How to Invest in the Explosive Growth of the Utica Shale
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How to Invest in the Explosive Growth of the Utica Shale

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Oil and gas production out of Ohio's Utica Shale more than doubled last year. That's despite the fact that the play's top driller Chesapeake Energy Corporation (NYSE: CHK) still had 208 of the 377 ...

Oil and gas production out of Ohio's Utica Shale more than doubled last year. That's despite the fact that the play's top driller Chesapeake Energy Corporation (NYSE: CHK) still had 208 of the 377 wells it drilled still waiting to be completed as of the end of last quarter. It's also despite the fact that some of the play's emerging drillers like Halcon Resources Corp. (NYSE: HK) and Magnum Hunter Resources (NYSE: MHR) are just beginning to drill. Because we're so early in the development of the Utica Shale, there is a real opportunity for investors to profit from the play's explosive growth potential. http://www.chk.com/News/Articles/Pages/1872990.aspx

The choice investors need to make is how to best invest in the emergence of the Utica Shale. Chesapeake Energy might one of the largest leaseholders, but only about 15% of its 2014 capital budget will be spent on the play. Meanwhile, Magnum Hunter Resources has only completed one well so far. However, it is the second most levered to the Utica Shale when comparing its net Utica acreage to its enterprise value. http://www.magnumhunterresources.com/Magnum-Hunter-Resources.pdf and http://www.chk.com/Investors/Documents/Latest_IR_Presentation.pdf

Finally, there are other emerging drillers like Halcon Resources. While it doesn't have as many total net acres as Chesapeake Energy, it's tied with the nation's No. 2 natural gas producer in third place when it comes to total leverage to the Utica Shale. Because there is no easy choice, I've created the following slideshow to help investors decide which Utica Shale driller might make the most sense for their portfolio.

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  • Sources: http://www.magnumhunterresources.com/Magnum-Hunter-Resources.pdfPhoto credit: http://en.wikipedia.org/wiki/File:Utica_Shale_assessment_-_01.jpg
  • Sources: http://www.dnr.state.oh.us/portals/10/energy/Utica-PointPleasant_presentation.pdfPhoto credit: http://www.flickr.com/photos/51096110@N00/4372369803/in/photolist-7Enxdg-9qGwru-eDRLk6-eDRLka-ef3B1o-avQBVx-avThx1-auoh1n-9g9FTu-8kovd1-86zKmH-dPsYmd-fprYDJ-f1FicF-c54a7s-c54bWb-ch4h23-7FcHRK-7zP6jw-faPMpV-bzYYr4-aQX1a6-cf6kRu-8gnUyD-dNP4b6-8aGNyr
  • Sources: http://www.magnumhunterresources.com/Magnum-Hunter-Resources.pdfPhoto credit: http://www.flickr.com/photos/31151995@N04/4145762907/in/photolist-7jm7SP-dSXXyh-dTUAhR-dUSc9a-dmyfCP-9ZA9J6-dSZe91-cnchKE-bH1iX8-chEwR9-8usD9K-dSK3tm-bi1bhM-a2YSa6-fKKcRD-d8Zd4W-gR1id8-bDwJ11-9FPrx5-8i2WXz-eeq5iW-fEHuLF-9kJxyv-8mYPwg-chEfau-bu6sBd-8ism9f-8ip6Yn-8ismfA-dRokcK-cEHZc1-9kMzLQ-9kMAcY-9VAQBr-dGo5nf-bunMFE-9kKXXz-8ip74r-8xKEkm-8xGCAP-7yUSSQ-7XGFqk-bbeUhH-8ismdA-bu6pKh-9GKPvG-7MBTHh-a2Yc86-7CrchT-dJR7Kf-apHFRP
  • Sources: http://energyindepth.org/ohio/new-study-utica-shale-economic-impact-ohio/Photo credit: http://www.flickr.com/photos/92802060@N06/11943293716/in/photolist-jcov8b-cR5kf7-cR5nqG-cR5wF7-cR5CYJ-cR6mjy-cR6pGQ-cR77p9-cR4EHb-cR4G8y-cR51YS-cR5mNU-cR5oCd-cR5Jzo-cR5JPb-cR6gjU-cR6xCN-cR76MA-cR5jXL-cR5u4U-cR5EFu-cR6aJS-cR6F4s-cR6ZdJ-cR73k1-cR4L3S-cR5sHA-cR5uzY-cR5YJq-cR67Zy-cR69Xm-cR6dy7-cR6iWW-cR6yt1-cR6UBN-cR6ZuJ-cR7cY1-cR7e11-cR4X8y-cR55w1-cR5gkb-cR5smU-cR5LEW-cR5VJ5-cR6sBd-cR74zJ-cR5iH9-cR66Nf-cR5n6f-cR5U5m-cR62s5
  • http://files.shareholder.com/downloads/EVEP/2931875368x0x712544/c0c0c332-9a85-4f07-ad23-e7aca5b8938d/EVEP%20-%20Wells%20Fargo%20Energy%20Symposium%20-%20Print%20Version%20120913.pdf
  • Sources: http://www.magnumhunterresources.com/Magnum-Hunter-Resources.pdf
  • http://www.chk.com/Investors/Documents/Latest_IR_Presentation.pdf
  • http://files.shareholder.com/downloads/GPOR/2958341848x0x661649/42586d2e-22eb-43c7-b961-5034a1d28470/GPOR_InvestorPres_GPOR_InvestorPres_3Q2013.pdf
  • Source: http://files.shareholder.com/downloads/ABEA-5X1N65/2897626498x0x689817/04f0786f-bdaf-416a-b542-0dd8283e6e63/Halcon_Barclays_vFINAL_091213.pdf

