Prolific U.S. shale regions have delivered some of the best investments in energy over the past few years - and now there's another state set to join the Frackers' Club.
Ohio finds itself sitting atop the deep Utica Shale formation, a source of unconventionally derived oil and natural gas.
In fact, roughly the entire eastern half of the state lies on top of the formation. According to the U.S. Geological Survey (USGS), that portion holds most of the Utica Shale's oil resources.
The natural gas assessment units - land where the USGS believes there to be energy resources - run farther to the north, south, and east of Ohio, going down into West Virginia and Kentucky, across into Maryland, Pennsylvania, and New York and up across the Canadian border into Ontario and Quebec - much of the immense, ancient Appalachian Basin.
Chesapeake Energy Corp. (NYSE: CHK) Chief Executive Officer (CEO) Doug Lawler has said that that he is "encouraged" by what he's seen in the Utica Shale and that "the Utica is outstanding."
Here's why the Utica Shale can make investors - and Ohio, and producing companies that flock to the formation - lots of money.
Just How Much Oil and Gas Is Down There?
Initial reports, compiled by the Akron Beacon Journal, indicate that a "slow start, but great promise" situation is developing, with a far, far heavier emphasis on natural gas than oil - despite the USGS assessments.
In 2012, the last year for which comprehensive figures are available, the Akron Beacon Journalreported that there were 87 wells - mostly exploratory - drilled by 11 different companies. These efforts have yielded 12.8 billion cubic feet of natural gas and natural gas liquids and 635,896 barrels of oil - so far. It's important to keep in mind that things are still very much in the exploratory phase, although results are promising.
Estimates of oil reserves vary widely. The Ohio Geological Survey says there may be as much as 1.96 billion to 8.2 billion barrels of oil, equivalent, still in the ground.
While these numbers are a promising start, now there's another reason Utica Shale is a hot spot for the next best energy investments...
Night of the Wildcatter
The Utica Shale has brought out wildcatter and energy industry gadfly Aubrey McClendon, the quintessential oil wildcatter...
McClendon is virtually on fire for the Utica Shale. He has come out swinging with American Energy Partners, bringing more than $1.2 billion to invest throughout the formation.
The Wall Street Journal reported late last month that McClendon and AEP have raised $1.2 billion to buy up between 50,000 to 70,000 acres in the shale. McClendon has already purchased 22,000 acres of shale country from EnerVest Ltd., where Chairman Ralph Eads is one of McClendon's former fraternity brothers from Duke University. EnerVest has paired off with McClendon's old company, Chesapeake, in the rush to explore Ohio's portion of the Utica shale.
Aubrey McClendon told CNBCthat there may be 25 billion barrels there. He has further called for 25,000 additional wells to be drilled, making for an investment of roughly $200 billion.
Forbes has also speculated that McClendon may be trying to get the old band back together, as Chesapeake's CEO Doug Lawler announced the departures of operating chief Steve Miller and human resources honcho Martha Burger. Chesapeake's General Counsel, Henry Hood, left in May with public affairs chief Tom Price. Of the key defectors, so far only Tom Price has announced his intention to go work for McClendon.
Perhaps the most interesting part about McClendon's involvement in the Utica Shale race is his complete denial of involvement in the Utica Shale race.
In an August email to Forbes, he denied everything, saying that he was "just a small businessman and private citizen these days!"
Indeed. Perhaps he thinks no one else has noticed the billions of barrels of oil beneath Ohio.
McClendon's arrival and subsequent bizarre behavior on the hilly landscape of eastern Ohio completes the stage setting. Watching McClendon dance to and fro while denying all possible details of his midnight deals has been entertaining.
In other words, once McClendon appears on the scene, you know it's going to get interesting - and profitable for those eyeing up these new energy investments...
A Fracking Fight Forms
A big question remains in trying to gauge just how profitable the Utica Shale will be, and that's when Ohio will move forward with fracking.
On the surface, fracking in Ohio appears to be a slam-dunk proposition, perhaps even a no-brainer. Ohio sports a commanding Republican majority in both houses of the state legislature, and Republican John Kasich is governor. Ohio's powerful Chamber of Commerce has thrown its full support behind fracking's entrée into the Buckeye State, with its Ohio Shale Coalition initiative. The Chamber's position is that there is huge economic potential in the shale, and a state with more than 7% unemployment can ill afford to turn up its collective nose at the jobs - and money - that fracking will generate.
But there are some powerful forces lining up against exploration of Ohio's portion of the Utica Shale.
Environment Ohio, the state's biggest, most powerful, and best-funded environmental advocacy group, has roundly condemned efforts at exploration and extraction. Condemnation or harsh language may be little deterrent to the likes of Aubrey McClendon, but Environment Ohio can - and will - sue to stop the efforts of oil and gas companies wherever it can, however it can.
Activists have been successful in the fight against fracking in a few key areas, obtaining at least temporary injunctions against drilling in Ohio's Blue Rock State Forest. This came after several state officials claimed they weren't consulted about the sale of the land. Activists are also lobbying Governor Kasich regarding the potential of radioactive waste that may be created by fracking.
For now, there is a significant amount of drilling in the Buckeye State. Just how much more will be done is still up in the air.
Best Investments in Energy: The Utica Shale Players
There is a long and colorful list of companies and individuals set to profit from developments on the Utica Shale.
McClendon's American Energy Partners and his old outfit Chesapeake Energy Corp. have set up a horse race of sorts between the two of them, each buying up tens of thousands of acres where they - reasonably or not - believe there may be black gold...
On the supply side, Gulfport Energy Corp. (Nasdaq: GPOR) has contracted with Dominion Resources Inc. (NYSE: D) subsidiaries Dominion East Ohio and Dominion Transmission to transport the Utica natural gas from the Markwest Energy Partners LP (NYSE: MWE) gas-processing facility in Cadiz, Ohio, out to the wider American Midwest. And, like Chesapeake and American Energy Partners, Gulfport owns land, which it is exploring as well.
Gulfport has some of the most diversified sources in Ohio, with 43% of its land atop dry gas, 27% atop condensates, 22% in the wet gas zone, and just 8% atop oil. Gulfport has started 24 wells in 2013 so far.
There are more energy investments in the United States than just the Utica Shale. We're in the throes of a full-fledged shale boom from sea to shining sea. Here's how to invest in the rest of it.
The Two Sides of Aubrey McClendon, America's Most Reckless Billionaire
The Wall Street Journal:
Wildcatter McClendon Bets Big on Ohio Shale Energy