Wellsville Intermodal Facility along the Ohio River, would initially hold the capacity to handle four trucks simultaneously, Jacobs says.

Tanker trucks filled with oil would be able to hook up their hoses and safety equipment, and then transfer the contents into a pumping system at the terminal. “Then, we have a pipeline about a quarter-mile long that will deliver it next door to a terminal owned by Marathon,” Jacobs says. Marathon has the ability to store the oil and then transfer it to a barge on the river bound for customers or refineries, he says.

Light oil, or condensate, that is drawn from Utica wells can also be stored at Marathon and then transported on barges, Jacobs adds. While most of the Utica wells in both the northern and southern sections have produced mostly natural gas, there is enough oil and condensate produced through the Utica and Marcellus shale in western Pennsylvania to support the Wellsville operation.

“Different shale plays around the country produce different amounts of gas and oil at different well sites,” Jacobs says. The Eagle Ford shale in Texas, for example, produces on average higher volumes of oil. Another shale play in Texas, the Barnett shale, produces mostly dry gas. The Utica falls somewhere in between these two plays, Jacobs notes. While it doesn’t produce as much oil as the Eagle Ford, it does produce more natural gas liquids, condensate and oil than the Barnett.

“We think there will be enough oil produced in the trend that it will justify the terminal bringing the oil to the river, placed on barge, and taken to refineries,” he says.

Hilcorp’s projects are part of an array of other activity in the northern portion of the Utica. Blue Racer Midstream, a joint venture between Dominion and Caiman Energy II, is contemplating a new cryogenic plant in southeastern Mahoning County.

Meantime, three other major companies, BP America, Halcon Resources Corp. and Consol Energy Co., have each staked out positions in Mahoning and Trumbull counties.

Consol has drilled three wells in Mahoning County, two in Jackson Township and another in Ellsworth Township.

According to ODNR, Halcon Resources secured three permits in Mahoning County in Jackson Township; one of those wells is in production.

The company holds eight permits in Trumbull County, records show. Five of these wells are at the Kibler pad in Lordstown Township. Two wells, the Avalon 1H in Vienna Township and the Brugler

well in Hartford Township, are in production. Another well in Warren Township is currently being drilled.

BP America is also continuing its efforts to assess the Utica. To date, the company, along with its partner, Brammer Engineering, has secured permits for seven wells in Trumbull County. Three of these wells – the Zerovich 1H in Mecca Township, the Lennington 1H in Johnston Township, and the Buckeye 1H in Hartford, are in production, according to ODNR records.

Still, the critical piece to all of this development remains pipelines, iterates Alan Wenger, an attorney for Harrington, Hoppe & Mitchell who heads that firm’s oil and gas division. “There’s no question they need these pipelines,” he says.

Some landowners across the Utica remain skeptical of energy companies and pipeline initiatives that have the potential to damage their property, Wenger notes. Others are supportive of the development.

Energy companies have generally had a more difficult time in the Utica securing pipeline rights-of-way compared to other shale plays, Wenger notes. Companies have found that landowners in the Utica “are not as cooperative as in other parts of the country,” he says.

This could be in part because the population density in the Utica is much higher than other plays, while laws in Ohio are also different.

“It’s a different environment, different laws,” Wenger says of the Utica. “It will take some time, but it will be developed.”

EDITOR'S NOTE: This story first appeared in The Business Journal's Growth Report 2014. To order a copy of this 120-page business and industry progress report, CLICK HERE.

Copyright 2014 The Business Journal, Youngstown, Ohio.
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