Chesapeake Energy’s latest sales take shale optimism to the next level. The $3.4-billion of deals fetch a whopping $15,000 (U.S.) an acre for unproven reserves in Ohio’s Utica formation. Yet environmental and political opposition to hydraulic fracturing, the controversial method used to extract oil and gas from rock, continues to be strong. Low gas prices don’t offer much reassurance either. This new frontier remains plenty risky.
The announcements from Chesapeake, involving a joint venture and a new subsidiary, are characteristically opaque. The price tag should nevertheless cheer other pioneering investors in Ohio’s new shale, including Hess, Anadarko Petroleum and even giant Exxon Mobil.
Aubrey McClendon, the Chesapeake boss, has persuaded his new, still-anonymous partner to cough up a sum per Utica acre that rivals or surpasses far more established rock formations, which have data from thousands of wells. For example, Chinese oil firm CNOOC paid Chesapeake just under $11,000 an acre for resources in the Eagle Ford shale in Texas. McClendon also managed to trump the $8,000 an acre Statoil paid last month for access to North Dakota’s oil-rich Bakken shale.
Only a handful of wells have been drilled so far in the Ohio formation. And there are additional uncertainties. The big selling point of the Utica has been that it is oily rather than gassy, an important distinction at a time of depressed gas and buoyant oil prices. Still, it’s far from clear yet exactly what the balance will be between liquids and gas. As well results come in, the composition of reserves could disappoint.
It is further assumed that citizens of the Buckeye State will kick up less of a fuss over fracking than those in New York or Pennsylvania. But political winds can blow swiftly. Increased drilling activity or an accident of any scale could prompt greater resistance.
For now, though, Mr. McClendon’s apparent coup will potentially give a lift to shale prices widely – and raise the profile of Ohio’s formation. But it will still be some time before investors can rest easy that Utica will live up to the hype.