Utica Shale

[dan_s]

I received a report today from RBC Capital on the Utica Shale. Here are the highlights.

Key Company Takeaways For 1Q14 Well Results: AR's Utica wells looked to be by far the best overall,
with the company having five of the top 10 overall producers on a Boepd basis, and nine of the top
10 wells in terms of oil production alone. GPOR's wells continue to look solid at 1,119 Boepd for 13
new 1Q14 wells, although the oil cut of 25% looks somewhat modest compared to AR's 36%. MHR
had the best well in the sample with a rate of 3,848 Boepd over 8 days. Three new REXX wells had an
average rate of 586 Boepd and only a 12% oil cut, although REXX is using shorter laterals. Two PDCE
wells had an average rate of 192 Boepd (19% oil), but we think this may be related to infrastructure
or shut-ins. Two new HK wells in Mahoning/Trumbull Counties had average production of 393 Boepd
(43% oil), which looks marginal.
• Utica Activity Has Shifted To Gassier Areas. As of late June 2014, there were 41 rigs running in the
Utica, up slightly from 39 rigs in March. CHK, GPOR and AR continue to be the most active operators by
rig count. We expect rig count growth to continue to accelerate in 2H14 as infrastructure constraints
are relieved and operators increase development. We note that much of the recent growth has been
in the gassier areas in Belmont and Monroe Counties.
• Conclusion: The most notable takeaway from this dataset is AR's very impressive performance. We
also think that the eastern portion of Noble County appears to be the most productive condensate
area, with condensate yields in the 30-40% range and strong flow rates as well. While overall oil cuts
are still slightly lower than initially advertised, the Ohio Utica continues to look like a very economic
play, especially given the fact that many of these wells were constrained due to infrastructure issues.
• Best Leverage: The stocks we think have the best leverage to the Utica are GPOR, MHR, REXX and RICE.
Priced

I believe Gastar Exploration (GST) may have significant upside in the Utica Shale. I hope to hear more on this from Russ Porter at our luncheon in Dallas on July 8. - Dan