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 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.TRANSCRIPT
How to Invest in the Utica Shale Drilling Boom
Photo credit: Chesapeake Energy
Utica Shale Overview
• Locations: Ohio, West Virginia, New York, Maryland and Pennsylvania
• Size: Extends 170,000 square miles
Scale of the play
Photo credit: Public Domain
Utica Shale Overview
• Recoverable oil: 1.3 to 5.5 billion barrels of oil
• Recoverable gas: 3.75 to 15.7 trillion cubic feet
Reserve Potential Estimates
Photo credit: Flickr/Don O’Brien
Utica Shale Overview
• Three most recent acreage sales averaged $12,500+ per acre
• Median acreage sales since late 2011 averaged $8,800 per acre
Land grab
Photo credit: Flickr/_J_D_R_
Utica Shale Overview
• Sales receipts in Ohio are up 10%+ in the strongest shale counties
• Employment growth is currently offsetting losses in other industries
Economic boom
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)
• 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
Utica position: 173,000 net acres
Source: EV Energy Investor Presentation
Magnum Hunter Resources (NYSE: MHR)
• 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.
Utica position:99,240 net acres
Source: Magnum Hunter Investor Presentation
Chesapeake Energy (NYSE: CHK)
• Largest operator• Drilled over 450• About half still waiting
to be completed• Spending 15% of 2014
capex on Utica Shale
Utica position: 1,000,000 net acres
Source: Chesapeake Energy
Gulfport Energy (NASDAQ: GPOR)
• 88% of 2014 capex spending in the Utica Shale
• 981 gross drilling locations
• Net probable reserves of 18.18 MMBoe
Utica position: 147,350 net acres
Source: Gulfport Energy Investor Presentation
Halcon Resources (NYSE: HK)
• 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
Utica position: 142,000 net acres
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