Will 2013 Be the Year of the Utica Shale?
Mar 4th 2013 9:58PM
Updated Mar 4th 2013 10:04PM
The Bakken and the Eagle Ford are getting a bulk of the attention from energy investors these days. And rightfully so, as both rank at the top of the premier liquids growth plays in the country. That being said, 2013 could be the year that the Utica Shale breaks out on to the energy scene. Here are two big reasons 2013 could be the Utica's year.
Same story, different play
Tell me if you've heard this story line before: Production coming out of Location X is being held back by a shortage of pipeline and processing capacity. I'm pretty sure I've personally spilled a lot of digital ink on the problems at the Bakken and the Canadian oil sands, both of which are turning to rail to relieve some of the pain. This is the biggest issue for these emerging resource basins.
The good news, though, for the Utica is that $7 billion in planned infrastructure investments are in the pipeline and will be coming online soon. The two companies to keep your eye on here are Dominion and MarkWest , with Dominion's Natrium facility and MarkWest's Harrison County development adding much-needed processing capacity. Not only that, but both companies have entered into joint ventures that provide each with an infusion of capital to invest in future growth projects. Taken together, over the next few years these two will be building out a tremendous amount of processing and takeaway capacity, which producers desperately need.
Looking further ahead, Enterprise Product Partners' ATEX Express will be finished in the second quarter of 2014. Once it comes online, it will take Utica and Marcellus ethane to the Gulf Coast, which will help boost the bottom lines of producers in the region. When you add it all up, the increase in processing and takeaway capacity that's coming online over the next year will make it much easier for production in the region to rise higher.
Producers are finding the sweet spot
There's no denying that 2012 was a year of missed expectations, as the industry drilled only 165 wells when it was estimated that 250 would be drilled. The largest leaseholder in the play, Chesapeake Energy , noted that while it was satisfied with its Utica results, they did "miss the mark." The company, though, does see its production growth accelerating this year as those new processing plants come online. That's enough of an incentive for the company to devote 11% of its capital budget to grow its production in the year ahead.
Chesapeake might be the biggest producer in the play, but Gulfport Energy might turn out to be its best. The company, which has called the Utica "one of the most promising up-and-coming oil-levered plays in North America," is putting its money where its mouth is. It recently spent $220 million to acquire 22,000 acres in the play, which is a lot of money for a company with a sub-$3 billion market cap. The company actually raised equity capital to pay for the newly acquired acres, which I'd deem as a big stamp of approval in the play for the company. Gulfport is investing so heavily because it's putting up some of the best production numbers, as it appears to have found some of the sweetest spots in the play.
My Foolish take
I admit a regional bias when I write about the Utica and the Marcellus. Living in the region, I have to root for the home team. However, the numbers being put up are very compelling, and it's no secret that the region is closer to the heaviest population centers, meaning today's transportation bottlenecks are tomorrow's strategic competitive advantages. The increased processing and takeaway capacity coming online will make it much easier to grow production in the year ahead. While the story here is still in its infancy, you just might begin to hear about the Utica in the same breath as the Bakken and Eagle Ford before the end of the year.
Infrastructure will be key
The growing production of natural gas from hydraulic fracturing and horizontal drilling flooded the North American market, resulting in record-low prices for natural gas. That's one reason I'm not as big a fan of the drillers as I am in those companies that transport production around the country. Enterprise Products Partners, with its superior integrated asset base, can profit from the massive bottlenecks in takeaway capacity by taking on large-scale projects like the ATEX Express. To help investors decide whether a company like Enterprise Products Partners is a better fit for their portfolio you can click here now to check out The Motley Fool's brand new premium research report on the company.
The article Will 2013 Be the Year of the Utica Shale? originally appeared on Fool.com.Fool contributor Matt DiLallo owns shares of Enterprise Products Partners. The Motley Fool recommends Dominion Resources and Enterprise Products Partners and has options on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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