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 Les Bamburg on -
BirdDawg, the fix is partially in already as the cutback in drilling in other areas will contribute to a decline in US production.
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Permalink Reply by P.G. on
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NG supplies will never meaningfully recede without new markets (uses) for it considering all these new finds and technology. I doubt that unless it's eventually used for something other than home heating and electricity (even if they ban coal), it will ever be worth much more than it is now. Short of virtually stopping drilling, It's just too easy now for the drillers to supply that market.
Also the only thing holding Petroleum back from going back up to those $145/bl levels is world wide depressed economic activity. Once things turn around, I'll bet we'll quickly see those numbers again. Even $80 oil is ridiculous considering how depressed things are. When things (economy) was humming along nicely, oil was going for less than $40 bl.
We also shouldn't be so certain disruption will not happen considering the middle eastern environment.
So just how high would a gallon of gasoline have to go before there would be and outcry for a major conversion to NG? If anyone can remember, folks were getting pretty angry at $4/gal.
Could another run up in petroleum prices spur a move that would light speculation in NG on fire again?
I don't believe we've really seen anything yet!
Taking the $700 billion or so that's going out of our local economy now for imports and bringing it back and spreading it around here could be better than any stimulus any politician could come up with. Just how long will it be before those in DC wake up and realize it or get voted out for being so blind?
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Permalink Reply by Aubrey C. Sanders, Jr. on
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I agree with you about oil prices. They will go much higher. As to natural gas, I still remember when its only value was to push the oil up tubing and then the gas was burned by flaring. The value of the gas would not even pay for a pipeline. The sky always glowed orange at night where I grew up in the Haynesville Field. When they finally crossed our property with a big gas line they gave us all the gas we wanted for $1.00/month. No meters, but we had to lay our pipeline. This was in late 50's.
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Permalink Reply by ken hatcher on
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Cramer will interview aubrey mcclendon on mad money this eve., might provide some info.
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Permalink Reply by Carter on
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"Assessing a true emissions cost against coal would crank up natural gas demand immediately since their is significant natural gas fueled power generation capacity that is currently sitting idle."
I've been saying this for several years now. Even as late as '06, folks in the NG industry did not see it. I think I've mentioned this before, but I was at a landman meeting in OKC in early '07 where the keynote speaker was a coal guy and his basic theme was "save our scarce NG for higher uses" and "burn coal for power generation". This in a room full of oil and gas guys.
One thing we must give Aubrey credit for is his ability to see big picture (whether or not it is out of self-interest of course). Many do not realize how strongly he opposed and lobbied against new coal burning plants back a few years ago in both TX and OK. Everyone remembers how close we came to having TXU build all those new coal facilities in TX. Imagine where things would be for NG prices if that had gone through just on the cusp of these new discoveries. (We have to also assume that AM might have been aware of the future discoveries like Haynesville and its potential back then, which is also why he was pushing against it so hard). You have to respect him for seeing the big picture.
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Permalink Reply by Les Bamburg on
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Carter, how about a little credit if you are going to quote me. 8-)
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Permalink Reply by jffree1 on
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Ken Hatcher, He was on Mad Money "High Noon":
http://www.cnbc.com/id/15840232?video=1422527343&play=1
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Permalink Reply by ken hatcher on
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Jffree1, you are a gentleman and a scholar...thanks!
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Permalink Reply by Festus on
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The Federal government will probably ban or curtail hydraulic fracing so oil will be attractive. Once they do that you won't be able to give away the Haynesville Shale. Companies should shift away from natural gas or go to foreign countries.
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Permalink Reply by Les Bamburg on
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Festus, a lot of the future oil potential in the US also requires fracture stimulation.
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Permalink Reply by essay on
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straw man set up by environmentalists, they don't have enough lead left in their collective political behinds for a national moratorium on fracturing.
now, on a state by state basis, it is entirely conceivable that NY or some other state(s) might just legislate themselves out of the running.
sokay, plenty of shale in the haynesville.
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