Dan Shingler
CRAIN'S CLEVELAND BUSINESS
Published: May 2, 2014 11:42 am ET
Updated: May 2, 2014 11:44 am ET
BP America is abandoning its plans to develop the Utica shale, including mineral rights on 80,000 acres for which it paid more than $300 million just two years ago.
The company announced it intentions April 29, as it unveiled its first-quarter earnings in a news release and in a filing with the Securities and Exchange Commission.
“Following on from the decision to create a separate BP business around its lower 48 (states) onshore oil and gas activities, and as a consequence of its appraisal results, BP has decided not to proceed with development plans in the Utica shale," the company said.
It did not elaborate in its public documents. Curtis Thomas, BP's head of head of government and public affairs in Ohio, said the company completed its initial wells in the region, looked at its global portfolio and decided to deploy its assets elsewhere. The company will move quickly to sell its Ohio mineral rights to other companies, he said.
“This doesn't mean it's not a good opportunity for another oil and gas company,” Thomas said.
In 2012, the company spent about $330 million to acquire mineral rights leases for more than 80,000 acres in eastern Ohio, most of it in Trumbull County. The company reportedly paid landowners bonus payments of $3,900 per acre — more than most Utica leases, but a couple of thousand dollars short of the highest prices known to have been paid so far — along with royalty payments of 17.5 percent from the sale of oil and gas it found, which is about average for later Utica leases.
The company drilled four wells in the Utica, according to data with the Ohio Department of Natural Resources. Its most productive well, in Trumbull County's Johnston Township, near the community of Cortland, yielded 1,889 barrels of oil and 20,316 thousand cubic feet of gas over about a three-month period, according to ODNR data.
That sounds like a lot of gas and oil, but it pales in comparison to results other companies have achieved, and especially when compared with the top-producing wells developed by those drilling further south. For example, Gulfport Energy's Boy Scout well in Harrison County — about 100 miles to the south of BP’s drill site — produced more than 41,000 barrels of oil over a 70-day period in the third quarter of last year, while its Stutzman well in Belmont County — about 20 miles further south of the Harrison County site — produced more than 1.2 million cubic feet of gas over an 89-day period.
BP's announcement is a stark turnaround from the optimism it exuded when it first bought into the Utica in spring 2012. At that time, the company called the Utica “a relatively new and very promising shale basin that consists of a potentially significant liquids-rich gas source,” adding that the “deal adds an important American energy source to BP's onshore gas portfolio.”
At the time, BP chairman Lamar McKay said the company was “excited to expand our presence in Ohio in a way that will create jobs, bolster the local economy and provide additional sources of energy from an important emerging American resource.”
It's not the first company to announce it was turning away from the Utica. Halcon Energy said in March that it was going to hold off on further exploration in parts of eastern Ohio and western Pennsylvania, also citing disappointing well results. But BP is the largest to do so, and it was perhaps the largest energy company even to hold a stake in the Utica play.
As for what it means to the future of drilling in eastern Ohio, at least some folks are not too concerned.
Mike Chadsey, a spokesman for the Ohio Oil and Gas Association, said other companies likely will pick up BP's leases, and drilling will continue. BP simply has more choices, in terms of where to drill, than do other Utica drillers, he said.
“BP just compared the Utica acreage to everything else they had around the world and they just didn't find it to be as economical,” Chadsey said.
Uncertainties over things like the state's efforts to raise severance taxes on oil and gas, or new regulations meant to stave off the triggering of further earthquakes in Ohio, might also have played a role in the decision, Chadsey speculated.
Other, smaller companies that don't have other options around the world and can perhaps be more flexible than BP will likely pick up the slack, he said.
“It just opens (acreage) up for someone who's a little smaller and says, 'Let's do something different,’” Chadsey predicted. | 
