Ohio’s Utica Shale continues to be a financial success for many people in 19 eastern Ohio counties as Chesapeake Energy puts more than 337,000 acres up for sale. This is about one-fourth of the company’s total Utica Shale holdings being put up for sale in hopes of reducing its $13 billion debt to about $9.5 billion.
Chesapeake says it is looking to sell in areas where land ownership is less concentrated and where landowners agree to be locked into a contract. More than 80% of the land for sale will require landowners to be locked into a contract, meaning they cannot renegotiate for more money with a new company. Prospective buyers will also be required to sign a confidentiality agreement before seeing complete data and reports.
Chesapeake CEO Aubrey McClendon expects lucrative returns from these areas, calling it “the biggest thing economically to hit Ohio, since maybe the plow.” Shareholders remain skeptical as there remains little data or evidence to back up such claims. Regulators usually wait months before receiving production reports from Chesapeake, which often times results in the company’s “too goo to be true” expectations being just that – too good to be true.
The Pittsburgh Post-Gazette tells us Utica potential is being scrutinized as fallout continues over an undiscloased loan program that allowed McClendon to raise money by borrowing against personal stakes in company wells. As a result, McClendon lost his position as chairman of the board, but remains CEO.
Utica Shale drillers, which some say still lags behind Marcellus Shale drilling, will continue to drill exploratory wells to find “hot spots,” so buyers of the Chesapeake land will have a heavy focus on signing temporary leases. Reports of these exploratory wells and other production reports are to be filed with the Ohio Department of Natural Resources by March 31, meaning realistic reports will not be available until later in 2013 or 2014.
Pete Kenworthy, a Chesapeake spokesman, said results reported to the Ohio Department of Natural Resources “continue to fuel our optimism for future production from the play.” Analyst Mark Hanson is not convinced of this optimistic outlook. Hanson compared production numbers that Chesapeake delivered last November on four Utica wells with updated data it provided in May after more wells had been drilled. The average amount of oil from each well dropped from 2,052 barrels per day to 1,325 after Chesapeake factored in the newer data.
Nonetheless, Utica Shale, like its Marcellus Shale counterpart, will most likely prove to be a financial powerhouse as drillers continue to search out and find the “hot spots” that remain all over eastern Ohio. Only time will tell if Chesapeake has made a beneficial decision in selling its land.