BP (NYSE: BP) announced an agreement to lease approximately 84,000 acres in northeast Ohio targeting the Utica/Point Pleasant shale formation from the Associated Landowners of the Ohio Valley (ALOV). The ALOV is a local Ohio group representing area mineral owners.

The 84,000 acres are located in Trumbull County, Ohio. BP reported in the news release terms of the agreement, to be executed with each landowner, are confidential. The company said its focus in 2012 will be to better understand the geology and devise a plan to safely develop the resource.

OAG360 Comments:

BP is active in North American shales including: the Woodford, Haynesville, Fayetteville and Eagle Ford shales. Other large oil and gas companies like ExxonMobil (NYSE: XOM), Shell (NYSE: RDS.A), Hess (NYSE: HES) and Anadarko (NYSE: APC) are exploring the Utica shale so it is no surprise that BP has made its entrance into the emerging play.

Other Utica/Point Pleasant Players In Relation to BP Acreage:

PDC Energy (NASDAQ: PETD) is another Utica shale player. In its March 2012 Analyst Day presentation, the company reported its plans to finalize its acquisition of 45,000 net acres for $78 million – or $1,733 per acre. PDC’s acreage is located in Noble, Monroe, Washington, Morgan, Belmont and Guernsey counties, further south of BP’s announced focus area in Trumbull County. Although much of the publicized Utica focus from operators like Chesapeake (NYSE: CHK) and Anadarko has been farther south, we believe BP’s per acre acquisition cost could be more than $1,733 per acre due to the late entrance. OAG360 notes that Carrizo Oil & Gas (NASDAQ: CRZO) and Avista Capital Partners jointly acquired 15,000 acres primarily in Trumbull County, Ohio and Mercer County, Pennsylvania, targeting the Utica in October 2011, at a cost below $1,500 per acre. A March 15, 2012, news article published by the Warren Ohio Tribune reported: “Carrizo Oil and Gas Inc.’s first horizontal well could be in Trumbull County, or across the Pennsylvania border in Mercer County, company Vice President of Investor Relations Richard Hunter said Wednesday.”


Source: Carrizo 2012 Howard Weil Presentation

Competition Likely to Increase Acreage Prices:

Just like any oil and natural gas play in the U.S., history tells us that as the competition continues to ramp up in Ohio, the acreage deals will continue to increase in value. Marathon Oil (NYSE: MRO) paid Hilcorp Energy nearly $21,000 per acre in a$3.5 billion Eagle Ford transaction back in June 2011. We note that Halcón Resources’ (NYSE: HK) recent February 2012 investment presentation shows their target area for the Utica is in Northeast Ohio, near BP’s recent announcement. HK also says in its presentation that Utica/Point Pleasant wells could be as prolific as the Eagle Ford shale and is targeting a net acreage position of 200,000 acres in the play. The company estimates that it will spend 58% of their $1.1 billion 2012 capital budget on the Utica/Point Pleasant area. It will be interesting to watch news flow from Halcón to see if new competition in the Northeast part of the play will affect their acquisition goals.


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