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Ohio Utica well permits recover in May

08 Jun 2017 20:52 (+01:00 GMT)
Ohio Utica well permits recover in May

Houston, 8 June (Argus) — The number of well permits for Ohio's Utica shale climbed in May, rising to 47 after a steep fall the prior month from a 17-month high set in March, according to data from the Ohio Department of Natural Resources.

Permits for 39 wells were issued in April, down by 35pc from 60 permits in March. But permits rose by 21pc to 47 last month, compared with only 10 permits in May 2016, amid higher commodity prices and an increase in drilling in Appalachia. Last month's permit number came in 40pc below the all-time high of 78 set in October 2015.

The number of applications processed each month varies, ranging from 10 to 41 in 2016. But application numbers have remained higher than 25/month after Nymex prices reached a 22-month high near $3.34/mmBtu in October 2016.

Spot prices in Appalachia have nearly doubled from year-earlier levels on low supply. Even as prices have recovered to levels that make drilling more economical, a scarcity of skilled hydraulic fracturing crews has kept tightness in the market, as Appalachian producers attempt to compete with robust drilling activity in the Permian basin in Texas and New Mexico.

A potential delay of the 3.25 Bcf/d (92mn m³/d) Energy Transfer Rover pipeline project could have a further chilling effect on Utica dry-gas development, leading to more supply tightness. Independent producer Antero Resources says it is timing its production in the Utica to when Rover comes on line. The pipeline was scheduled to begin service in November, but the US Federal Energy Regulatory Commission stopped construction following a drilling fluid spill in April.

Spot natural gas prices at Dominion Transmission South averaged $2.71/mmBtu in May, up by 92pc from $1.41/mmBtu in May 2016. April prices at the index averaged $2.69/mmBtu, also up by 92pc from their year-earlier average.

Well permit numbers may continue to increase as prices are expected to remain higher than year-earlier levels. Argus natural gas forward prices for Dominion South in July are averaging $2.15/mmBtu, compared with the May 2016 spot price average of $1.41/mmBtu.

Estimates from the US Energy Information Administration (EIA) show that gas production from the Utica shale in April topped 4.34 Bcf/d and was expected to rise to about 4.38 Bcf/d in May, which would be up by 15pc from the levels produced a year earlier. The Utica is expected to increase its output again in June to 4.43 Bcf/d, the EIA said.