* Energy companies reject quarterly well reporting
* Doubts remain about the Utica's true potential
* Scant well results offer little indication of success
* Energy companies continue to flock to Ohio
By Edward McAllister and Selam Gebrekidan
NEW YORK, Oct 22 Dozens of wells drilled this
year across rural Ohio are quietly pumping out the answer to the
U.S. energy industry's most loaded question: Is the Utica shale
formation, touted as a potentially $500 billion frontier, a boom
or a bust?
Yet the answer is likely to remain concealed for some time.
More than a year after Chesapeake Energy Corp Chief
Executive and top Ohio driller Aubrey McClendon declared
the Utica to be "the biggest thing to hit Ohio since the plow,"
investors, landowners and even the federal government are still
in the dark over the true pace of oil and natural gas production
in the state.
That's because Ohio is one of the nation's least transparent
states when it comes to energy data - a distinction the industry
worked to maintain this year, according to a review of
legislative documents and interviews with state and industry
Secrecy still surrounds the most eagerly anticipated
drilling campaign in the country, one that began in the middle
of last year when McClendon boasted that the 1.3 million acres
(530,000 hectares) of land the company had leased could hold oil
and gas worth $20 billion.
Months later, with drilling into the 8,000-foot-deep (2,500-
meter) formation just starting, he said the Utica - centered
under Ohio but reaching seven other states and Canada - probably
held hydrocarbons worth $500 billion.
By this spring, a new energy bill being crafted by lawmakers
initially included a clause that would have allowed regulators
to publicly disclose quarterly energy production data. The
current requirement calls for annual reporting.
But the clause was struck from the bill after discussions
with the industry, a Reuters investigation has found. Instead
the law, which took effect in August, explicitly bars the
government from publishing the quarterly figures it now obtains.
Almost every other energy-producing state releases
production data and drilling results on a monthly basis; even
Saudi Arabia now self-reports its once-secret production volumes
once a month. The latest Ohio figures for 2011 provide
information on only five wells. The volume of oil and gas
pumping out of dozens of new wells drilled this year will not be
available until April 2013, as much as 15 months after they were
In Ohio, companies control the flow of information, and
their selective disclosure is creating doubts about Utica's
ultimate bounty. It remains unclear whether the Utica will be a
major winner for companies who have invested billions of dollars
leasing land and drilling there, and for the state's finances,
or if it will turn out to be a relative flop.
Drillers such as Devon Energy Corp and Anadarko
Petroleum Corp have released information on only about
half the 33 wells now producing in the Utica, according to a
Reuters review of company filings and state data. The data is
often limited, and the companies have no regulatory obligation
to divulge the results of every well they drill.
"It gives investors a little bit of concern because you
don't have any independent, third-party reporting on any of this
data," said Leo Mariani, an analyst at RBC Capital Markets.
"You are reliant on the companies coming out with the data
as they see fit to report it. It adds a level of incremental
The growing concern among many is that the Utica, far from
being the oil-rich patch originally believed, is largely filled
with natural gases and related liquids, whose prices have
slumped to near break-even rates for drillers.
Some recall the dramatic boom and bust of Michigan's own
shale play two years ago, which fizzled in just months after
promptly reported well data showed disappointing results.
The lack of transparency risks testing shareholders'
patience for returns on the billions of dollars spent leasing
land across the state. It may also put drillers at odds with
"The industry has lobbied very heavily in Columbus to keep
this reporting requirement down to an annual basis," said Ohio
Representative Mark Okey, a Democrat, who voted against the
"How are people supposed to understand what their potential
royalties might be if there is not reporting on a more frequent
'NOT QUITE LIVING UP TO ITS PROMISE'
Chesapeake led the charge into Ohio, and others quickly
followed. France's Total paid $2.3 billion to buy a
share of Chesapeake's holdings, while major oil companies such
as Exxon Mobil, Chevron and Anadarko joined in.
Minors like Gulfport Energy Corp and Rex Energy Corp
are also present.
Since then results have been mixed.
One of the first five Chesapeake wells in the Utica - called
Buell 10-11-5 8H - spewed an impressive 9.5 million cubic feet
per day of natural gas, according to data released by the Ohio
Department of Natural Resources (DNR) in April. But with gas
prices trading this spring at their lowest in a decade, the news
spurred little enthusiasm.
In August, Devon said results from two wells in the
western, oil-rich sections of the Utica were not encouraging.
Well permits, which hit a record high in August after
doubling since the start of the year, dipped in September.
Marathon Petroleum, the Midwest's largest refiner,
recently made changes at its 78,000 barrel-per-day refinery in
Canton, Ohio, anticipating increased Utica crude output. So far
it only processes 1,500 bpd of Utica oil and condensates.
"I would say the growth has been slower than we originally
anticipated," Donald Templin, Marathon's vice president and CFO,
told an energy conference last month.
