The Daley Note: November 29, 2023
The emerging Ohio Utica shale play is creating new investments on the western edge of the Appalachian Basin.
In its 3Q23 earnings, DT Midstream (DTM) announced that its new Ohio Utica gathering system is progressing ahead of schedule. DTM expects to put the system in service in 1Q24, a quarter early, with volumes ramping up over 18-24 months. DTM referred to the initial buildout as a backbone and indicated the potential for “significant future development.”
It is unclear where the gathered gas will be processed, but there is ample spare processing capacity in eastern Ohio to accommodate growth. Plants in the area that could take volumes include Kensington, owned by Williams (WMB); Berne (Blue Racer); and MPLX’s Cadiz and Seneca plants. The MPLX system has a combined 1.3 Bcf/d of gas processing capacity but recently has been operating below 40% utilization (see figure).
DTM plans to integrate the new system with its existing infrastructure via an interconnection with NEXUS Pipeline, and downstream access to DTM's Vector Pipeline and the Washington 10 storage facility near Dawn, ON. The project is backed by long-term commitments from a large-cap producer, executives said. DTM did not disclose the counterparty, but EOG Resources (EOG) is the obvious candidate.
EOG in 2022 announced its entry in the “Utica Combo,” where the producer had acquired leases for 395,000 net acres in eastern Ohio for ~$500 million, including about 135,000 mineral acres in the southern part of the play. According to DTM’s investor materials, the counterparty for the new gathering system controls 395,000 net acres in the same area of eastern Ohio.
On its own 3Q23 earnings call, EOG announced it had acquired an additional 25,000 acres this year, bringing the producer’s total position to ~430,000 acres. Management also briefly described two ongoing midstream projects in the Utica Combo, one in the south (likely the DTM system) and EOG’s own pipeline on the north side of the play. EOG said it is drilling 3-mile laterals in the play and reported a type curve of 55% oil, 25% NGLs, and 20% gas. In 2024, EOG plans to run ~1 drilling rig and test for cost-reducing efficiencies.
Gas pipeline egress isn’t as pressing a concern on the western side of the Marcellus and Utica. East Daley’s current estimate for egress capacity in the Northeast Supply and Demand Forecast shows ample room for an increase in residue production. However, we expect the play to remain exploratory for the time being. – Oren Pilant and Alex Gafford Tickers: DTM, EOG, MPLX, WMB.
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