Ohio shale's energy potential: It could be big

One hundred-fifty years ago, Ohio drilled its first oil well. Today, the oil and gas industry supports more than 14,000 direct and indirect jobs, is responsible for nearly $1 billion a year in Ohio salaries and ranks fourth in the total number of wells drilled.

Now, at a time of skyrocketing energy costs and dependence on foreign oil, the picture has broadened. Lurking deep beneath Ohio's cornfields, forests and neighborhoods are vast shale formations believed to hold a virtual goldmine of gas and oil. Experts say those formations -- the Marcellus and Utica -- could hold one of the keys to Ohio's future energy economy.

"There are people that are throwing around some numbers, but still it's a little early," says Tom Tugend, deputy chief of the Ohio Department of Natural Resources' Division of Mineral Resources Management. "But if it's any fraction of what Pennsylvania has, it's going to be huge."

The Marcellus shale formation spans Pennsylvania, New York, West Virginia, parts of Maryland and the far-eastern portion of Ohio. The poster child for Marcellus production is Pennsylvania.

According to a Penn State University economic impact study, Marcellus gas producers spent a total of $4.5 billion in 2009 to develop Pennsylvania's Marcellus resources, with a projected impact of 44,000 jobs and $389 million in state and local tax revenues.

That year, output averaged 327 million cubic feet per day of "natural gas equivalents." Marcellus producers planned to invest even more in 2010 and 2011, generating 2.5 billion cubic feet per day in 2011. The Penn State researchers estimate that by 2020, Marcellus production in Pennsylvania could reach 13.5 billion cubic feet per day and generate 212,000 jobs.

"They estimate that there's enough gas there to meet the country's needs for somewhere between 50 and 100 years, once they start to fully develop the shale," explains Robert Chase, chair of the Department of Petroleum Engineering and Geology and Marietta College.

Nobody seems to know just how much gas and oil lies within the Ohio portion of the Marcellus, or the deeper Utica formation to the west, which many believe has more potential than Ohio's share of the Marcellus. Neither does anyone seem to have a good guess about what the economic impact on Ohio could be.

"There's a limited amount of data at this point because only a few wells have been drilled to test the Utica shale, in particular, and a few in Marcellus in the eastern part of the state," Chase says. "But the results from all the test wells that have been drilled, from what I heard, have been nothing short of meeting everyone's expectations or exceeding them."

Gas and oil companies have been drilling into shale for a long time, says Rhonda Reda, executive director of Ohio Oil and Gas Energy Education Program, an industry membership association. The difference is a new focus on horizontal drilling to force commercial quantities out of tightly layered shale.

"It was about 20 years ago when they really started developing (horizontal) drilling in the Barnett Shale in Texas, which is currently the largest natural gas on-shore play in the United States," Reda says. "They believe the Marcellus and Utica will surpass the Barnett shale."

In fact, energy companies are falling all over themselves to secure land leases and the right to find out.

"In mid-spring of 2010, we started getting a lot of calls from Ohio landowners in the eastern part of the state," Tugend says. "People in Jefferson, Harrison, Carroll, Monroe counties, who were being approached by land people. The county recorders offices say they've just got people waiting in line to review deed records and lease records and title work, unlike anything they've ever seen, and its been going on for months."

For example, Oklahoma City-based Chesapeake Energy, only one major player in gas and oil production, "has spent over $1 billion acquiring leases already, and I'm told they have budgeted a half a billion dollars for exploration next year," Chase says.

Attempts to interview Chesapeake officials were unsuccessful. Instead, the company directed hiVelocity to a recent letter to investors. While that letter doesn't specify Ohio activities in the Marcellus region, it does note the potential of the Utica formation.

"Chesapeake has high hopes for this emerging shale play in eastern Ohio," the letter reads. "We have made a large commitment . . . and have acquired approximately 1.2 million net leasehold acres and expect to increase this total to as much as 1.5 million net leasehold acres in the coming months. We are currently using three rigs to evaluate the play and believe our leasehold could support the drilling of up to 12,000 net wells."

That seems to typify the state of things in Ohio across both the Marcellus and the Utica regions, as developers sink resources into exploration as a prelude to real production.

"We're thinking in Ohio today that we're where Pennsylvania was in 2007," Tugend says, "where the leasing activity's going fairly strong and primarily the activity we're seeing is exploratory drilling, where companies are drilling vertical wells, taking core samples and analyzing that."

Not everyone is keen on more drilling in Ohio. Some environmental and citizens groups are opposing the standard technique used for extracting energy from shale. In that process, a drill is sunk into the shale and then routed horizontally for as much as a mile. Then, a method known as hydraulic fracturing pumps huge volumes of water, sand and small amounts of detergent-like chemicals into the shale to form cracks through which gas and oil can escape. Some fear groundwater and aquifer contamination and others oppose a state proposal to open public lands to drilling.

Reda says there's little risk of environmental spoilage from hydraulic fracturing, also called fracing.

"It's something we've perfected for more than 60 years here in Ohio," she says. "We have hydraulically fractured more than 80,000 wells in the state and more than 1.1 million across the United States without a single incident of any groundwater contamination related to hydraulic fracturing."

Tugend agrees that "most companies that are coming to Ohio claim they are recycling 100 percent of their fluids," noting that Ohio -- unlike states where some of the frac water is processed through public water treatment plants -- has only one treatment plant approved to treat frac water.

Additionally, "we have a number of injection wells," for disposal of waste water. "Pennsylvania doesn't."

With the exception of environmental concerns -- and a lack of available rigs for immediate production -- those who follow the industry say little stands in the way of an oil and gas bonanza in Ohio if estimated reserves prove accurate.

"With oil selling for $112 a barrel, there's plent of incentive for us to drill these wells and produce," says Chase. "If we're smart as a country, we're going to do all that we can to drill these wells safely and economically to make sure we can reduce our dependence on foreign oil. And there's a great opportunity here in Ohio to do that."