The Utica Shale: Get Ready for a Spout of Potential Gains

by Mike Kapsch

Just when you thought America’s shale oil and gas boom couldn’t get any bigger, the U.S. Geological Survey (USGS) estimates a newly emerging shale play likely contains about 38 trillion cubic feet of undiscovered natural gas, 940 million barrels of oil, and nine million barrels of natural gas liquids like ethane and propane.

It’s called the Utica Shale formation.

And it could become the third-largest shale play in the United States.

A Massive Oil and Gas Development

Just take a look at this map...

[Source: USGS]

From West Virginia to Virginia to Maryland to Pennsylvania to New York to Ohio, the USGS’ Utica Shale assessment spans a total of six states.

“Mad Money” host Jim Cramer will even be in Ohio today to discuss the emerging potential of it.

But what investors should know is that Cramer isn’t visiting Ohio randomly.

You see, if you’re familiar with the Marcellus Shale – the largest shale formation in the United States – you’ll notice the Utica Shale and Marcellus are located in roughly the same place.

That’s because the Utica Shale actually lies below the Marcellus Shale.

A Bright Spot Below the Surface

In Pennsylvania, for example, the Marcellus Shale lies about 5,000 feet below the Earth’s surface. The Utica Shale is at around 7,000 feet.

However, in Ohio, the story is different.

[Source: Geology.com]

You see, in Ohio, the Utica Shale slopes up to about 2,000 feet below sea level. These deposits located closer to the surface make for cheaper drilling and production.

Also, in New York, you’ll find a similar situation.

[Source: Geology.com]

For investors, these areas are where energy companies are scrambling to get a piece of the action.

Big oil and gas producers such as BP (NYSE: BP), Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM) are already getting more involved in these areas.

But the most active driller is actually Chesapeake Energy (NYSE: CHK).

The Utica Shale’s Top Holder

Over the years, Chesapeake Energy has quietly acquired more than one million acres in the Utica Shale with a total of 87 wells, more than any other energy company.

In fact, in Ohio, it’s considered the No. 1 player and currently best set to gain from the area’s growing Utica Shale exposure.

As our very own David Fessler has discovered,Chesapeake estimates the value of recoverable oil from the oil-rich part of the Utica it has under lease is $15 to $20 billion, or about 40% of the oil-rich part of the Utica formation.

As I mentioned earlier this week, Chesapeake Energy (which has received a ton of bad press over the last 18 months) may be a nice opportunity at these levels. At least its insiders think so…

After all, as oil and gas drilling and production in the Utica Shale formation picks up speed, you can bet that Chesapeake will be in a prime spot to head higher.

Good Investing,

Mike

P.S. Last year we mentioned a slew of companies with exposure to the region. With the land grab and likely increase in steel demand there are plenty of companies to watch. To read that article, click here.

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