The Deep Utica is cementing its reputation as the new hot date of the Appalachian Basin, said Mike Hillebrand, CEO of Pennsylvania-based E&P Huntley & Huntley.
Nationally or globally she might not have yet exploded onto the scene, but in the same school district, “everyone wants to take her to the prom,” he told Nissa Darbonne, executive editor-at-large, at Hart Energy’s DUG Appalachia Conference & Expo.
The results of Huntley & Huntley’s wells in the Deep Utica rivaled its best in the Marcellus, Hillebrand said.
“We were blown away.”
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The company tried out “all kinds of science” when figuring out the right formula to drill in the Deep Utica. The results boosted the E&P’s competitiveness as a smaller operator.
As core inventory in the region gets eaten up and issues like parent-child interference are brought to the forefront, E&Ps like Huntley & Huntley are adapting to cut costs and find resource.
Hillebrand dives deeper into the Deep Utica and the strategies Huntley & Huntley uses to remain competitive in Appalachia in this exclusive interview.
Nissa Darbonne, executive editor-at-large, Hart Energy: Hi, thank you for joining us. I'm Nissa Darbonne, executive editor-at-large for Hart Energy, and I'm visiting today with Mike Hillebrand. Mike is CEO of Appalachian-based Huntley & Huntley. They recently sold their Olympus Energy to EQT for $1.8 billion.
We're visiting with Mike here at DUG Appalachia in Pittsburgh. Mike, thanks for joining us.
MH: Thank you.
ND: In the session earlier this morning in the conference, there was a lot of attendee interest in the Deep Utica. So Olympus Energy, before selling to EQT, had drilled some Deep Utica wells. Tell everyone what was your experience?
MH: Well, I want to thank CNX. They initiated it in our neck of the woods, kind of north of Pittsburgh versus south of Pittsburgh. And prior to, not just the first Gaut well in ‘14, but then subsequent to that, CNX had drilled several deep Utica wells, and there's a learning curve. It's not as easy as drilling the Marcellus. There's a very thick salt section that applies some drilling challenges. But prior to them coming to our neck of the woods of northeast of Pittsburgh, call it corridor, up to northeast Clearfield County, the Deep Utica have been happening in Ohio. In the deeper Utica, call it ten-five to 14,000 feet was dabbled by several companies in Washington, Greene County. And beyond the difficulties of drilling through that salt, there was a problem of an inconsistent type curve. And so when CNX stepped it to north of the city, they drilled the first well, everybody was pretty skeptical.
CNX kept the faith and drilled it horizontal and got a pretty incredible result. The question then was, okay, costs are high. Is this repeatable? Are you going to get a false negative on the first one? Or in some cases south, they've drill a bad one and then offset and get a good one. And so in a resource play, you have to have consistent type curves. And so CNX kept the faith and kept drilling additional Utica and proved that the type curve was consistent and proved through their learning curve of the drilling that the cost could come down. And so we were right next door to their about 9,000-acre play with our a 100,000-acre play and had all rights in our leasing negotiations. So we decided to follow our brother company, CNX, and take the chance, well we were all Marcellus, that: Do we have a stack play on our same acreage, same pads, same gathering system to test the deep Utica. In ‘19, we did that. Threw all kinds of science at it, have the longest core section, all still tight, every bit of science that we could come up with we threw at it to match our … we had very good 3D coverage of that depth as well, more than the Marcellus.
So learned a lot technically on the very first one. And ours mimicked very much what CNX was doing. At the time of Exodus with EQT, we had five drilled and the last two were both 15,000 footers, which were both the record at that time for getting piped down and completing. And so there's about 14 producing, enough production data Deep Utica wells to show very consistent type curves of 3 [Bcf] to 3.5 Bcf per thousand, with a very, very high pressure gradient that—like the Haynesville, it's very much like the Haynesville—pressure allows you to have a very flat flow regime while you bring that pressure from, we call it 12,500, 13,000 pounds down to 1,000 pounds. And we're getting wells flowing 20 [million], 25 million a day, every day, for over a year.
And so our last 15,000 footers, we were bringing the cost way—the goals were around $1,850 to $1,880 a foot with line of sight of getting down to $1,650 a foot. And anything below $2,000 a foot was highly economic. Competing with … Olympus had the last Tier 1 of undeveloped Marcellus of 3-plus Bcf per thousand. And we were running very long laterals in our Marcellus and putting them economically side by side of 10,000-foot Deep Utica. And we were blown away, our best Marcellus.
