A recent report by Imperial Capital analyzed stock prices and players in the Utica shale. According to the report, some may underperform at their current stock value -- but it may be too early to tell without additional completion results.

The report also highlights some current well results, upcoming catalysts, expected merger-and-acquisition activity and thoughts about certain Utica players.

“We believe the leveraged Ohio Utica shale companies PDC Energy and Rex Energy may 'Underperform' the group in the near term despite the numerous catalysts to come, given the high expectations set on the play. However, we believe a buying opportunity may emerge in 2013, as additional data surfaces from the play,” the report stated.

The report also points to a lack of infrastructure and processing in the area and that “a broader derisking of the play may not occur until late 2013 or 2014.”

Although there have been several high initial-production completions, Imperial Capital concludes that “stock reactions may be tempered with forthcoming initial production rates as results to date (mostly peak rates) have set the bar high, especially with GulfPort Energy’s #1-26H Wagner well.”

Gulfport’s #1H Wagner initially produced 17.1 million cubic feet of gas and 432 barrels of condensate (4,650 barrels of oil equivalent) per day. Imperial Capital said that the company “announced initial rates from three wells in which it tested the last fractured stage soon after completing the wells. The high initial production rate may have led investors to extrapolate the in-stage rate into a normalized well implying initial production rates above 5,000 barrels of oil equivalent per day, which in our opinion may not materialize.

“Without drilling or completing a horizontal Utica well, Halcon Resources has issued expected ultimate recovery expectations of more than 1 million barrels of oil equivalent in the wet gas window. While we do not doubt their analysis, we believe that expectations are high and location will likely be the key to achieving high expected ultimate-recovery rates. Overall, we believe obtaining production history from initial Utica wells will be in 2013 and beyond as processing and takeaway capacity are added to the region. Thus, we believe that very few of the Utica players will have a near-term benefit to cash flow.”

According to the report, the Ohio Department of Natural Resources said at this time 100 wells have been drilled, 30 are being drilled and 19 wells are producing.

Imperial Capital expects some merger and acquisition activity during the next few months. “The biggest package is a Chesapeake Operating Inc., which includes 337,481 net acres in the liquids and oil windows. EV Energy Partners announced plans to monetize all or a portion of approximately 150,000 acres in Ohio. PDC Energy has been looking for a joint venture partner to its Ohio Utica acreage since 2011. Magnum Hunter Resources has hired an advisor and is working on a joint venture or possibly selling this asset.

“With the excitement surrounding the Utica, we believe that these transactions will garner valuations in the $5,000-10,000 per acre range. PDC Energy is looking for a joint venture partner and we believe it could be announced by the third quarter of 2012 and will be in the $6,000-9,000 per acre range and PDC Energy may acquire additional acreage in conjunction with a joint venture partner. The company has drilled two horizontal wells in Guernsey County, Ohio, and the first well is expected to be completed in September and tested by year end 2012. The well will likely not be hooked up to production until sometime after 2013 due to take away and processing limitations.”

Imperial Capital’s report also analyzed the major players -- PDC Energy, Rex Energy, Magnum Hunter Resources, Cabot Oil & Gas and Gastar Exploration. The report cited general difficulties with each company’s lack of execution or marginal results in core areas, difficulty in funding capital spending plans and overpaying for leaseholds and acquisitions.

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