If you’re invested in Utica players, I wouldn’t go running for the hills just yet because production is being held back. Chesapeake Energy Corporation (NYSE:CHK) recently reported that only 66 wells are producing, but another 86 are awaiting pipeline connections and 97 more have been drilled and are in the process of being completed. The company hopes to meet a target of 330 million cubic feet equivalent by year end.
3. Why are producers holding back production?
Shale drilling is a rather recent phenomenon in the U.S., and the Utica is one of the most recent plays to be explored. This means that the necessary infrastructure and takeaway capacity just aren’t in place to handle significant jumps in production from the region. So for now, producers are in a bit of a holding pattern.
Since wet gas is so important to the Utica’s future, there are three major projects that Utica E&P companies will be following very closely. Enterprise Products Partners L.P. (NYSE:EPD)‘s ATEX pipeline, Enbridge Inc (USA) (NYSE:ENB)‘s reversal and expansion of the Southern Lights pipeline, and Marathon Petroleum Corp (NYSE:MPC)‘s $300 million plan to add 60,000 bpd of condensate refining capacity to two of its refineries in the Ohio valley.
The ATEX pipeline will be an NGL pipeline from the Utica/Marcellus to the Gulf Coast, where a majority of the United States’ chemical refining capacity is located. The company just started open season where producers request space. Enbridge Inc (USA) (NYSE:ENB) is planning to reverse the flow of the Alberta Clipper pipeline to go from the Midwest to Northern Alberta, where Utica condensate can be used as a blending component for Canadian heavy oils. For condensate to be shipped via pipeline, though, it needs to be stabilized. That’s a fancy way of saying that it needs to be refined to reduce wear and tear on pipelines. It will take more wellhead investments for E&P companies, but with condensate trading at a $14 premium to WTI in Canada, it will be money well spent.
What a Fool believes
Unless Ohio’s Department of Natural Resources drastically changes its methods of reporting or companies publish more data regarding the Utica, it appears that we’ll get to look at the overall health of this play only about once a year. Luckily, there are other ways to evaluate the health of the region. Just look at the takeaway capacity being built in the region. Once these projects start to come online, production in the Utica will take off.
The article Solving 3 Mysteries From the Most Secretive Energy Play originally appeared on Fool.com and is written by Tyler Crowe.
Fool contributor Tyler Crowe has no position in any stocks mentioned. You can follow him on Fool.com under the handle TMFDirtyBird, on Google +, or on Twitter @TylerCroweFool. The Motley Fool recommends Enterprise Products Partners L.P. (NYSE:EPD) and has the following options on Chesapeake Energy Corporation (NYSE:CHK): long Jan. 2014 $20 calls, long Jan. 2014 $30 calls , and short Jan. 2014 $15 puts.
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