Chesapeake Going for Oil
Updates to add more quotes, analyst comment, details)
By Jason Womack
Of DOW JONES NEWSWIRES
HOUSTON (Dow Jones)--Chesapeake Energy Corp. (CHK), a leading U.S. natural gas producer, said Thursday it will dedicate more of its resources to finding oil.
The strategy represents a big shift for the company, which has gobbled up land in the nation's most promising onshore natural gas fields and pursued a breakneck drilling pace to bring those new gas supplies to market.
Chesapeake and other independent natural gas producers such as Southwestern Energy Co. (SWN), Petrohawk Energy Corp. (HK) and Devon Energy Corp (DVN), have pioneered drilling for gas from deeply buried onshore formations of shale rock. Once considered uneconomical to exploit, shale-gas production has boomed over the past couple of years. These fresh supplies, combined with the economic downturn, helped push gas prices to their lowest in more than seven years in September, though winter's cold has brought prices back up somewhat.
The market for oil has proved more resilient, with prices more than doubling over the last twelve months, making that commodity much more attractive to producers. Last week, EOG Resources Inc. (EOG) said it will invest more heavily in oil related projects in the future.
Aubrey McClendon, Chesapeake's chief executive, said during a conference call with investors that once the company has met the obligation on its shale gas leases, it will pare back its gas drilling in places like the Fayetteville Shale in Arkansas, the Haynesville Shale in Louisiana and the Barnett Shale in Texas. To secure acreage, producers must establish production before the lease expires.
"We will begin ramping down activity in those areas and allocating those rigs to the oil areas," McClendon said during a conference call with investors.
The company plans to cut its Fayetteville Shale drilling activity in half by the end of 2010, when its acreage there will be held by production.
Chesapeake has identified six oil fields, where it holds a combined 600,000 acres and plans to add 400,000 more acres over the next year. The company will use horizontal drilling, an innovation widely used to extract shale gas, to tap those oil resources.
"If you are a good shale player--and Chesapeake is a top-tier shale producer--it makes sense to look at oil," said David Pursell, an analyst with the Houston-based energy investment bank Tudor Pickering Holt & Co.
-By Jason Womack, Dow Jones Newswires; 713-547-9201; jason.womack@dowjones.com
Views: 277
Replies to This Discussion
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Permalink Reply by sesport on
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I'm now recruiting CHP salesfolks. Does Skip fit the bill, or would PG be a better fit for a blossoming business? lol 80)
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Permalink Reply by Skip Peel - Mineral Consultant on -
sesport. What in the world in CHP?
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Permalink Reply by sesport on
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combined heat & power
http://www.naturalgas.org/overview/combinedheat_powersystems.asp
MIT has a project.
http://cogen.mit.edu/
Also ...
http://www.gohaynesvilleshale.com/forum/topics/combined-heat-power-...
I guess this means you can't be head of sales if you don't know product. lol
80)
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Permalink Reply by Skip Peel - Mineral Consultant on
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Interesting technology, thanks. There are a number of potential energy game changers being proposed and/or developed but none seem to be sufficiently energy efficient, cost effective or technically mature at this time. At the end of our nat gas "bridge" we should find a mix of the new technologies ready to support the next era of energy supplies. I wonder if we will ever take that bridge. Or drown trying to make it across on our current inner tube. LOL!
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Permalink Reply by Skip Peel - Mineral Consultant on
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Les, I agree. What do you think the odds are that "coal will be pushed down the power stack" tomorrow? Or next year? Or in the foreseeable future?
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Permalink Reply by P.G. on
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Hind sight is 2020!
I would have probably gave in when they were offering $3500!
If only I had bought Microsoft back in the 80s!
I mean who would have thought....
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Permalink Reply by Skip Peel - Mineral Consultant on
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Trying to time the top of the lease market is akin to trying to time the stock market. Good Luck.
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Permalink Reply by P.G. on
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Who in a rational mind would have ever thought of $20,000 offers, other than those who held out for $25,000, huh?
Do I hear $30,000?
Good luck for sure!
So could this happen again if NG were to run up $15? $20?
If oil became un-affordable (who'd have thought $145/bl), how high could NG go?
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Permalink Reply by Skip Peel - Mineral Consultant on
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You are welcome to your opinion, P.G. I will stand firmly behind my assessment and congratulate you for being right when war drives crude prices to $200 a barrel and CNG filing stations line the interstates.
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Permalink Reply by P.G. on
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Keep in mind, the political climate was heading that way until the prices tanked!
Near $5 gasoline got a lot of folks talking and a lot of politicians promising! How much higher could prices have gone before folks started demanding relief and government officials obliging?
T-Boone's popularity was doing pretty good until prices went down and health care became the common issue.
Speculators can make crazy things happen in a hurry! (like getting drillers to make ridiculous lease offers, huh?)
I'm just not so sure it couldn't happen again. It happened once after all didn't it?
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Permalink Reply by Skip Peel - Mineral Consultant on
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Sure it could. But the state of our national economy and that of the global economy are materially different now than then. Domestic and world demand for energy including gasoline has declined. And is not projected to improve for years. The demand side of the energy equation is significantly depressed. And the supply of nat gas continues to increase.
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Permalink Reply by BirdDawg, plain ole' idiot on
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Maybe when they slow down drilling in the Haynesville, and after the high initial production declines, maybe storage will drop, and NG prices will improve. Maybe CHK thinks that slowing down in the HA will increase NG prices.
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