5 Stocks to Play the Utica Shale
Well services giant Baker Hughes is laying plans for a $64 million facility in Massillon, Ohio. Never heard of Massillon? I hadn't either, but the move is indicative of booming growth in Ohio's energy industry, built on the hopes that the oil and gas reserves buried in the region's Utica shale will be the cure for the state's economic woes.
What is the Utica shale?
The Utica shale is one of about 30 geologic formations that hold oil and natural gas in the Appalachian Basin. Right now, most of the energy produced in the state comes from the Clinton formation. The upside to the Utica, buried below the Marcellus shale, is that many think the mature layer contains oil and natural gas liquids, in addition to dry gas. Its estimated there are 5 billion barrels of recoverable light sweet crude and 15 trillion cubic feet of natural gas.
Though there is a flurry of activity in Ohio right now, the Utica shale extends from Western New York down through West Virginia and parts of Virginia and Tennessee.
Chesapeake Energy (NYSE: CHK)
Chesapeake -- or, as I like to call it, Century 21 -- is the largest leaseholder in the Utica. The company lays claim to over 1.3 million acres, which is good for about 36% of the play's total area. A position like that offers plenty of opportunities to monetize acreage, and the company has already made such a move.
At the end of December, Totalcoughed up $2.3 billion for a joint venture in the Utica. Total will share a 25% stake in 619,000 acres across the shale.
Chesapeake still has plenty more acreage, so look for it to continue to pursue joint ventures in the region.
EV Energy Partners (Nasdaq: EVEP)
The Houston-based company had a smoking 2011, with its share price growing 66% over the course of the year. The company was also a part of the Chesapeake-Total joint venture, electing to sell $4 million in assets.
EVEP will ultimately look to monetize at least a portion of its remaining assets in the Utica, potentially divesting all of its acreage. The company has about 780,000 acres in the play.
Magnum Hunter Resources (NYSE: MHR)
The company has a mere 17,000 net acres in the Utica shale, but it is poised to add more.
On Feb. 17, the company announced the purchase of 12,186 net acres at $2,037 per acre, with the potential for a similar purchase to close by April 16.
The entry to the Utica opens the door for MHR's midstream division, Eureka Hunter Pipeline, to begin construction in the region.
Devon Energy (NYSE: DVN)
Devon has 235,000 net acres in the Utica and has also struck up one of the more notable joint ventures in the region. The company signed an agreement with Sinopec that gave the Chinese company a one-third interest in five of Devon's positions, including the Utica, for $2.2 billion.
Devon will drill about 15 wells in the Utica by the end of 2012. Interestingly, at 16%, the company's average royalty rate in the Utica is the lowest of its five newest ventures.
Chevron (NYSE: CVX)
Chevron is not the only Big Oil representative in the Utica shale, but it holds the largest stake by far. Its 600,000 acres are good for 16% of the total play. For comparison, Total has a 4% stake, and ExxonMobil has 1% via its acquisition of XTO Energy.
Chevron has over 8 million acres across 16 shale plays worldwide, suggesting a commitment to developing the Utica for production purposes, rather than monetizing assets for a quick gain -- though with 600,000 acres, that is certainly a possibility.
The Utica shale is yet another energy reserve experiencing new success because of horizontal drilling. As U.S. energy policy continues to evolve and natural gas continues to gain popularity, companies like the ones outlined above should produce great returns. Consider also the tangential plays tied to increasing natural gas production, like pipelines, oil-field service companies, and what Motley Fool analysts consider "The One Stock You Need to Own for the Coming 'No Choice' Energy Revolution."