GPOR: Utica Shale

[dan_s]

Sweet 16 member Gulfport Energy (GPOR) is building a significant acreage position in the Utica Shale. On their last conference call they said drilling will begin in December or January. They now plan to drill 20 Utica Shale wells in 2012. IMO, for a company Gulfport's size, this has HUGE potential. Below is cut from one of the many newsletters I get. - Dan
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Management teams from several E&P firms also touted the potential of the Utica Shale, a formation that lies beneath the Marcellus Shale but extends from Tennessee into Canada. Thus far, the Marcellus has attracted the most attention from investors and producers, though interest has picked up in the Utica--particularly the shallow portion in Ohio and Western Pennsylvania.

For example, Devon Energy has assembled an 110,000-acre leasehold in the play’s oil window and recently noted that a vertical test well indicated that the formation features excellent permeability. During Devon Energy’s conference call to discuss second-quarter results, the head of its exploration and production operations noted that the play’s oil window “could offer some of the best economics in the play.”

CEO Aubrey McClendon and his team at Chesapeake Energy (NYSE: CHK) likewise highlighted the firm's position in the Ohio portion of the Utica during the company’s July 29 conference call. One of the first movers in the play, Chesapeake quietly amassed 1.25 million net acres--by far the largest position in the field--and drilled some of the first test wells, including nine verticals and six horizontals. Over this period, the company has also analyzed 3,200 feet of core samples and more than 2,000 well logs.

McClendon compared this portion of the Utica Shale to the Eagle Ford in South Texas, noting that the field includes three phases: a dry-gas zone in the east; a wet-gas window in the middle; and an oil-rich phase on the western side.

The outspoken CEO boldly suggested that the emerging field would generate better returns than the red-hot Eagle Ford: “[W]e believe the Utica will be economically superior to the Eagle Ford because of the quality of the rock and location of the asset.”

Not only is much of the company’s acreage already held by production, but the relative shallowness of these oil and gas reserves should limit drilling costs. Although management demurred from sharing well results, McClendon did indicate that his team was sufficiently encouraged to ramp up the rig count from one at the beginning of 2011 to eight units by year-end. At the same time, the play will require a substantial investment in midstream infrastructure to process and transport the oil, NGLs and natural gas to marke