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: 287
Replies to This Discussion
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Permalink Reply by olddog573 on
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What is the amount of shallow oil around here? Wouldn't the oil in zones shallower than the Haynesville and Bossier benefit from horizontal drilling?
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Permalink Reply by ALongview on
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Lacy just drilled a horizontal oil well in Sabine County that IP'd over 700 bopd (Saratoga I think). Cabot has been drilling horizontals in the Pettit in Shelby and San Augustine with similar results.
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Permalink Reply by Les Bamburg on -
Olddog, two factors to consider for the shallow oil in NW La.
The geology of the formations (thickness, permeability, faulting,etc) may not justify the additional cost of horizontal drilling.
I believe most of the shallow oil has been fully developed and essentially depleted in the past.
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With Iran getting nukes and that whole area being unstable, oil prices can only go up while natural gas prices can only go down because it's abundant and it's uses are limited. I can't blame CHK for going after oil because it would appear that there is less of it.
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Permalink Reply by Aubrey C. Sanders, Jr. on
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olddog573,
Yes, natural gas uses may be limitted, but we have not even come close to putting it to use as we should Ask T. Boone Pickens, a geologist whom I admire. I guess because we are about same age and we grew up with very similar background. But, he became rich and I haven't yet.
In Arizona we have lots of vehicles running on natural gas. This includes taxis, buses, trucks, etc. And T. Boone was largely responsible for getting Phoenix on this path. We could and should have many more vehicles running on nat. gas. You can even re-fuel at home if you have nat. service. I recently was riding with driver of Blue Shuttle in a van which had over 500,000 miles on it and had never had any major work done on it.
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Permalink Reply by JHH on
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Olddog, we've heard that before. Even the government said there's no natural gas... was depleted... production was in a steady decline... No Hope... and at the time the "big brains" said horizontal drilling wouldn't help. I don't put much faith in government predictions and i'm a little suspect on just about everything else. But, keep your updates coming. just about any information is helpful. thanks, jhh
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Many of the shallower formations have a relatively thin "pay" section and I don't believe it would be practical to drill them horizontally. But, I don't have any experience with hor. drlg. On the other hand, I am convinced that the Smackover limestone which underlies Haynesville formation would be candidate for hor. drlg. And most wells I am familiar with in Smack. are classified as oil wells. I have discussed hor. drlg. in Smackover with XTO engineers and geologists and I expect to see them doing so in near future. They did permit one for hor. drlg. last year about a mile from my property, but the just drilled it vertical.
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Permalink Reply by young land owner on
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So are we screwed..Ive been watching the market hard this morning... lots of talk about nat gas taking a lil nose dive. CHK payed lots of money for my property in what i think and hope is in there core area. sec 8 , 17,18 all in 16n 15w. Section 17 is complete and producing. Good well and all but not gonna get the nice checks because of how cheap gas is. And on top of that CHK takes out all kind of stuff that I did'ne even know existed.(even with the 26% I signed for.) Im just starting to get a bad feeling in my stomack, expecially when I hear rumors that the big bully is running with its tail between its legs. THIS BEING ONE OF THE MOST PROLIFIC GAS FEILDS IN THE WORLD HOW CAN THIS HAPPEN??????? Here is my other million dollar question.. Because of the state of the economy will CHK and other companies not drill areas they have leased. Example: lets say other people in ur section signed for 300 dollars an acre. and lets say the last 100 or so acres yeilded 25,000 an acre. The oil company got a really good deal in my opinion. Wouldnt that perswade them to drill even in this crappy economy. Any comments would be great
YLO(getting older and smarter)
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Permalink Reply by Les Bamburg on
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YLO, the companies are going to drill enough wells to make sure they hold most all the acreage. Every company has basically said they have a plan in place.
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I'm a skeptic in what the talking heads say as well. I too got a sick feeling in my stomach when I read this. However, there is way too much money being spent here for the pipelines, leasing agreements and etc for them to pack up and leave (not that he said CHK would leave the Haynesville but that they would pare back). Yes they are wanting to not just be a dry gas producer, but could it also be a way to keep lease prices down by putting the word out that the Haynesville is not the only game in town?
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Permalink Reply by P.G. on
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Good point! I imagine many 3 year leases are fixing to expire next year in sections that never got drilled. Squashing hopes could save millions when it comes time to start renegotiating them, huh?
It's certainly isn't going to be as easy for them to ripoff landowners like they did in early 2008...
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Permalink Reply by Skip Peel - Mineral Consultant on
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Would you pay a premium for Haynesville Shale gas when you could get a better deal on Marcellus gas? Or Eagleford? Or Fayetteville? As nat gas supplies increase and demand does not, some obvious business realities become evident. IMO, we in the Haynesville are fortunate that leasing continues and offers have recovered to a meaningful extent from the lows of early 2009. The lease bonuses currently being offered impress me quite a bit considering the national state of nat gas. I believe the MarketWatch article currently on the Main Page does a good job of summarizing the realities of the nat gas market for the foreseeable future.
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