Ohio's Utica Shale Land Value Increases 10 Times

Steve McDonald
by Steve McDonald, Bond Strategist, The Oxford Club

Ohio's Utica Shale Land Value Increases 10 Times

by Steve McDonald, Contributing Editor, Investment U

Monday, October 3, 2011

What's going on in Ohio is nothing short of a gas rights frenzy!

Just when it seemed like the United States was becoming the Saudi Arabia of gas, Eastern Ohio starts oozing some of the richest shale gas and gas liquids ever discovered.

The Utica shale lies under eight northeastern states and parts of Ontario. Experts believe it could be the richest shale, gas liquids, gas and oil find yet.

  • Chesapeake Energy (NYSE: CHK) claims the value of their gas rights in this undeveloped, lesser-known shale play have increased by 10 times the original amount since initial purchase.

  • Hess Corporation (NYSE: HES) is paying twice the previous value for gas rights in Ohio.

  • ExxonMobil (NYSE: XOM), fresh off its acquisition of Utica land-owner XTO Energy, is also reportedly shopping 1.25 million acres in the region that analysts believe will set an even higher baseline price for gas rights.

Under the Marcellus, but not Completely

Most investors are familiar with the Marcellus Shale. The bulk of it is located in Pennsylvania and lies about 5,000 feet below the surface. The Utica Shale is below the Marcellus Shale in Pennsylvania, at around 7,000 feet. But as the graphic below from Geology.com shows, it slopes upward to within 2,000 feet of the surface in Eastern Ohio.

Utica Shale and Marcellus Shale Cross-Section

Deposits closer to the surface mean less drilling and lower development and production costs.

These two benefits alone would usually be enough to drive attention to the Utica, but what's really flipping the switch is that analysts believe it has the richest reserves of oil and natural gas liquids, propane and butane of all the shale deposits.

Butane, Propane and Texas Tea

The oil, butane and propane could drive the value of this reserve sky high and drive development away from the Marcellus and to the Utica.

Bigger companies with access to the region, such as ExxonMobil, Devon Energy (NYSE: DVN), Anadarko (NYSE: APC), PDC Energy (Nasdaq: PETD) and Chesapeake, aim to buy the smaller companies.

EV Energy Partners (Nasdaq: EVEP) and its parent, EnerVest, already have about 780,000 acres in Ohio. Other small producers, like Rex Energy Corp. (Nasdaq: REXX), Gulfport Energy Corp. (Nasdaq: GPOR) and Magnum Hunter Resources (NYSE: MHR), also have holdings. Their rights, of course, are sky rocketing in value, as well.

Smaller companies are usually open to deals for their gas rights. Joining forces with a larger, better-financed producer can actually increase the value of their properties.

Small or large, it almost doesn't matter at this point. The gas and gas liquids deposits in this country will change the entire face of renewable energy worldwide.

It will require patience, but the eventual outcome is all but written in stone. The United States will be an energy exporter and the money to be made is hard to even imagine.

Good investing,

Steve McDonald

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