The state of Ohio has been involved in conventional oil and natural gas development and production efforts since the late 1800s. Today, more than 60,000 active oil or gas wells remain from a historical total of 250,000.

Utica shale geology resides in portions of eight states—New York, Pennsylvania, West Virginia, Ohio, Virginia, Maryland, Tennessee and Kentucky. It extends through New York and crosses the Canadian border into Ontario and Quebec.

The formation underlies the Marcellus play throughout much of that play’s footprint but is much larger, extending further Northwest and Southwest. However, not all of the play can be commercially developed with today’s technology, as the geology covers some 170,000 square miles.

Early-stage Utica development started in the Canadian province of Quebec with positive results for natural gas, but so far, the results have primarily remained less than commercial. Recently, Utica shale development efforts have focused primarily on eastern Ohio.

Because the Utica play lies underneath the Marcellus, some Marcellus operators are expected to consider future exploitation there. The Marcellus play’s thickness declines in its western portion, thus the Utica formation is accessible at shallower depths. Ohio’s portion of the Utica exists at depths of less than 7,000 feet, which will maximize opportunities and optimize drilling costs.

The Utica play is also thinner in its western portion, with the eastern portion yielding an increasingly definable core area and better opportunities to date. The rock characteristics in the Utica are different from the adjacent Marcellus area, thus well-completion techniques developed there are not directly transferable. However, operators have indicated that the Ohio Utica play potential appears to be very similar to the Texas Eagle Ford play with similar carbonate content, an oil-prone western portion, a central wet-gas and liquids portion and an eastern dry gas portion.

Recent efforts have focused primarily on the wet-gas and liquids area’s potential, which will require unique upstream and midstream infrastructure solutions.

Hydrocarbon-rich gas

Just as Marcellus gas enjoys a pipeline transportationcost advantage compared to other U.S. domestic supply regions, the average wellhead price for Utica gas will be attractive due to its proximity to the many high-value, end-use gas markets and significant gas storage markets in the Ohio Valley and into the northeastern U.S.

As mentioned, certain areas within the Utica play contain rich gas and liquids. Development of such will provide an upgrade in overall commercial value due to the natural gas liquids (NGLs) content associated with the produced gas streams. Thus, in addition to facilities required for downstream delivery of natural gas to market, major new processing infrastructure is being proposed and developed to allow NGLs to be removed from the flowing wellhead production and delivered to their related markets.

This infrastructure includes gas-processing plants, fractionation facilities, product storage tanks, truck, rail and barge-loading facilities as well as NGL pipelines. Those NGLs, valued relative to forward crude-oil prices, can be aggregated and marketed for added value above what those same products would have received had they remained in the gas stream.

Like their Marcellus counterparts, portions of the rich-gas streams being developed are higher in ethane content relative to other U.S. shale developments and relative to other U.S. domestic gas sources. Until regional ethane pipelines are in service and marketing arrangements are in place, Utica ethane will be returned to the gas stream and blended with other regional flowing gas to meet receiving pipeline gas-quality specifications. As midstream infrastructure solutions are already being implemented to support the nearby Marcellus play, Uticasourced ethane is expected to benefit from consolidation and expansion of those facilities over time.

In addition, potential solutions for other NGLs must be proposed as the Utica play development moves forward. In early-stage development, other NGL products being generated in the region are at quantities that can generally be removed and managed by truck, rail, or barge transportation to local markets. Pipeline solutions will be offered as overall scale increases.

Major operators

A number of gas-gathering proposals have been offered in support of initial well development activities. Also, several new processing plants or fractionators are proposed as well as connections to NGL transportation and distribution systems such as truck, rail, and NGL pipeline. The Table focuses on the various gas processing and NGL transportation systems currently in progress or being offered for producers’ consideration.

The recent purchase of Caiman Eastern Midstream LLC by Williams Partners LP provides for commercial opportunities to extend these assets to serve Utica developments as well as current Marcellus developments. Williams renamed the assets the Ohio Valley Midstream system.

The system consists of gas-gathering assets, the Fort Beeler gas-processing plant, NGL pipelines, the Taylor gas-processing plant (under construction) and a fractionator being implemented at Moundsville, West Virginia. These Williams’ systems will be connected to the proposed East Ohio intrastate wet-gas system, providing processing capability via the existing and expanded Williams’ plants as well as fractionation facilities when the Moundsville facility is placed in service. Future NGL pipelines will also be implemented to ensure the NGLs have access to downstream transportation capability.

Separately, Caiman Energy II LLC is also pursuing future opportunities in the Utica midstream. Recently funded by future equity commitments from EnCap Flatrock Midstream, Highstar Capital, Williams Partners and Caiman management, the joint venture hopes to benefit from proximity to and synergies from the Williams assets described above, as well as other development opportunities.

