(Flashback) BREAKING NEWS: Notes from Chesapeake's Conference Call

Chesapeake Conference Call July 2, 2008 9:00am
Chairman/CEO Aubrey McClendon (Summarized)
• Win-win partnerships between Chesapeake and PXP - Great news for Chesapeake shareholders
• Haynesville 4th largest gas field in the world
• Chesapeake has invested $2.5B in Haynesville
• Play just underway, data suggest 250TCS
• Barnett had 50TCS, which is only 20% of Haynesville –
• Our country should realize how blessed we are as a nation, especially during this time of record high gas prices – can be very helpful in converting to hybrids
• We are so confident because 3.5 M acres defined as core area
• These wells are in a class of their own – calling them “triple X monsters” – likely to get better over time – 8th well, 2 days ago brought on the best so far: 4.5-8.5 BCSE
- claimed that the reason for withholding info was to prevent other companies from receiving a blueprint to their technical practices
- 4 corners work from all the companies that have outlined the shale from their drilling.
- Haynesville Shale will move quickly.
- PXP retains the ability to sell their interest in the HS
- Do not forsee selling hshale--wanted to buy more
- Chesapeake retains first right of refusal
- Ches - 4,000 landmen in the HShale - 1,000 in Barnett, scouring the field.
- Dollars per acre was set by Ches.....$30,000 per acre....paid that price because Ches is going to agressively work HShale to increase the rate of return, deploying PXP capital smartly was the goal.
- Mix of Shale and Sands? Looking for 100% shale...looking for great black shale with the right porosity and organic composition. When you hear the flow rates their will be skepticism but it goes back to the high rates of pressure. The consistency and simplicity is the reason for the dynamic production.
- Flow rates - what are the infrastructure restraints? On top of the game large structure that handles other plays so will be moving fast. We are east so we are closer to the markets...so better pricing. Do the math and HShale could do [better? He kinda trailed off here] because we are closer to the eastern markets.
- Great opportunity for the US to retrofit gas stations and use natural gas instead of foriegn oil.
- Potentially liberating event.
- Here in the HShale we may have 10 years of production.
- 60 rigs operating by 2010
- Play could not be in a better spot.
- Regulatory structure that is favorable
- Great pipeline structure...past many bottlenecks will help this happen much more quickly. Do have to extend supply lines...this helps drive down costs.
- Working through Twin Cities in Shreveport..has put togther an impressive organization..has a network set up..tough sledding to go door to door to buy leases.


• PXP partner – deep LA roots helpful as they develop Haynesville in the decades to come – if you snooze, you lose and Ches is not snoozing - Haynesville will develop similarly to Barnett but also differently – it will be easier than Barnett in some ways

Tags: Chesapeake, Haynesville, Shale

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Replies to This Discussion

Permalink Reply by DrWAVeSport Cd1 on July 3, 2008 at 11:47
Jaybird:

Good Luck to you! It sounds like you have all your ducks in a good "HSP" row.

We ALL need to be as savvy at "our" leasing business dealings as Mr. Chesapeake has shown with his.

DrWAVeSport 7/3/2008
Permalink Reply by JWS3 on July 3, 2008 at 12:00
If it were not for Chesapeake and the other O&G companies, what would the mineral owners (and I am one that has leased!) have gotten? ZERO!
Who else would have spent millions on sesmic surveys, test wells, etc, with no idea that there would be a return on their investment, they took the risk, they get the big pay back. What have the mineral owners risked? 20 -25 percent royalty with no risk sounded like a deal to me, and I took it. The bonus money is just that, a bonus. I know that it is possible to make 100s of thousands of dollars a day from a single well, but the wells production will decline rapidly, the well bore can collapse, they may have to re-fracture, it is a high risk business.
If you had 7 million dollars in the bank right now, and also owned 100 acres in the heart of the Haynesville shale, how many of you would put that money on the table to drill your own well, assuming the full risk? Probably none, but hey its fine for the O&G companies because they have deep pockets. They are also publicly traded corporations that have the responsibility to maximize the return on their stockholder's investment ( that means just about anyone that owns mutual fund shares, or is in a retirement plan, not just the fat cat CEOs). That means spending the smallest a mount of money possible for the raw material needed for their product, in this case mineral rights. It is nothing more than "business 101".
Permalink Reply by Scott on July 3, 2008 at 14:49
Well said JWS3. I could not agree with you more.
Permalink Reply by Snake Stewart on July 8, 2008 at 16:20
Here, Here , I agree also! I am in the process of putting together a list of the people in my town that would like to pay tribute to these grand bastions of "business 101" , to be read at the end of the parade route in honor of them ! JWS3 & Scott, would you guy's like me to add your names to my list as it is completely blank as of right now ! I guess everybody around here is still peaved about them $250 signing bonuses.
Permalink Reply by Bobi Carr ("parker") on July 8, 2008 at 17:54
I leased 275 acres @200 per acre one year ago. Me and another landowner (with 250 acres) tried to get them to increase the royalties to 25% instead of 22.5%. We held out and checked around for about 6 months. Everyone we talked to said this was a good deal, including our attorneys. I wouldn't feel half as bad about the bonus if it weren't for the royalty %.
At the time of receiving the bonus it was a blessing. But not a blessing from the company. Just needed the money at the time. I won't be so "easy" when it comes time to paying damages for a drill site. I have a "no drill clause" in my lease, as does my friend. Encana is who ended up with my lease. I haven't heard much about experiences with them. Has anyone else here heard good or bad about them once they start drilling?
Permalink Reply by Alamo on July 8, 2008 at 16:53
That "Business 101" tale got the crooks at Enron a bundle of free room and board.