And so early in the game, but as core positions throughout the country of northeast, number one Marcellus to southwest Pennsylvania, Marcellus to the Haynesville and others, set aside associated gas from the Permian. Pure dry gas plays for the early numbers that I see, while bigger wells in East Texas and the deep Haynesville Bossier there, very, very difficult drilling environment. You have 15,000-foot to 16,000-ft bottom hole pressure is higher than 300 Fahrenheit. All of the steering tools from Baker Hughes to Schlumberger Max at 280 [F], 300 [F], we are right at 280 [F]. And so within the current technology of steering, we're not blowing things up like they are in east Texas. So their well costs are through the roof for higher pressure. But the same phenomenon is high pressure. And dry gas means a flat production profile for some period of time. And I would say unless new tools come about to compete with East Texas, Haynesville, the core of Haynesville in Louisiana, there's not a drill site, one that won't work under $3.50 gas to the wellhead. And without LNG coming, that's going to have to happen to fire up Louisiana. But our neck of the woods, we were in netting $1.50 gas price to the wellhead and getting incredible, double, what our Marcellus was on internal rates of return in the Deep Utica.
So it's a new thing. Very few people know about it, yet it's kind of in base and same school district, people are talking about the new hot date, and everyone wants to take her to the prom. And so that's the Deep Utica. But I don't think nationally or globally yet too many people know about what's happening in the Deep Utica.
ND: Well, speaking of everyone wanting to go to the prom, an attendee also asked in the conference this morning, considering all of the consolidation, not just in Appalachia but across the Lower 48, but in Appalachia in particular, how does a mid-size, a small-size operator compete out there?
MH: We had two rigs running one year, one frac crew, but one rig, one frac crew. Our capex was around $400 million a year. It took us everything we had and a lot of oil and gas, you got the ending story, but there were ugly periods of time of ‘will our cruise ship even make it?’ But we built it up heading towards free cash flow. Debt was going to be paid down, but that's a story of big capital. And at the time of our entrance, we were able to do what we did. Now positions are fairly sandbox-identified from one player to the next. And consolidation makes sense to expand those kind of things that a new entrant, if you're thinking shale play and horizontal development, you're going to have to step away from the corridors that are already in development, which means new areas and new risk.
And in the case of the Marcellus, there's a whole sequence of Marcellus from northeast Pennsylvania to southwest, that infrastructure, data, everything's in place for low-cost longwall mining, that the common sense thing that you're seeing is expand into lower UR-per-thousand Marcellus from the southwest going into Armstrong County, coming from the northeast, backing into Cullman County, Centre County. And those two will slowly advance because of connecting to infrastructure and testing. Nobody's going to jump right into the middle where they got to run a 50-mile pipeline to get to an interstate someplace where they can't compete due to the synergies of the two big hubs of Marcellus. So I think you're just going to see a natural growth into lower UR, new areas and modern technology understandings of how to complete, where to land and just how to function under longwall mining mentality, will just be a natural growth from the southwest and a natural reversion from the northwest or northeast in the Marcellus.
Other corridors are, the Haynesville is pretty much, the core is drilled. And parent-child problems within our own corridors are big problems that nobody really likes to talk about. The Haynesville for sure, longer laterals, you're going by generations of 3,000-footers, 6,000-footers, 12,000-footers to now do a 26,000 footer. You're running in French drains beside first generation other wells. And as you come back from toe to hill, that impact is felt on the depleted first, the great grandparents all the way down to the parents of where the children are being born. So there could be an end game to, I'm reaching further out on untapped resource acreage going by same infrastructure, same drill pads, same sites to the detriment of the capital invested in the early generations. And the technology's now looking at horseshoes, and can I go around this stuff in a horseshoe turn to where I don't have big parent-child problems?
So those cores are the cores. And every core has its same situation that eventually the windows are going to be in new spaces. And so for a company like ours, we got to step into new areas and think longwall mining. But we're also at core, I think we've lost a generation and a half of longwall mining to where petroleum geologists, and I love our youth, they're our future, but they're in a world that they don't understand oil and gas of in social clubs and range rovers at 25 years old and making big money, that there are times where look at your resume and make sure you can sustain yourself because this industry has highs and lows to where those things dry up at a heartbeat.
And one of the fears I have within our industry is there's so much advancement in the horizontal drill bit and what to do dedicated to this longwall mining industrial engineer. No more exploration thought, no more.
And so for companies that have conventional assets, what makes longwall mining work for Wall Street and for bigger companies is the ability to put big capital to work and get expected growth and big returns in a longwall mining mentality. Those companies won't function on ten wells or 20 wells a year where you have, I'll take millidarcy tight sands over nanodarcy longwall mining shale all day long. Give me a 1,000 to 1 advantage in permeability in a rock that can give me a 10-well or 20-well program with real exploration mindsets. I'll take that all day long, advancing a French train over a straw in areas across the country for spaces like our company. And we're aiming to do that.
ND: Super. Thank you, Mike.
MH: Thank you.
ND: And thank you for joining us. Stay tuned here for more actionable energy intelligence.