Exxon Expands into Utica Shale, Faces Legal Hassles in Pennsylvania
Exxon Mobil (NYSE:XOM) announced this Thursday that it was purchasing leases in Ohio’s Utica Shale from landowners in the region in what is the oil major’s first foray into the oil-rich basin. [1] Exxon has expanded its interest in shale plays across the U.S. since its $30 billion purchase of XTO Energy last year which it followed up with two more private purchases in 2011. However its large presence in the Marcellus shale basin could be the cause of extended legal problems as a recent ruling in a Pennsylvania appeals court has caused concern over the ownership of the shale gas found in the region. [2] Exxon competes with players such as Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP), BP (NYSE:BP) and Anadarko Petroleum (NYSE:APC) in the natural gas market.
We have a $93 price estimate for Exxon Mobil which represents a 30% premium over its present market price.
Opportunity in Utica
- Rising 21% This Year, What Lies Ahead For Exxon Stock Following Q1 Earnings?
- Down 9% Since The Beginning of 2023, What Should You Expect From Exxon Mobil Stock?
- Will Exxon Mobil Stock Trade Higher Post Q2?
- What’s Happening With Exxon Mobil Stock?
- Exxon Mobil Stock Likely To Trade Lower Post Q4
- What To Expect From Exxon Mobil’s Stock Post Q2?
The Utica shale is a deep rock formation that extends over eight states including Ohio and New York. [1] However oil companies have focused their attention on the part of the formation that lies in eastern Ohio as it is expected to yield more oil. Companies in shale exploration have been focusing on oil-rich plays as natural gas prices are expected to remain suppressed while oil prices have seen a strong rise in 2011. The Utica deposit has also attracted attention from other players such as Anadarko, Devon and Chesapeake.
Legal issues surfacing in Pennsylvania
An appeals court in Pennsylvania has raised issues over the ownership of the shale gas extracted from the Marcellus shale, calling into question the legitimacy of some of the drilling contacts that exploration firms hold. [2] Pennsylvania law makes a distinction between mineral rights and rights for oil and gas in cases where landowners transfer ownership of resources underneath the surface of their property. Previous rulings in the state specify that oil and gas ownership changes hands only if separately specified in the deed. This means that land owners who have signed contracts with gas producers may not have owned the gas in the first place unless their own purchase deed specifies a change in ownership of the oil and gas the land holds.
In the latest case, ‘John E. and Mary Josephine Butler v. Charles Powers Estate et al’, the defendants in the case are arguing that shale gas should be considered a mineral as it is embedded within rock. The resulting legal uncertainty over ownership of the shale gas could hamper the exploration going on in the region. Gas output from the state of Pennsylvania has gone up by more than 366% from January 2010 to July of this year. However, unless the latest dispute of ownership is resolved, gas production companies and land owners may have to revisit their titles to avoid legal hassles. Exxon has a large presence in the Marcellus shale region that it acquired with the takeover of XTO. [3]
Click here for our full analysis of Exxon Mobil.
Notes:- Exxon Gets Drilling Leases in Ohio Shale Area, The Wall Street Journal [↩] [↩]
- Gas Drillers Face ‘Chaos’ in Land Law Ruling, Bloomberg [↩] [↩]
- Exxon expanding Utica shale footprint, Reuters [↩]