The risk you speak of was that taken by the developers of the 3-D seismic systems' engineers and geophysicists several years ago. Also that "risk" was taken by George Mitchell in an almost 20 year (and very expensive) effort to develop a method to coax natural gas from shale formations. It was long known that there was gas in shale formations--it had been killing subsurface miners for hundreds of years, but it took George Mitchell's involvement to solve the extraction problems associated with unconventional shale formation natural gas. Also making an enormous contribution in creating something today bordering on zero risk was the Schlumberger innovations; improved directional drilling techniques and on and on.

When you have a successful completion ratio of better than 95-98 per cent to the number of wells drilled, it aint so risky! Definitely not the days of surface geology when you walked, hammered on various rocks and prayed that your "report of findings" would be considered "acceptable" by the Chief Division Geologist. Those days have been long gone--that was risky. 'Taint so today.

Earth Science is a combination of mathematics, engineering, computer science and physics and MONEY-- lots and lots of money. Anyone that sets foot in a casino or spends money on lottery tickets is taking on a hell of a lot more "risk" than a modern oil and gas operation. The oil and gas operators just spend more to make substantially more, but risky it is not. When a well site is staked, its very odds on that a producing well will result.

But they definitely appreciate those individuals who still "think" that energy production is and all out, "risky" business. That's a material benefit to them in leading the unwary, unknowing and unwise to allow them to make millions off YOUR mineral properties. Currently, the most pressing risk involved is in areas of the world where factors external to the drilling, completion and production process are involved like deep ocean locales, inhospitable climates, unstable foreign governments, undeveloped supporting infrastructure and terrorism are involved. So drilling is relatively easy if it takes place in a "nice" neighborhood. Risk is largely out of the modern equation.
Permalink Reply by Snake Stewart on July 9, 2008 at 16:02
Well thought out and spoken , as usual . I just wish the masses could see it as clearly ! Its as if I should feel honored just to have them drill me, I mean drill a hole in my ground. I should think seriously about not even taking a signing bonus............... Not!!!!!
Permalink Reply by Kenny on July 9, 2008 at 18:46
You guys better check the la law...There is a thing called a "NO CONSENT DRILLING" Where one neighbor signed and the other didn't. When they come to drill, they will get your minerals and you'll be left with royalties only and no bonus. So to some of you who think your gonna out last the O&G companies...go ahead and good luck.
Permalink Reply by Snake Stewart on July 10, 2008 at 0:27
Hello Kenny, If you think that I am trying to outlast O & G then you have totally misunderstood the last part of this thread ! If O & G's wanted to engage in this type of activity then why not just lease the 50 % or whatever they have to have and start drilling ? If they could make more money doing this you could bet your last buck they would be doing it. Why not then ? Because I t i s n o t a s p r o f i t a b l e f o r O & G t o d o t h i s !
I just so happen to be one of the apparent many that are tired of hearing of the great sacrifices O & G's are constantly makeing for all of humanity.I just feel its getting a little old. If you look at the numbers from bids for public land , $30,000 for 1st year ? and rental payments of $15,000 each year thereafter.

You can continue to defend BIG O & G if you want to.I know that is where you make your living. I understand this and have no problem with it , but if you feel I should bow to Big O & G , now thats just not going to be happening.Their poor policies and a lack of total accountability have shown were their true interests are, the bottom line ! With the type of track record they have I just think it sounds ridiculous for them to be tooting their own horns about how they are leading the way! The way to were exactly ?
Permalink Reply by Kenny on July 10, 2008 at 2:50
Now snake, how did I know this would catch your eye?? Very good response for you!! :) Good luck ..none of us have leverage. They'll get it weather it's on your land or they'll go down the road and get YOUR mineral from elsewhere, what are you gonna do?, They be directional drilling right under your nose and you won't even know it, and they'll call it BUSINESS!!!
Permalink Reply by Snake Stewart on July 10, 2008 at 11:18
What exactly do you mean that none of us have leverage ? Surely you don't assume that I am the type that just spouts off just to hear myself speak ? What could be used as leverage ? Maybe holding 20% - 30% of a section , making forced pooling less economical for O & G ? Or what about having 55% of a section and keeping them from drilling altogether. Could that be used as leverage ? Most of the uninformed peasants have gone to bed already , or they have come to realize BIG O & G are not looking out for their best interests and have found sanctuary in a group somewhere!

Last but not least Kenny ole' boy , are you actually admitting to being on a platform where O & G were directional drilling under someones land illegally and not paying that person what is rightfully theirs in royalties , or are you just saying they are crooked enough to try something like this ?
Permalink Reply by Mark Gray on July 10, 2008 at 12:27
That is exactly what they are going to do. Permit a section, drill it, then tell the state that they didn't take the minerals from one person's land. Ole' Kenny knows how they work.

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