Ohio’s Utica shale is approaching its first major check on valuation as EV Energy Partners LP (Nasdaq: EVEP) and its parent company, EnerVest LP, readies recently derisked Utica holdings in the core of the liquids-rich window for sale before year-end 2012.

The transaction will be the first market test of the Utica after more than a year of drilling to delineate the play. Previous transactions, including the November 2011 $3.4 billion joint venture involving Chesapeake Energy Corp. (NYSE: CHK), EnerVest LP and Total SA (NYSE: TOT), occurred before widespread drilling began and represented the triumph of hope over hard facts in relation to the Utica’s potential.

In September 2011, Chesapeake announced the results of four horizontal Utica tests drilled in the summer of 2011. The subsequent CHK JV was announced six weeks later, valuing its Utica holdings at $15,000 per acre.

Mark Houser, president and CEO of EV Energy Partners, updated its Utica sales status for attendees at the IPAA OGIS meeting in San Francisco.

“EVEP, as an MLP, doesn’t really believe we should be developing shale plays,” Houser told attendees. “We should be buying them once they are developed. We were blessed with this position. What we’ve done is, first of all we’ve derisked the play. Second of all we’ve initiated a process to sell all or part of our position using Jefferies, which has done a lot of these shale deals.”

EVEP’s operated position in the Utica is currently in data rooms for evaluation by potential buyers. The firm is marketing its non-operated positions separately.

“Jefferies will tell you the Utica properties has one of the strongest depths of interest of any shale deal they’ve done. Those are their words, not ours,” Houser said. “We’re actually pursuing for EVEP, hopefully, an asset swap. It may not happen, but it may. It would be more tax-effective. But we also have some properties we can drop down to make this a tax-effective process because if we simply sold the acreage for cash that would create capital gains for the MLP investors.”

The sales process has focused on a handful of very large companies. If an asset swap goes through, it would involve EVEP obtaining mature legacy acreage elsewhere from the buyer. EVEP and EnerVest LP will retain rights to legacy production above the Utica/Point Pleasant formation and a 2.7% overriding royalty interest (ORRI) on its non-JV acres and 1.3% ORRI on its joint venture properties.

EnerVest entities, including EVEP, control 700,000 net acres in eastern Ohio in the wet gas, volatile light oil and back-oil windows of the play. Encompassed in that acreage is EVEP’s 150,000 net working interest acres, including 20,000 net acres in the Chesapeake joint venture and another 130,000 non-joint venture acres operated through EnerVest.

The sale will mark an important milestone in defining the potential for the Utica. The play, which hosts a grand total of 32 producing wells to date, exhibits one of the highest “words to wells” ratios in oil and gas. In other words, the large volume of conversation about the play belies the modest hard information currently available.

More than 375 wells have been permitted for the Utica/Point Pleasant formation in Ohio in the 12 months following announcement of the discovery. To date, 171 wells have been spud with 128 at total depth. However, there are only 32 producers, and the lopsided ratio between the 32 producers and the 128 wells listed “at total depth” suggests an enormous backlog in completions.

That backlog originates in an extended completion process informally called the “shake and bake” method, in which frac fluid is pumped into the well and allowed to dissipate into the formation before flowback and the formal completion process gets under way. The shake and bake method can add upwards of 120 days to the completion cycle. The shake and bake technique, more formally called the “dissipation phase,” reportedly provides a substantial boost to production volumes though the science is not fully understood.

Houser outlined results from a handful of wells outside the Chesapeake joint venture in which EVEP has participated with its privately held parent, EnerVest. To date, EnerVest, as operator for EVEP’s acreage, has permitted 10 wells and drilled four. Houser discussed results from two of those wells. The first is the Cairn 5H, which produced 1,690 barrels of oil equivalent per day (Boepd), including 729 barrels of oil per day (Bopd) and 567 Bpd in natural gas liquids (NGLs) as well as 2.2 million cubic feet per day (Mmcfd) in natural gas on a 24-hour test.

The Cairns was drilled in Carroll County, Ohio, within the core Utica liquids rich window and featured 19 frac stages on a 5,431-foot lateral. The well included a 76-day dissipation period in the shake and bake method.

Houser separately catalogued results from the Frank 2H well in northern Stark County, Ohio, which lies in the volatile oil window of the Utica. The Frank flowed 870 Boepd on a 24-hour test, including 360 Bopd, 312 bpd in NGLs and 1.2 MMcfed in natural gas on a 6,780 foot lateral featuring 24 frac stages. The Frank used a 103-day dissipation period under the shake and bake method.

Contact the author, Richard Mason, at rmason@hartenergy.com

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