Even Chesapeake has muted its trumpet.
In an SEC filing this May, the company said it was planning
to drill a significant number of wells in Utica's "oil
window" over the rest of this year, referring to an area that is
expected to hold mostly oil. Three months later it said it
"continues to focus on developing the wet gas and dry gas
windows," with no mention of oil. Chesapeake declined to comment
on the change in description.
Early comparisons between the Utica and the prolific Eagle
Ford shale play in Texas are looking increasingly tenuous.
In 2011, one year after shale drilling commenced in earnest
in the Eagle Ford formation, oil production had surged tenfold
to nearly 120,000 barrels per day, state data show. It has
pumped almost 300,000 bpd so far this year.
Ohio pumped around 13,000 bpd last year, a volume that has
been almost unchanged for a decade, according to the U.S.
Department of Energy. More recent figures are unavailable.
"Initial indications are that it is not quite living up to
its promise," said Phil Weiss, an energy analyst at Argus
Research in New York. "The Utica does not appear to be
comparable to the Eagle Ford, but there is so little data."
With Ohio in the grip of a hydraulic fracturing boom similar
to the sudden expansions that have transformed Pennsylvania and
North Dakota, pro-drilling Ohio Governor John Kasich raced this
spring to put in place new regulations, including forcing
companies to disclose what chemicals they used in the process.
The first version of Senate Bill 315 also included a clause
that required energy companies to provide production data to the
DNR at the end of every quarter, not once a year by March 31.
But industry groups wanted to alter the clause to ensure
well data remained private, and it was dropped in later
iterations of the bill, documents show.
"Companies wanted to continue to report on an annual
basis," said Thomas Stewart, executive vice president of the
Ohio Oil and Gas Association. "It is a hyper-competitive play,
and people who were making those investments on the ground did
not want to be publishing that data on a quarterly basis to give
their competitors an edge." The association represents producers
including Chesapeake Energy, Anadarko Petroleum Corp and Devon
The law still requires companies to report production data
each quarter to the state tax department, which is allowed to
share that information with the DNR for budgeting purposes. But
the DNR is prohibited from making that data public.
Craig Butler, assistant policy director in the governor's
office, said they were "comfortable" with the outcome, which at
least provided more frequent data to state authorities.
A spokesman for Chesapeake Energy, which operates 25 of the
33 producing wells in the Utica, said the company did not ask
industry groups to oppose the original clause. He declined to
comment on the bill, the disclosure requirements, or the
company's progress in the Utica.
McClendon himself says secrecy actually benefits his
shareholders. He said in November that Chesapeake would stop
reporting well-result details to investors because positive well
data were driving land prices higher.
With minimal requirements for companies to report their
activities once they secure a drilling permit, Ohio's own DNR
often relies on company press statements to glean information on
the numbers of wells that are being drilled, officials say.
In Carroll County, the heart of the boom with 20 producing
wells and another 150 permits to drill, commissioners have no
idea about the Utica's progress.
"We don't know what they're producing because they don't
tell you until they need to," said Tom Wheaton, one of the three
Carroll County commissioners. "I think Ohio is protecting the
industry at the state level. I don't see any other value in it
except big companies controlling the competition."
Even the federal government is frustrated as it attempts to
gather the data necessary to oversee a domestic energy boom that
is transforming the nation.
"I think it would be really good for policymakers and the
public to know what's going on now," Adam Sieminski, head of the
Energy Information Administration, said this month of the need
for more federal funds to track domestic energy production in
general. "Particularly given the swiftness of the changes taking
Yet the EIA, which publishes monthly production estimates by
state, says it relies on Ohio's annual year-ago figures to
estimate the current year's output.
Most states are sensitive to the risk of publicly releasing
information on energy activities by private companies,
especially on early drilling results that may tip competitors to
a new hot spot. To ensure that companies are not giving away any
competitive advantage too quickly, they offer a confidentiality
period of three to six months before publishing any so-called
initial production data. Once a well is declared commercially
viable and enters routine production, most states see little
need for secrecy.
In Louisiana and North Dakota, well-specific output is
reported monthly. In Pennsylvania, home to the Marcellus shale
that overlaps the Utica, it is every six months.
The case of Michigan's Collingswood shale provides a stark
example of the power of data in the energy sector.
In January 2010, Encana Corp drilled the State Pioneer 1-3
HD1 well in Missaukee County, one of Michigan's first shale
During the first production test that April, it gushed gas
at an impressive 3 million cubic feet per day. Because the
90-day confidentiality period had expired, those results were
made public almost immediately, prompting a frenzy of leasing
that caused land prices to spike as much as 100-fold.
Output quickly dropped to less than half the initial rate,
according to reports that were released in June. "After 30 days
or so the trend was that the well had peaked and it was
declining," said Larry Organek, an engineer with Michigan's
Department of Environmental Quality.
The well was plugged, and the leasing boom came to an abrupt