Discovery in shale follows area's natural gas boom
By DAN SHINGLER
4:30 am, August 15, 2011

Imagine tens of billions of dollars of private capital being invested in Ohio.




Now stop imagining and keep reading, because a large oil and gas company says that's exactly what's about to happen thanks to a recent discovery of huge oil reserves in the shale rock beneath the eastern half of the state.


How huge? Enough that $200 billion likely will be invested in the Buckeye State over the next 20 years, predicts the man running the largest energy company working on Ohio's shale.

“When's the last time any industry showed up and said, "I'm going to invest $10 billion a year in a state for a couple of decades?' I think that's about what's going to happen in Ohio,” Chesapeake Energy Corp. CEO Aubrey McClendon recently told CNBC stock picker Jim Cramer.

Oklahoma City-based Chesapeake and other companies have been touting and producing natural gas from the shale in this part of the United States for a few years now, but this is the first time they've found a major oil reserve to boot. And it has Mr. McClendon more than a little excited.

“We think this new Utica shale discovery, on top of the Marcellus shale discovery in western Pennsylvania ... could be transformative events, not just for this area, but the whole U.S. as well,” Mr. McClendon said Aug. 1 on Mr. Cramer's “Mad Money” television show.

“This could be 25 billion barrels of oil,” Mr. McClendon said. “It could be one of the biggest discoveries in U.S. history.”

That announcement came just after Mr. McClendon's July 29 conversation with other securities analysts, where he said, “We are happy to report confirmation of market rumors that Chesapeake has made a major new liquids-rich discovery in the Utica shale of eastern Ohio.”

Mr. McClendon predicted that his companies and others like it will spend $200 billion or more drilling in eastern Ohio and other portions of the Utica shale during the next two decades. Mr. McClendon estimated the find is worth $15 billion to $20 billion for his company and its shareholders.

“In the Utica, we could be talking about 25,000 wells being drilled,” Mr. McClendon told “Mad Money.”

So far, other drillers aren't talking about the oil find — but it's down there and big companies, such as Exxon Mobil, are going after it, said Terry Fleming, executive director of the Ohio Petroleum Council in Columbus. Estimates of the total amount of oil in the shale beds vary greatly, but they are all very big numbers, he said.

“The estimates range from 38 billion barrels to 384 billion,” Mr. Fleming said. “Chesapeake is one of many companies that are purchasing leases and buying land in Ohio. ... Just the sheer size of these companies and the land that's being purchased tells me that they are serious.”

"Ground zero' for a boom?

Mr. McClendon said his company could not have found oil in a better place. There is abundant water available — something Chesapeake needs for the hydraulic fracturing methods it uses to extract oil and gas from shale — and the topography of the area is easier to work with than what is found in Pennsylvania or West Virginia.

And, he said, there is a large and willing local work force that his company intends to draw upon.

“We're in a part of Ohio which, frankly, is ground zero for what used to be known as the manufacturing belt of America and unfortunately in the last 30 years has been the Rust Belt,” Mr. McClendon told analysts on July 29. “But we think that our activity can help rejuvenate this area and we're actually quite pleased with the quality of the work force, the size of the work force and we think, of course, there's great transportation alternatives here, and we're pretty close to the Ohio River. So if we need to barge out some oil, we can do that.”

Chesapeake director of corporate development Keith Fuller told Crain's via email that the company is in the early stages of its hiring with regard to the Ohio oil find. It's trying to fill 30 positions for drilling rig workers in Canton, he said, and expects to hire many more in the future. They will be a mix of Ohioans and others with industry-specific expertise, he said.

“We're in the beginning phase of hiring, so we will be looking for experienced industry professionals — some who are Ohioans who are moving back to Ohio — and once those are in place, the local hiring process will gain momentum,” Mr. Fuller said. “Initially, however, the larger number of hires will be made by area contractors and vendors.”

Some of those contractors and vendors already are getting work from Chesapeake. It has contracted with several Ohio companies for services and supplies ranging from surveying work to building trailers to haul oil-field materials and equipment, said company spokeswoman Jacque Bland.

Steelmakers such as Timken Co. in Canton, U.S. Steel in Lorain and V&M Steel in Youngstown already are feeling the positive effects — all have announced big expansions as they try to keep up with drillers' demands for tubular steel.

Other companies that make valves, fittings, pumps and other articles used in oil and gas drilling also say they are winning new business from the drilling and exploration.

Fueling local jobs

Work for Ohio companies likely will increase and become more complex as the shale beds are developed, said Tom Stewart, executive vice president of the Ohio Oil & Gas Association. The work especially will kick in once drillers need to start moving large quantities of oil and gas from their wells to the market, Mr. Stewart said.

“Now you're talking about building pipelines and processing plants,” he said.

The find also could provide cheap fuel and raw materials for Ohio manufacturers for years to come, Mr. Stewart said. For instance, plastics producers could use many of the hydrocarbons found in the shale beds to make plastic resins and could establish plants near this new feedstock. It would be a welcome development for area plastic molders and injectors, who long have complained about rising raw material prices while no new U.S. production was brought online.

Chesapeake Energy's latest announcement might be its biggest yet in terms of its impact on Ohio's economy. The company is not going to say anything further for now, Ms. Bland said. But in transcripts of analyst conferences, the company seems to increase what it says is the potential for oil and gas drilling in the region's shale beds.

The company is confident about the oil, it told analysts, because Chesapeake has drilled 15 wells in Ohio and has pulled up 3,200 feet of core to study — all of it proving that the oil is there, Mr. McClendon has said.

It also has been spending considerable time and money making sure it's the company that will bring that oil to the surface. Chesapeake reports that during the last 18 months, it has spent between $1.5 billion and $2 billion to secure leases and drilling rights on 1.25 million acres in eastern Ohio.

Buck