Profiting Off America’s Most Underrated Oil Play

Todays top stocks to buy“This northeast state’s energy sector has been written-off by Wall Street, giving savvy investors a small but lucrative buy window” —

It has been compared to the prolific Bakken in North Dakota.

Others have said that it stacks up against the gushing Eagle Ford in Texas.

But it probably shares the most similarities with the Marcellus of northeastern USA.

Of course, that’s because it lies directly underneath the Marcellus shale formation.

It’s called the Utica shale: a vast formation which spans across a number of states, including New York, Pennsylvania, Maryland, and West Virginia, with its upper edge running along the bottom halves of Lake Erie and Lake Ontario.

Just a few years ago, the shale play was touted as a $500 billion bonanza.

Despite existing in the same region as the Marcellus, it isn’t completely blanketed by its more commercialized sibling.

The Utica also extends into one other state…a region where it happens to reach closest to the surface.

And it’s this state in particular that’s been quietly emerging as America’s next lucrative energy frontier.

Still Under The Radar

Believe it or not, at the end of 2012 this play only contained 85 producing wells with a total daily oil output of 1,742 barrels.

Shocking, to say the least.

With such dismal data, it comes as no surprise that the Utica has not lived up to its early hype.

But then again, the majority of people overlooking this play are exactly what makes it such a potentially explosive cash cow.

I’m talking about the home of the Buckeyes: Ohio.

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When Aubrey McClendon was still at the helm of Chesapeake Energy, he spoke highly of Ohio’s potential, famously declaring the Utica as “the biggest thing to hit Ohio since the plow.”

So confident was he in Ohio’s share of the Utica that at one point, he had amassed nearly 1.3 million acres in the area with the belief that his stake contained $20 billion worth of hydrocarbons.

Unfortunately, his rallying cry did little to drum up more market interest as annual drilling data showed the state to be less than underwhelming.

Argus Research analysts Philip Weiss felt that recent results “were somewhat disappointing” and that the play was “not as good as we thought it was going to be.”

Wood Mackenzie analyst Jonathan Garrett echoed Weiss’ sentiments, adding that “maybe the oil window of the play is not all it’s cracked up to be.”

Yet despite the gloom, companies like Chesapeake and Devon Energy have remained in the region.

Perhaps they know something that the talking heads don’t?

For starters, Ohio’s Department of Natural Resources only publishes its production data once a year, while most other states do it on a quarterly basis.

This makes it challenging for both investors and potential producers to make decisions about going into the region.

Second, it may help to revisit the production data itself.

As I mentioned earlier, there were only 85 Utica wells producing in Ohio at the end of 2012.

But get this…

In the entire state, there are well over 47,000 wells in production.

Total output last year was roughly 13,000 barrels of oil per day – which means that those Utica wells alone accounted for over 13% of Ohio’s oil production.

What’s more, Ohio plans to issue more drilling permits and expedite drilling activities in the coming years.

And indeed that’s exactly what’s happening. In fact, the number of Ohio Utica Shale permits issued in May 2013 was 66 — a new monthly high, beating out the previous high of 55 in October 2012.

The Department of Natural Resources expects over 360 wells to be producing in the Utica by the end of 2013, and up to 1,000 by 2015.

So despite what the pundits on the Street are saying, the Buckeye State believes they’ve only had a small taste of what the Utica shale has to offer.

“The production from these initial Utica wells makes a compelling statement about the staggering amount of oil and gas resources Ohio’s shale may contain,” said James Zehringer, director of the DNR.

Whether the Wall Street likes it or not, Ohio is going full throttle on Utica exploitation.  And if this year’s data proves that production is on the rise, then America will have found its next oil windfall.

So what can you do to profit from the Utica? Here’s my top stock pick…

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