Elsewhere, Dominion Resources Inc.’s phased implementation of the Natrium, West Virginia, gas-processing plant and fractionator is under way. It is focused primarily on Marcellus production, is expected by year-end 2012, and its initial capacity provides for 200 million cubic feet (MMcf) per day of gas and 36,000 barrels (bbl.) per day of NGLs. Dominion Transmission will gather the Marcellus gas into the Natrium plant while its affiliate, East Ohio Gas Co., is proposing to gather Utica gas produced in Ohio into the plant. With appropriate commitments, the Natrium plant would be expanded to process up to 400 MMcf per day and fractionate 59,000 bbl. per day of NGLs.

East Ohio Gas Co., which currently gathers about 80% of Ohio’s existing gas production, proposes to modify and expand portions of its existing intrastate gas pipeline system to perform a wet-gas aggregation function into various processing plants. Proposed in phases, and depending upon shipper commitments, the initial phase would include 126 miles of existing pipeline while an expanded capability would utilize more than 400 miles of existing pipeline and provide more than 1.5 billion cubic feet (Bcf) per day of rich gas-gathering capability.

The latter system would also include 40 miles of new wet-gathering pipeline. East Ohio has indicated that it can perform a limited amount of gas-blending capability if gas-processing facilities are not available, and it will provide a redelivery capability of dry gas to its various connected markets.

Access Midstream Partners LP, M3 Momentum Midstream LLC and EV Energy Partners LP have also announced their intent to implement gas-gathering, processing, fractionation and NGL terminal facilities in Ohio to support Utica development. Proposed facilities include: a 600 MMcf per day gas processing complex in Columbiana County, Ohio; a 90,000 bbl. per day fractionator is proposed; and an initial NGL on-site storage facility with capacity of 870,000 bbl. is planned. Expected implementation of the initial facilities is mid-2013.

Leapfrogging from its successful Marcellus efforts, the Mark West Energy Partners LP and The Energy & Minerals Group joint venture has announced its initial Utica shale midstream projects. The projects include gas-gathering systems and the phased implementation of a 200 MMcf per day gas-processing complex in Harrison County, Ohio, to be completed by 2013. A similar phased implementation of gas gathering and a processing plant is planned for Noble County, Ohio, in 2013. Also, a 60,000 bbl. per day C3+ fractionator in Harrison County is planned for 2013, and a future de-ethanization facility is planned by early 2014. To provide operational synergy and interconnectivity to its existing Marcellus assets, NGL pipelines will connect both the Harrison and Noble plants to Mark West Liberty’s Majorsville, West Virginia, complex.

Meanwhile, NiSource Gas Transmission and Storage’s Midstream and Mineral’s Group LLC has engaged in a joint venture with affiliates of Hilcorp Energy Co. to develop Utica production and related midstream infrastructure in Northeastern Ohio and western Pennsylvania. In addition to joint participation in upstream activity, a newly formed joint venture, Pennant Midstream LLC, will construct 50 miles of initial gathering facilities, with a capacity of 400 MMcf per day, to parallel a portion of NiSource’s existing Columbia Gas Transmission pipeline system, and a 200 MMcf per day gas-processing plant. NiSource Midstream Services LLC would operate the gathering and the processing plant for the joint venture. The expected in-service date is third-quarter 2012. Pennant is reviewing fractionation options, including a selfbuild option. A new residue gas pipeline would provide necessary connections to nearby interstate pipelines.

Dry gas projects

Spectra Energy Corp.’s Texas Eastern Transmission LP (TETCO), American Electric Power and Chesapeake Energy Marketing Inc. have announced their joint intention to encourage the development of the Ohio Pipeline Energy Network, a proposed expansion of the existing TETCO pipeline that will connect Ohio’s Utica shale gas and Marcellus shale-gas supplies with markets attached to the TETCO system.

Focused primarily on fast-growing power generation markets, the project would implement an additional 1 Bcf per day of dry gas transportation capability on the pipeline system via the construction of 70 miles of new pipeline infrastructure.

American Electric and Chesapeake have indicated their intent to pursue transportation capacity via an open season. TETCO is seeking interest from other potential contracting parties as well. Assuming that the necessary commitments are received, the projected in-service date is late 2014.

Crude oil activities

Crosstex Energy LP has acquired Clearfield Energy Inc, a crude oil, condensate and water-services company with historical operations in Ohio, Kentucky and West Virginia. Clearfield moves about 30% of the oil production from conventional Ohio and Kentucky sources as well as 55% of such from West Virginia.

The assets include a crude-loading facility on the Ohio River, a crude rail-loading terminal, for which Crosstex plans to increase capacity from 28,000 bbl. per day to 56,000 bbl. per day by year end 2012, and 200 miles of crude-gathering pipelines in Ohio and West Virginia. Other assets include storage tankage and an extensive fleet of trucks with a hauling capacity of 35,000 bbl. per day.

Even in these early stages of upstream development, an array of midstream assets is beginning to take shape in Ohio to support Utica shale development. These early entrants are emulating Marcellus infrastructure development strategies and are creating a pattern for future developments, such as the ability to gather and process wet gas, route associated NGLs to fractionators and provide for future ethane recovery and transportation.