BP to leave Utica Shale
Less than stellar drilling results in northeast Ohio and opportunities elsewhere were two of the reasons cited by BP about its plans to sell off the 85,000 acres of mineral rights it holds in Trumbull County and pull out of the Utica Shale.
BP’s announcement, anticipated for some time by those related to the industry, came Tuesday as part of the company’s report on first quarter earnings report to investors.
The company will begin marketing the mineral rights it spent more than $300 million to lease in 2012. Promises of royalties upward of 18 percent on the natural gas and oil minerals retrieved from the Utica Shale formation, however, have fallen by the wayside.
BP has drilled six experimental wells in northern Trumbull County within the last year, and four are now producing. Ohio’s quarterly results released last week by the Ohio Department of Natural Resources, however, indicated poor results.
The company is the second horizontal drilling operator to pull out of Trumbull County. Halcon Resources, which has three Utica Shale wells producing in Trumbull County, also announced last month it was pulling out of the Utica Shale Play with no immediate plans to return.
“Based on these results and opportunities elsewhere in its global portfolio, BP has decided not to pursue further development of its leasehold position in the region and will market the assets for sale,” BP said in a statement released by company spokesman Curtis Thomas.
“While we determined that other investment opportunities in BP’s global portfolio were better positioned to compete for capital, these leaseholds have potential for another company,” the company said in the statement.
Mike Chadsey, director of public relations for industry group the Ohio Oil and Gas Association, noted that the recent links between hydraulic fracturing and seismic activity may have been a factor as well.
“That has obviously got people taking a good look at it,” Chadsey said. “There’s a pretty big fault we’ve found in Mahoning County. Now you have some additional costs of (seismic monitoring). That’s something people are looking at.”
Further issues, Chadsey said, is the ongoing debate over Ohio’s severance tax, which he said has drillers in a wait-and-see mode.
“As one of the world’s largest energy companies, BP has a significant portfolio of investment opportunities around the globe and focuses capital on projects with the greatest potential to return value to shareholders,” BP said following the release of its quarterly earnings.
“BP has determined its leases in the Utica / Point Pleasant shale do not currently meet these investment criteria and plans to market the assets for sale.”
In its earnings report, the company indicated its “upstream” results in its lower 48 onshore oil and gas activities included a $521 million write-off relating to the Utica acreage as “consequences of disappointing appraisal results.”
State Rep. Sean O’Brien, active in the development of the industry here, called BP’s decision ”disappointing,” but he doesn’t foresee an impact to the manufacturing sector related to gas and oil well drilling.
”You still have the Utica being exploited in Columbiana County. In Carroll County it’s big,” said O’Brien, D-Bazetta. ”It is still going on, it is still being developed.”
Chadsey, likewise, wasn’t ignoring the local accomplishments, noting the manufacturing growth that has stemmed from the industry.
He credited that growth to available work force with strong manufacturing skills and good training and educational programs.
“Those are the three elements the Valley has that it needs to take a part in this play. That’s how Youngstown-Warren can contribute to this,” Chadsey said.
Trumbull County Commissioner Paul Heltzel said it is a ”real possibility” that industry associated to gas and oil well drilling may take a hit locally, but ”fortunately, the oil and gas business goes way beyond our area.”
Drilling happening elsewhere, he said, needs the same component parts as if it were happening in Trumbull County, so facilities here should be easily kept here, he said.
Thomas said by summer, BP will close the 43,000-square-foot office and warehouse in North Jackson that the company earlier had believed would be its Ohio base for drilling.
The space was leased in December 2012 for six years.
“I have worked in several locations around the country on behalf of BP, and I can say, that beyond a shadow of a doubt, I have never received a warmer welcome anywhere,” said Thomas, who will remain in Ohio, but be reassigned to Columbus where he will work with legislators on issues relevant to BP’s Toledo refinery.