A new land rush

East Texas and Northeast Louisiana have also gained the attention of even larger players in the natural gas exploration and drilling business. Those include Chesapeake Energy, Devon Energy and XTO among others.

Aubrey K. McClendon, chairman and CEO of Chesapeake Energy, said the company's geologists have been studying the potential of the Hayneville Shale for some time.

"The area our scientists outlined two years ago was about 3 million acres in size, the approximate same size that we see the play being today," McClendon said during the company's second quarter earnings call with market analysts in early August.

The irregularly shaped buy area Chesapeake has targeted for leasing in the Haynesville Shale is internally referred to as "the blob," he said. The company has acquired rights to drill in about 550,000 acres in the region.

"The blob's outlines have evolved over time but the same basic area where we have focused our leasing is about 90 percent unchanged," he said. "What has changed is that we are now producing about 45 million cubic feet of natural gas per day on a gross basis from our first 11 horizontal wells."

Chesapeake is one of the most active participants in attempting to tie up acreage in the Haynesville formation, he said.

"I can't remember the exact number but I think we have close to 800 land brokers in the Haynesville play in East Texas and in Louisiana so we have a proprietary information base about land ownership that enables us to go out and find these smaller tracks and we should be able to find them without a great deal of competition," McClendon said.

"Obviously, it's not hard to find 10,000 acres when the owner of it is running a process but it's a lot more difficult to get competition if you're a land owner for 10 acres, and that's where I think going forward, we'll get a lot of really attractive leases," he said.

Of the 11 wells Chesapeake has drilled in the formation, one was producing 14 million cubic feet of gas after its first week,

McClendon said that well is "the best shale well we have ever drilled among the more than 2,000 we have been involved in.

"It is remarkable that after just 11 wells we are already able to bring in wells making 14 million cubic feet of gas per day," he said. "The learning curve in every other shale play has taken dozens, if not hundreds, of wells and we know of no other shale well in any other shale play that has averaged more than 9 million per day during the first several weeks."

McClendon said Chesapeake's experience and analysis shows that nearly every square mile of Hayneville Shale contains an average of 180 billion cubic feet of gas in place.

"This is based on an average formation thickness of 220 feet across this 3 million acres, original formation pressure of almost 10,000 pounds per square inch, and porosity, permeability, and water saturation measurements that for now we will keep confidential," he said.

"Now how much gas is there really in the Haynesville play? Well, that math is actually pretty easy as well," McClendon said. "With about 3 million acres in the blob, that means there's roughly 4,700 square miles."

With an estimated 52 billion cubic feet of recoverable gas per square mile, that equals a lot of potential, McClendon said. At this point those reserves are not proven.

"But rather, these are reasonable early estimates of the total resource that we and others plan to produce over time, a time like in the Barnett that will probably require at least 50 years.

The play will require decades to fully develop and much of it includes leases that have been held by production firms for as many as 50 years, he said.

McClendon said the producing shale is found at about 11,500 feet on average and takes larger and more powerful rigs than those used in other regional formations such as the Travis Peak and Cotton Valley.

"There are not many spare rigs with these capabilities so the availability of rigs will be the second serious impediment to the play's production ramp-up," he said.

McClendon said the market and supply and demand will play a major role in the development of the Haynesville Shale.

"The Haynesville is fascinating in the sense that I think it can do whatever the market needs it to," he said. If the nation is successful in developing alternative uses for gas, for example in the form of compressed natural gas for cars, the market for natural gas could accelerate in coming years, he said.

"If that market doesn't develop then I think the Haynesville will not develop as quickly," McClendon said. "I kind of see the Haynesville as this enormous big gas resource and its tempo of development, I think, will be determined by the growth in gas demand and if that gas demand skyrockets then I think production can do the same."

Buck