HOUSTON – Just a month after BP decided to take a $521 million hit to abandon its plans for the ..., Chesapeake Energy last week called the region its “newest world-class asset.”
It was the second surprising determination that Chesapeake executives made this year on where the company could find its biggest future growth drivers. The first out-of-the-blue call came in February, when the Oklahoma City-based oil and gas producer told investors it would march back into the gas-rich Haynesville Shale in northwes....
The Utica, an Ohio shale play that operators originally believed would yield large bounties of pure oil, turned out to have much bigger deposits of natural gas and natural gas liquids. Chesapeake and others “whiffed” on the Utica a few years ago, but now the company believes it’s going to be “a big growth driver,” said Jason Wangler, an analyst with Wunderlich Securities in Houston.
Chesapeake officials said Friday they believe the Utica holds more than 4 billion barrels of recoverable resources, and that the play will deliver 45-percent returns this year. After ramping up to seven to nine operated rigs, the company is aiming to boost its production in the region to almost 10 times its level two years ago. It’s a switch that could bring on a lot more natural gas production for Chesapeake.
Natural gas: Haynesville Shale alive and well for some
“No longer bound by a focus on shifting towards an oily portfolio, we expect rig count to accelerate in the Haynesville, Marcellus and Utica over the next few years with infrastructure constraints governing near term growth,” Matt Portillo, an analyst with Houston-based Tudor, Pickering, Holt & Co., wrote in a note to investors on Monday.
The Marcellus Shale crosses several states in the Northeast, including Pennsylvania and New York.
Utica’s oil window
Even the Utica’s skinny “oil window,” the hard-to-reach chunk that turned out to be a lot smaller than the industry had first believed, holds plenty of potential value, a Chesapeake executive said during a meeting with analysts in Oklahoma City last week.
“We are believers in the Utica,” said Chris Doyle, Chesapeake’s senior vice president of operations for its northern division. “Who thought I would talk about the oil window today? Nobody. This is largely forgotten by the entire investment community, written off as unworkable.”
But Chesapeake, Doyle said, has the technical expertise and an advantage on production costs that could turn the oil window into a much more viable piece of its portfolio.
Doyle said most companies spend an average $11.8 million on Utica wells. Chesapeake spends $6.7 million, and is looking at ways to cut costs further. The company also lifted its oil-well production from 500 to 1,000 barrels per day under new post-drilling completion models.
Haynesville gas: Asia eyes US natural gas as Louisiana shale profits taper
And the company has dedicated a team of researchers at its Reservoir Technology Center in Oklahoma City to figure out the best way to approach its position, he said.
“We have the full technical might of this company driving additional value,” he said. Geologists, drillers, engineers and lab workers have worked together to figure out a new completion model the company expects will boost its production further in the play. “It’ll be online in the next month or so. I can’t wait to see how it does.”
Chesapeake’s production regime in the Utica is expected to pump an average 1,360 barrels of oil equivalent per day this year, and the company is looking to boost its returns next year to 60 percent, a move that could make the Utica one of Chesapeake’s most valuable assets.
It shaved its well costs from $7.7 million in 2012 to $6 million this year, and cut down its drilling days to 18 last year – compared to the industry average of 35 in the Utica, Doyle said.
Portillo of Tudor Pickering wrote that Chesapeake’s 540,000-acre dry natural gas footprint in the Utica is “one of its biggest levers for (net asset value).”
Like some parts of the Utica, the Haynesville Shale “was largely forgotten” by investors as natural gas prices sank and companies moved their rigs to oil-rich plays, said Jason Pigott, Chesapeake’s senior vice president of operations for its southern division.
But Chesapeake has ramped up to eight rigs up from two in the past four months, and higher gas prices, coupled with lower drilling costs, have driven higher returns in the region.
“I think it’s a big surprise to a lot of our investors that we’ve had such great returns out of there,” Pigott said. “We’re focused on driving down costs.”
Chesapeake, he said, has made a recent switch in the Haynesville to drilling on multiwell platforms called..., which has cut its costs from $10.1 million in 2012 to $7.9 million this year.
Paragraphs 16 and 17
Geologists, drillers, engineers and lab workers have worked together to figure out a new completion model the company expects will boost its production further in the play. “It’ll be online in the next month or so. I can’t wait to see how it does.”
Will be interesting to see how successful they are. And to find out just what the new recipe is!
Where did your quote come from?
I'm a SW PA guy so all of this does not affect me but it sure is interesting to follow.
Philip; came from one of the articles you linked to. Hopefully, they will develop a new recipe that will make all shales more productive. It may be that this is mainly or even exclusively for oil shales. But that would be good fr the country too. Its all good news.
I should read the sh*t I post!!
Now thats funny!!!
Are you in the Rome Trough portion of SW PA?
"The company is intent on working in Tuscarawas, Stark and Carroll counties to develop the first successful wells in the Utica shale’s oil window, Doyle said."
"It is getting initial production of 500 barrels per day of oil from a few wells in that area using an old method and 1,000 barrels per day using a newer method, he said."
Wanted to revisit this one - the listing at www.meagheradvisors.com is now gone. Posted on another thread as well but this thread applies.
I do not think that the acreage ever sold.
I am wondering now if they changed their minds and are not planning to sell the blocks at all, particularly the acreage in the ten southern counties, given what we are hearing about evolving technologies in the oil window and success with wells in the southern trend.
Does anyone know anything for an update?
The original story can be found here:http://finance.yahoo.com/news/chesapeake-sell-utica-assets-18022143...
More specific: The listing was for 337,481 net acres....."The to-be sold assets include drilling rights in 19 Ohio counties that are mainly situated to its north-east and south-east. Northeast Ohio counties comprise Huron, Lorain, Ashland, Wayne, Summit, Geauga, Portage, Asthabula and Trumbull counties. The southeastern counties are Licking, Muskingum, Fairfield, Perry, Morgan, Washington, Athens, Hocking, Vinton and Meigs."