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Wednesday, January 25, 2012

Chesapeake To Curtail Drilling But Not In Ohio

As natural gas prices have fallen Chesapeake Energy announced it would reduce the number of working drilling rigs and delay pipeline construction. That comes as bad news for the Marcellus shale in northeastern Pennsylvania, the Haynesville shale in Arkansas, Louisiana and Texas and the Barnett shale in Texas but it's good news for Ohio. Chesapeake will focus on liquid-rich plays, including Ohio’s Utica shale that “offer superior returns in the current strong liquids price environment.” It's an ill wind that blows no good and what Chesapeake is saying is that it is shifting its resources to where it can get the greatest return on its investment and that place is the Utica Shale. The Utica is a hybrid play. It yields liquids with its natural gas so while natural gas prices may be in a free fall due to the short term glut; the liquid portion of the play continues to be very profitable. Utica wells produce oil, propane, ethane and butane, all of which are lucrative because they have a wide variety of uses. As rigs are idled in other shales some of them will be shifted to Ohio and he Utica.
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It's ironic that as Obama announces his long delayed endorsement of the natural gas boom it would go into a stall that probably will not restart until after the 2012 election. As natural gas prices remain low and gasoline prices increase this summer his decision on the Keystone XL pipeline will provide political fodder to Republicans. As export facilities are developed, gas fired power plants constructed, and more vehicles, especially heavy trucks, shift to natural gas it will again be a hot play. As Keynes once said, "In the long run we are all dead." Some may be politically dead in both the short and long run.
Update: The Dayton Daily News has more on this story and it a good read.

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