Published: September 4, 2014 at 10:47 am EST
By: Micheal Kaufman
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Royal Dutch Shell Plc (ADR) (RDS.A) announced yesterday that it made two oil discoveries in Tioga County, Pennsylvania. Despite being on a divestiture spree, Shell has extended its gas discovery activities farther east in the Utica shale formation.
Oil companies are not eyeing the potential this region has with regards to the gas reserves it holds. Shell made the ‘Gee’ and ‘Neal’ discoveries during the last twelve months, which have contributed a total of 37.7 million cubic feet (mcf) to the company’s total production.
The gas discovery in the Utica shale was first made in 2009 and since then, companies like Chesapeake Energy Corporation (CHK) and Gulfport Energy Corporation (GPOR) have dominated exploration activities. Meanwhile, oil and gas giants like ExxonMobil Corporation (XOM) initiated exploration activities late because they initially assumed the shale to lack potential.
After extracting activities started in February from Gee’s well, Shell did not disclose any news relating to the success of its exploration due to competitive reasons. Considering the potential that the Utica shale holds, the company is currently undergoing drilling activities in four more wells and is expected to start pumping gas by the end of 2014.
According to the United States Geology Department, the Utica Shale contains approximately 38 trillion cubic feet of natural gas, 940 million barrels of oil, and 208 million barrels of natural gas liquids. Geologists consider the Utica shale rich in oil and natural gas reserves, which companies could certainly capitalize on.
Despite the potential, there are certain challenges and limitations due to which major oil companies have been hesitant. Firstly, drilling needs to reach a great depth over the geographic area for extraction to be effective. Secondly, low permeability poses a challenge, as horizontal drilling and hydraulic fracturing is required. Since these methods were not used extensively in the past, tapping into the Utica Shale only picked up momentum post-2010, when the concept of hydraulic fracturing and horizontal drilling started to become a norm.