While there is no meeting scheduled for Knox County at this time, please continue reading below for September's update and feel free to contact either of us for information. In the meantime, as always, we will continue to work to market the property of our landowners.
Updated: SEPTEMBER 2012
Status of Ohio Shale Play
Dear Knox County Landowners' Group Member:
This newsletter will update Group members on recent developments in the Utica Shale in Ohio and the efforts on behalf of the Group to market your acreage.
PRINCIPLES OF GROUP
One of the guiding principles of this Group is that landowners do not commit their acreage until a lease is signed, and the decision to sign a lease is the individual landowner's decision alone. Our members hold meetings as necessary to discuss significant developments, and we continue to answer questions, collect information, and meet with any party expressing an interesting in acquiring acreage on behalf of a producer.
UPDATE ON SHALE PLAY IN OHIO
Over the last few months there has been a shift in shale development in Ohio. The first tage of development consisted of leasing as much acreage as possible on terms acceptable to the producers. It is estimated that more than 3 million acres in Ohio have been leased. Since then several factors have slowed large block leasing in the short term. Chesapeake Energy has offered more than 300,000 acres of its leasehold position for sale on the open market. This acreage is all east of our acreage and most geologists believe it is more desirable given a choice of areas. This does not, however, mean that our area will not be productive. In addition, Endeavor Ohio, LLC, failed to pay landowners groups in eastern Holmes County for their leases and has stated it does not intend to drill the acreage. With all of this acreage overhanging the market, there will be hot spots for leasing but the "come one come all" approach has, at least for the moment, abated. Two very large companies (Anadarko and Devon) who are active in the area have been reluctant to acquire landowner group acreage until the area is proven. Most of their wells to date have been drilled on existing HBP (held by production) acreage.
In addition, producers who leased Utica acreage are drilling wells to determine what reserves are recoverable. There are over 100 horizontal wells being drilled in Ohio, and more than 300 wells have been permitted. Some producers will likely unitize as large a unit as possible, drill one lateral and move to the next location to do the same in order to hold by production as much acreage as possible. The producers will then return to the more successful wells and drill additional laterals at a later time.
This does not mean that groups are dead and the leasing is over. It will take some time to digest the current acreage position and evaluate the more productive areas. In particular, the producers will be prospecting to try to locate the exact location of the "wet gas" and oil windows. Also, you can expect to see increased activity in the midstream development such as installation of pipelines, compressor facilities, and other development in order to Market the product.
Once a number of wells have been
completed, we expect leasing activity to increase in the fall and
over the winter, depending of course on the results of these
wells. We recommend patience because the leasing activity in
the more productive areas will pick up. Accordingly, the reasons
for being in a group will be even more important. Within the
next several months, the results of the wells currently being
drilled in our area will be learned, and this
information will help determine the level of likely leasing activity in our area. A few very productive wells or a few dry holes could dramatically change the landscape.
We also recommend thinking carefully
before leasing your property to speculators who may be coming in
now, when the market is low, and seeking to lease for a relatively
low dollar mount and with potentially unfavorable lease
terms. Of course, you have every right to dispose of your
mineral rights as you see fit, but any decision will bear
years to come, so we encourage caution.
UPDATE ON MARKETING OF ACREAGE
We have continued to market the group's acreage to interested producers. Our engineering firm, Diversified Engineering, Inc., has digitized the Knox County tax maps and mapped all acreage in our landowner group. We have met with several companies who have signed non-disclosure agreements and obtained copies of our maps. One of our key concerns is to avoid dealing with middlemen who are only interested in immediately attempting to re-sell (or flipping) the acreage before the payment obligation becomes due, for a profit. We strongly prefer to deal directly with the producer who will be developing the group's acreage. Many of the companies we have talked with are awaiting results from area wells to be reported.
UPDATE ON DEVON ENERGY'S WELLS
Devon Energy is a large, very successful
oil and gas company with a large position of acreage in our area.
Devon has drilled three wells on the far western edge of the Utica
Shale play. Specifically, the Eichelberger 1H well was drilled near
Bailey Lakes (Ashland County) and the Richmond Farms 1H well was
drilled near Lodi (Medina County). The results from these two
wells were "not encouraging," according to David A. Hager,
Energy's executive vice-president of exploration and production. Hager went on to say that the production from these two wells was disappointing, which likely means that there was inadequate gas pressure to force hydrocarbons out of the wells using current technologies. Devon has not decided whether to plug either of these wells but has indicated that it does not expect any production from the Eichelberger 1H well. Both wells were horizontal wells drilled to approximately 3400 feet vertically and extending 4000 feet horizontally.
During the same interview, Devon indicated that its well being drilled in southern Knox County (Morgan Township) near Utica, known as the Sensibaugh 1H, may be different. Chip Minty of Devon stated "[w]e found some core samples that suggested that geological conditions there might possibly be different. We'll evaluate the results of that well and take the next steps." We have all heard conflicting reports on the results of this well and in time the actual results will become public.
Devon has since moved its rig east to
explore the far eastern edge of its acreage position. It is
currently drilling a horizontal well near Apple Creek (East Union
Township, Wayne County). It has permitted another well near
Holmesville (Prairie Township, Holmes County) and is considering a
third well near Clark (Mill Creek Township, Coshocton
County). Anadarko is also in the process of completing a well
it drilled in the Mill Creek Township
area. The well in Apple Creek is known as the Hershberger 1H, the Holmesville well is referred to as the Crilow Farms 1H. These wells will attempt to test the western edge of the Utica Shale play in Ohio, and are probably the most significant wells to our group thus far. If successful, the wells could prove the commercial viability of the Utica Shale formation in Wayne and Holmes counties and potentially could increase interest in development in Knox County. If unsuccessful, it is likely that there will be a lesser chance of future development in this area with existing technology.
In closing, leasing activity in the area has slowed. However, chances are still good that an oil and gas company will approach you individually about leasing your property. Our primary advice to you is to be patient. Things here are continuing to progress and we want each of you to receive the best possible lease terms. There is strength in numbers, and it is important for the Group's members to stick together. Do not be misled and do not sign anything without the assistance of counsel. When in doubt, please contact either Bob Phillips via email (firstname.lastname@example.org) or telephone (740-501-2526) or Dave Perry via email (email@example.com) or telephone (740-501-6498).
Thank you for your continued participation in and loyalty to the Group.
Bob Phillips & Dave Perry