utica shale energizes deal frenzy in ohio

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Utica Shale Energizes Deal Frenzy in Ohio
By RYAN DEZEMBER

One of the latest hot spots for deal making is far from New York City or Silicon Valley?it's in eastern Ohio, where energy companies are staking claims in what is being touted as North America's next big energy field, the Utica Shale.

While the 170,000-square-mile Utica Shale sprawls beneath parts of eight states and Canada, energy companies and analysts believe the richest reserves of oil and valuable natural-gas liquids, such as propane and butane, lie in eastern Ohio.‬

In recent weeks the buzz around the area has intensified. Large producers' moves into the area are becoming public. This month has seen big acquisitions. And stock analysts are recommending shares of small companies with Ohio acreage.

Last week, Exxon Mobil Corp. confirmed it is snapping up drilling rights in the Utica Shale. Exxon won't say how much land it has locked up or where the property lies. But the move caught Wall Street analysts' attention.

And Chesapeake Energy Corp., the country's second-largest natural-gas producer, after Exxon, is shopping a stake in its 1.25 million eastern Ohio acres that analysts say could set a new price baseline. Chesapeake Chief Executive Aubrey McClendon has said it may have a joint venture signed as early as next month.

Deeply buried energy-bearing rocks, shales in recent years have touched off acquisition frenzies as pioneering firms cash in on their discoveries and sell out to, or partner with, larger firms with the cash to extract oil and natural gas.

The Utica Shale, which lies thousands of feet beneath the prolific gas-bearing Marcellus Shale, is no exception as it is thought to be one of the last untapped shales in the U.S.

Still, there are little public data on exactly what the Utica holds, placing some uncertainty over whether every company's land will be productive. Some companies, including Chesapeake, say it is geologically similar to some of the country's most prolific reservoirs. But according to Wachovia Securities analysts, only 16 wells for production have been drilled into the Utica so far. That's a small number in a geologic formation that covers some 170,000 square miles.

Often in these kinds of situations, companies don't want to miss out on any investor enthusiasm. "Equity market investors really latch on to the next big thing," said Manuj Nikhanj, head of energy research for ITG Investment Research. "If this is it, the companies involved get rewarded in their stock prices."

Rex Energy Corp., Gulfport Energy Corp., Magnum Hunter Resources Corp. are among the smaller producers with land in Ohio that analysts are suggesting to investors looking to place bets on the Utica.

Hess Corp. earlier this month agreed to pay more than $1.34 billion in a pair of transactions that netted it 185,000 Utica acres. The per-acre lease price of its takeout of closely held Marquette Exploration LLC equates to about $8,800, more than double the typical rates landowners had been receiving from oil companies for the right to drill on their property, according to industry analysts.

Other large U.S. producers are leasing acreage in Ohio, including Devon Energy Corp. and Anadarko Petroleum Corp. And Petroleum Development Corp. has said it plans to seek a partner to help pay for drilling.

As for Chesapeake, the Oklahoma City explorer typically sends hundreds of leasing agents into emerging oil fields to lock up drilling rights; it then sells a stake in the acreage to help pay for large-scale drilling.

Mr. McClendon has said Chesapeake has spent between $1.5 billion and $2 billion building the position and now believes it is worth 10 times that.

Publicly traded EV Energy Partners LP, along with its energy-focused private-equity parent EnerVest Ltd., controls more than 780,000 acres in Ohio and is "likely" to sell some of its position, said Michael Mercer, EV Energy chief financial officer, in an interview last week.

Other smaller companies are open to deals for their Ohio properties. Gulfport Chief Executive Jim Palm said in an interview Friday that although his company acquired 30,000 acres intending to drill wells next year, "if we can maximize the value by doing a joint venture, we'd consider that."

Corrections & Amplifications
Rex Energy Corp is among the small energy producers that stock analysts are suggesting to investors looking for companies with a presence in Ohio's Utica Shale. An earlier version of this article incorrectly named Rex American Resources Corp. as such a company.