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Why investors should pay attention to the Utica Shale oil play

Part 7
Why investors should pay attention to the Utica Shale oil play (Part 7 of 7)

Why you should consider risks before investing in the Utica Shale

Results may be poorer than anticipated

As with any emerging play, there’s the possibility that results may be poorer than anticipated. Earlier this year, Chesapeake Energy, Devon Energy, and EnerVest all put up assets in the Utica Shale for sale. Some companies noted that early results hadn’t lived up to expectations—particularly in the “oil window” of the play. However, other companies with assets in areas rich in natural gas liquids and natural gas have had more success.

2013.08.24 - Utica ShaleEnlarge Graph

Labor costs

According to a story in the Associated Press, companies in the Marcellus and Utica shales have been having a hard time hiring qualified workers for jobs in engineering, geology, and environmental health. According to the story, “companies said that finding qualified talent and getting prospective employees to relocate are the biggest challenges they face when it comes to hiring.” Continued difficulty in finding suitable employees could lead to higher costs for companies operating in the region.

Midstream capacity

If production accelerates faster than midstream capacity can be constructed, it hampers producers’ ability to get hydrocarbons to market. Already, bottlenecks in infrastructure have had an effect on Utica production, though comments from companies on 2Q13 calls have stated that as midstream capacity begins to come online, bottlenecks are resolving. However, there’s a chance that midstream infrastructure could lag in the future.

Commodity prices

The Utica Shale now appears to be a play concentrated on targeting natural gas liquids and natural gas. However, over the past few years, gas prices have lagged. And over the past twelve months, certain components of the natural gas liquids stream (such as ethane) have had serious price depression as well. As with any upstream energy company, producers in the Utica Shale are beholden to commodity price swings.

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