Can Utica Shale Really Compete With the Permian?

The Utica shale has for years been known as a gas-producing play. But this may be about to change as one company reports promising results from its oil well offensive in the area.

EOG has been drilling in the Utica shale for months now, and it just reported that the play can "compete with the best plays in America." The production figures EOG reported for its wells there support this: over the first 180 days since drilling, a three-well pad dubbed Xavier produced an average of 450,000 barrels of oil equivalent in total. Another pad in the area yielded 350,000 barrels of oil equivalent.

Perhaps more importantly, however, a substantial portion of that oil equivalent was crude oil, EOG said in its first-quarter results presentation. The Xavier pad, for instance, yielded 55% crude oil, with the total liquids output at 75%. The Timberwolf pad produced 55% crude oil out of a total 85% liquids production.

"Well results continue to demonstrate consistent performance with significant oil contribution across multiple areas of our acreage position," EOG's chief executive Ezra Yacob said at the release of the company's first-quarter results earlier this month. "Combined with emerging operating efficiencies, we are confident that the Utica will further improve our low-cost, high quality premium portfolio."

Yacob went on to point out that this recent success in Utica suggests the play could compete with the best shale plays in the U.S., most likely meaning the Permian, which remains the focus of oil drillers' attention even as they run out of untapped resources there and turn to acquisitions to grow their presence in the play. Related: Russia Is Ready to Alter OPEC+ Production if Necessary

The potential importance of the Utica shale as an oil play was highlighted last month as well when KeyBanc raised its price target on EOG from $147 to $157 based on reports about its drilling results in the shale play.

EOG's results are part of a trend, in fact. Last year saw crude oil production in the Utica play hit a record of 27.8 million barrels. While nowhere near the production rate of the Permian, the figure was a 41% increase on the 2022 total, data from Ohio State University showed. In December last year, the data also said, Utica oil production averaged 93,000 barrels per day, which was 33% higher than a year earlier.

"We always thought it was a gas play," Mike Chadsey, spokesman for the Ohio Oil & Gas Association, told the Columbus Dispatch. "Now it may very well become an oil play."

Last year, oil production accounted for a modest 7% of total hydrocarbons production in the Utica play, which also produced 2.2 trillion cubic feet of natural gas. But based on EOG's latest update, this may be about to change gradually. Higher prices are helping, the Columbus Dispatch reported recently, helping to drive more investment into oil exploration in the area.

Technology advances have also contributed to higher oil production. EOG is an example of these advances. The company drilled a record-long lateral of 3.7 miles, reporting output and costs that were competitive with "the best plays in America."

These developments suggest healthy oil demand growth prospects continue driving new exploration, even in areas previously not known for their oil potential. Yet, as the whole history of the shale revolution in the U.S. shows, it is only a matter of time and effort to realize this potential-provided there is strong enough motivation.

It seems current crude oil prices are motivation enough for explorers in the Utica shale. In time, the play may even become known as a major oil producer rather than a predominantly natural gas play.

By Charles Kennedy for Oilprice.com

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