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 Roy on
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Where do I tell my friend to go for online information and the link you used above?
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Permalink Reply by JHH on
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The article was from the Wall Street Journal. You need to subscribe to read the articles... so i posted the whole piece for your reading pleasure. jhh
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Permalink Reply by om28v on
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Roy he's going to need an O&G attorney, I don't know anything about West Texas, and after looking at that I don't know that I know anything at all about any of this. I did pull up another random well and it had produced about 200,000 bbls of oil, about what a good well will do around East Texas from what I have seen. I found this on the Texas Railroad Commision's GIS viewfinder map. Everything I saw was verticle. There are some very knowledgable people on here that may be able to help as well.
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Permalink Reply by DJG on
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Did any of y'all catch this recent article on EOG's plans at using uncoventional new technologies in drilling horizontal OILwells in the Barnett. Looking at extracting oil from the carbonate formations that is found between two shale formations.
http://www.gohaynesvilleshale.com/forum/topics/seeking-alpha-barnet...
This seems to be pretty interesting news and would be pretty darn significant if, in fact, new technologies are developing to be able to make this more feasible and economic.
Wondering if that might be part of what CHK is also looking at when announcing a shift towards more production of oil reserves in their future plans and also wonder if it might also be another key factor in XOM's recent aquisition of XTO???
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Permalink Reply by JHH on
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D. Garr, Amazing... simply amazing! What's the potential for Haynesville and Bossier... Northwest Louisiana and East Texas? jhh
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Permalink Reply by Aubrey C. Sanders, Jr. on
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Natural gas and salt water.
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For several years I have been predicting that horizontal drilling for oil will become common. XTO has permitted one horizontal well in Smackover formation in the North Shongaloo-Red Rock Field. They drilled the well last year but did not go horizontal. That well is about a mile from my land. We discussed going horizontal on a well they have staked on my land. As of yet it is not permitted, but they have paid us for the location. As I usually do I will be participating with working interest. I am hoping they will go horizontal, as I believe the geology would lend itself to enhancing this prospect.
I am glad to see the companies taking a turn back some emphasis to oil. I have interest in several locations they plan to drill, but they will be classified as oil wells and XTO presently has all their rigs in N. La. drilling Haynesville Shale. Unfortunately I do not believe Haynesville Shale will ever be productive in my area. I would hate to see them drive natural gas prices too low and I think they can see the writing on the wall.
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Permalink Reply by Les Bamburg on -
D Gaar, it has been known for some time that the northern portion of the Barnett Shale is shallower and oil prone. EOG cracked the code on how to drill economic verticle and horizontal "combo" wells in that part of the Barnett Shale.
Both the Marcellus Shale and Eagle Ford Shale have an "oily" area but the Haynesville/Bossier Shale and Fayetteville Shale are all dry gas.
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Permalink Reply by Checkmateking on
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yes it is a pipe dream
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Permalink Reply by Jo Ann Carter on
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I hope this does not mean that CHK will stop drilling in the Haynesville. They hold my lease from Pennical which has me hbp on a tiny well. I guess I'm just held and nothing I can do about it.
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Permalink Reply by Les Bamburg on
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Jo Ann, Chesapeake said they plan to cut their rig count in the Fayetteville Shale by 50% at the end of 2010 when their acreage is all HBP. I am not sure if they plan the same approach in the Haynesville Shale when all acreage is HBP'd.
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Permalink Reply by Spring Branch,mineral owner on
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Said they would be moving rigs out of the Haynesville in 2011, at which time their acreage should all be HBP. They could move 1/2 of their rigs to their oil plays and they would still have 20 rigs in the Haynesville. I'm guessing they will drill a horizontal in all their operated sections. Even those that are HBP by shallower production, before they cut back a lot, assuming the Section is in a decent area.
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