SHALE BONANZA OVER - CHESAPEAKE TURNS TO OIL - APISmartBrief article

US Shale Discovery Bonanza Is Over - Chesapeake CEO

by  Ryan Dezember

Dow Jones Newswires 10/14/2010
URL: http://www.rigzone.com/news/article.asp?a_id=100024

HOUSTON (Dow Jones Newswires), Oct. 14, 2010


Chesapeake's Chief Executive Aubrey McClendon said that most significant natural gas and oil shale fields in the U.S. have already been found, and that investors shouldn't hold their breath for major new
discoveries.


"If you decided, I'm going to pass on the Barnett, pass on the Haynesville, pass on the Marcellus, and you were going to wait for the next four or five--there won't be any," McClendon said Wednesday during the company's annual meeting with analysts, referring to tight, hydrocarbons-rich rock formations in Texas, Louisiana and the U.S. Northeast, respectively. "By the end of 2011 it will be over. There won't be any basins that have escaped investigation." The comments come three days after Chesapeake agreed to sell a third of its interest in south Texas' Eagle Ford shale formation to Chinese state-run Cnooc for $2.16 billion in cash and drilling funding.


Shale formations were believed to be impractical sources of fossil fuels until recent years. Technological advances in hydraulic fracturing--shattering the rocks to allow oil and gas to seep from the cracks--and horizontal drilling have unlocked vast reserves and prompted international companies to scramble for entry into the field pioneered by independent firms like Oklahoma City-based Chesapeake.


McClendon said Chesapeake will continue to court joint venture partners for its interests, including those in the Niobrara shale in northeast Colorado and the Permian Basin in west Texas. And Chesapeake may sell its expertise to other companies considering shale plays overseas. But Chesapeake isn't planning any foreign investments, McClendon said. "We aren't going to Poland, we aren't going to Canada," he said. "In terms of spending Chesapeake capital overseas, I don't see it."


Instead, McClendon pledged that Chesapeake, which he co-founded and took public in 1993, would shift its focus from natural gas to become a major oil producer. Natural gas prices have been in a prolonged slump due in part to the glut of supply created by the shale frenzy. But gasoline-like condensate, which trades on par with oil, is abundant in many shale formations--although not in volumes that could drive the price of oil down. "We sit on 10 [billion] to 15 billion barrels of oil that will change the valuation of this company over time," McClendon said.

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Permalink Reply by Two Dogs, Pirate on October 18, 2010 at 3:26
Beauregard Parish was packed with people last week. Some were hands that I believe work for CHK that I have seen working in DeSoto for the past couple of years. Could this be renewed interest in the Austin Chalk or Maybe the Tuscaloosa Marine Shale?
Permalink Reply by The_Baron on October 18, 2010 at 3:35
I know a good deal of leases were already bought, could it just curative and title opinion work, or do you think its somthing new?
Permalink Reply by Two Dogs, Pirate on October 18, 2010 at 4:10
Most of the folks were young men that appeared to be mainly making copies of larger documents. My son, who has been working Beauregard for the past several years, told me that he has seen them off and on there before. My son said that he has never seen the older folks there before. These are the ones that I believe work for CHK, there were 4 or 5 of them. They didn't seem to be making copies, just running records and all of them looked like they were using the same kind of printed out run sheet. I think these older folks work for Suncoast. I have seen two of them, a man and his wife, quite often in DeSoto.
Permalink Reply by Skip Peel - Mineral Consultant on October 18, 2010 at 3:37
Spread the wealth huh, TD,P?! I'm wondering if all those deep, high-tech Haynesville/Bossier wells revealed oil prospects. We're liable to see horizontal drilling in a number of oil formations where permeability has been a historic hindrance to economic production. And the favorable price structure for oil, condensate and liquids is an opportunity for small, independents working conventional prospects. Drilling unit applications have rebounded nicely in S. LA. over the course of this year.
Permalink Reply by Spring Branch,mineral owner on October 18, 2010 at 4:02
Skip, I don't think those "deep, high-tech Haynesville/Bossier wells revealed any oil prospects in Beauregard Parish! Which prospective oil formations were you referring to where permeability has been a historic hindrance in our area?
Permalink Reply by Skip Peel - Mineral Consultant on October 18, 2010 at 4:06
SB, my reference to deep, high tech is not associated with Beauregard. It's associated with a switch in industry focus from dry gas to oil as the article states. The formations I'm thinking of would be in the "oil window" but "tight. The Brown Dense is one under discussion here on the site. I suspect there are others associated with the E&P activity in S. LA. such as the Tuscaloosa Marine Shale mentioned by TD,P.
Permalink Reply by Spring Branch,mineral owner on October 18, 2010 at 4:03
It's not a horizontal play is it, Jay?
Permalink Reply by Two Dogs, Pirate on October 18, 2010 at 4:13
I have never seen a horizontal Wilcox.
Permalink Reply by Steve Henderson on October 18, 2010 at 10:37
I see where a new well is being permitted southwest of San Augustine that is vertical (16,500 ft). Everything I have seen for months is horizontal. Any thoughts if this is a deep well going for oil?

http://webapps.rrc.state.tx.us/DP/drillDownQueryAction.do?fromPubli...
Permalink Reply by Skip Peel - Mineral Consultant on October 18, 2010 at 10:52
In general, that's a little too deep to be an oil target.

The rule of thumb says that temperatures 7,500 feet down are hot enough to "crack" organic-rich sediments into oil molecules. However, beyond 15,000 feet the rocks are so hot that the oil molecules are further cracked into natural gas. The range from 7,000 to 15,000 feet is called the "oil window." If you drill deeper than 15,000 feet, you can find natural gas but little oil.
Permalink Reply by Steve Henderson on October 18, 2010 at 11:32
So Skip, why drill a vertical for natural gas? I thought the only way to pay for a deep NG rig was to go horizontal.
Permalink Reply by Two Dogs, Pirate on October 18, 2010 at 4:14
Deep Wilcox, 18,000 feet.

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