How to Invest in the Explosive Growth of the Utica Shale How to Invest in the Explosive Growth of the Utica Shale Presentation Transcript

  • How to Invest in the Utica Shale Drilling Boom
  • Utica Shale Overview Scale of the play • Locations: Ohio, West Virginia, New York, Maryland and Pennsylvania • Size: Extends 170,000 square miles Photo credit: Public Domain
  • Utica Shale Overview Reserve Potential Estimates • Recoverable oil: 1.3 to 5.5 billion barrels of oil • Recoverable gas: 3.75 to 15.7 trillion cubic feet Photo credit: Flickr/Don O’Brien View slide
  • Utica Shale Overview Land grab • Three most recent acreage sales averaged $12,500+ per acre • Median acreage sales since late 2011 averaged $8,800 per acre Photo credit: Flickr/_J_D_R_ View slide
  • Utica Shale Overview Economic boom • Sales receipts in Ohio are up 10%+ in the strongest shale counties • Employment growth is currently offsetting losses in other industries Photo credit: Flickr/www.LendingMemo.com
  • An Investors Guide to the Drilling Boom • Dozens of public and private exploration and production companies have acquired acreage that’s prospective for the Utica Shale. • Not all top acreage holders offer the same investment focus on the Utica. • Only a handful of companies are really levered to the play and therefore offer the most upside to investors.
  • Source: Magnum Hunter Resources Investor Presentation
  • A Closer Look at the Top Five • Rankings are based on leverage to the play, not total acreage position. • The top five offer investors the most direct “pure-play” on the Utica Shale, though all five are diversified outside of the Utica.
  • EV Energy Partners (NASDAQ: EVEP) Utica position: 173,000 net acres • Additional overriding royalty interest in 880,000 gross acres • Midstream investments: Utica East Ohio and Cardinal Gas Services • Currently marketing wet gas acres and pursing a joint venture in volatile oil acres Source: EV Energy Investor Presentation
  • Magnum Hunter Resources (NYSE: MHR) Utica position: 99,240 net acres • Estimated resource potential is 496.2 MMBoe or more than half of company’s total resource potential • Recently announced its first Utica Shale gas discovery. Source: Magnum Hunter Investor Presentation
  • Chesapeake Energy (NYSE: CHK) Utica position: 1,000,000 net acres • Largest operator • Drilled over 450 • About half still waiting to be completed • Spending 15% of 2014 capex on Utica Shale Source: Chesapeake Energy
  • Gulfport Energy (NASDAQ: GPOR) Utica position: 147,350 net acres • 88% of 2014 capex spending in the Utica Shale • 981 gross drilling locations • Net probable reserves of 18.18 MMBoe Source: Gulfport Energy Investor Presentation
  • Halcon Resources (NYSE: HK) Utica position: 142,000 net acres • Completing the evaluation phase of its Utica potential • Drilled nine wells • One of the wells was the most liquids rich in the northern portion of the play Source: Halcon Resources Investor Presentation
  • Key Investor Takeaways • Gulfport Energy and Chesapeake Energy are the most established operators. • Gulfport is more focused on the Utica Shale. • Magnum Hunter Resources and Halcon Resources are still drilling initial wells. • Best reward potential, but higher risk. • EV Energy offers upside from land sales, but as an MLP exploration growth isn’t its focus.
  • Our top growth stock of 2014