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Essential Energy Insights, April 2021


Shale permitting nearly doubles in Ohio's Utica Shale year to year

Driven largely by a push for Utica Shale natural gas wells by private equity-backed Ascent Resources, the number of new well permits in Ohio almost doubled in April compared to the year before.

Unhampered by public market investors' insistence on restrained capital spending, Ascent, backed by private equity funds such as The Energy & Minerals Group and First Reserve Corp., pulled 23 new well permits in April, compared to 13 in the same month in 2018. While five of those permits were for new wells in Harrison County, Ohio, in the Utica's wet gas window, the remainder were in two counties along the Ohio River in the dry gas window: Belmont and Jefferson.

The newly named Montage Resources Corp., previously known as Eclipse Resources Corp., and Pittsburgh driller CNX Resources Corp. pulled eight permits in the third county in Ohio's dry gas window, Monroe. Combined, the three dry gas counties accounted for 78% of the 40 permits pulled in April, a 90% hike from the same month a year ago, according Ohio Department of Natural Resources' data on May 21.

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In speaking about Appalachian driller Antero Resources Corp.'s operations, SunTrust Robinson Humphrey Inc. shale analyst Welles Fitzpatrick could have been talking about the bulk of the publicly traded Appalachian E&P group that continues to stay away from the Utica Shale, which is costlier to exploit than the Marcellus Shale in West Virginia and Pennsylvania because the formation is deeper.

"While the Utica saw some activity in 1Q, the returns still do not compete with the Marcellus and we expect [the Utica] will continue to receive minimal capital allocations," Fitzpatrick told his clients May 2. "Investors are laser-focused on capex reductions."

Despite being privately held, Ascent is not immune from the pressure to keep spending restrained and produce positive cash flows. Already the top producer in Ohio, Ascent told its private investors March 21 that it would generate positive cash flows in 2019 while producing 2.1 Bcfe/d worth of gas and liquids, slightly more than the 1.8 Bcfe/d it reported in the first quarter of this year.

Ascent's cash burn was down to $585,000 in the first quarter, compared to $23 million in the same quarter in 2018. "We have proactively hedged approximately 85% of our anticipated natural gas production and approximately 75% of our anticipated oil production for the remainder of 2019," Ascent said March 21. "We believe 2019 will be an inflection point for Ascent as we achieve a size and scale that should allow us, at current strip prices, to reach cash flow neutrality before the end of 2019."

April's shift to the dry gas portion of the Utica, following months of focus on the wet gas window further to the west, came after NGL prices took a dive nationwide. Ethane futures contracts at Texas' Mount Belvieu NGL complex have cratered 59% since September 2018, most recently losing 22% in April, according to S&P Global Market Intelligence data.