Chesapeake (NYSE: CHK) Predicts Utica Shale Production Boost

Ohio Oil and Gas


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By Swagato Chakravorty
Monday, April 8th, 2013

According to Steve Dixon, the newly-named acting CEO of Chesapeake Energy Corp. (NYSE: CHK), this year we should see a significant increase in production from the company’s Utica Shale wells thanks to the development of several new production facilities that would drive oil and natural gas production up.

In terms of numbers, Columbus Business First reports that Chesapeake is aiming for net production volumes exceeding 330 million cubic feet of natural gas equivalent each day from the Utica by the end of 2013. Current levels, for comparison’s sake, are at about 75 million cubic feet per day.

The Utica Shale lies in eastern Ohio and western Pennsylvania, as well as parts of New York, West Virginia, Virginia, and Maryland; as of now, Chesapeake has more than 240 wells spread throughout the play.

shale gas 19However, while that may be an impressive number, the company actually has just 54 in operation. Several wells are also being drilled jointly with France’s Total S.A. (NYSE: TOT). But as more and more of these wells come online, things ought to improve.

Despite the fact that Utica Shale production levels have not nearly been as dramatic as many analysts had projected—mostly due to lacking pipeline and processing infrastructure in eastern Ohio—Chesapeake appears optimistic about things. It had better be, since the company leases nearly 1 million acres.

Cleveland.com reports that Chesapeake began development on four new processing plants that would clean up raw produce from the wells, separating natural gas liquids (butane, propane, ethane) from methane. As an example of the sort of revamped production we should expect in the near future, Dixon commented:

"We recently completed a six well program on our Scott Unit in Carroll County, Ohio. We drilled six wells from a common pad with average 24-hour restricted test rates of 1,250 barrels of oil equivalent per day, which included 310 barrels of oil, 200 barrels of NGLs, with ethane not recovered, and 4.4 million cubic feet of natural gas per day, at flowing ... pressures exceeding 3000 pounds per square inch.”

Currently, the company is offering contracts for gas in 2014 priced over $4 per thousand cubic feet; in 2012, these prices were near $2 per thousand cubic feet, which turned out to be insufficient for covering costs of drilling.

One bit of good news is that Chesapeake uses some highly efficient drilling technologies. Proof of this comes from the fact that the Carrol County wells were drilled for roughly $6.5 million each, far lower than the $10-$12 million usually named for such operations.

During his statements, Dixon also referred to Chesapeake’s ongoing asset sales. Thus far in 2013, the company has already wrapped up or set in place roughly $1.5 billion in sales with a goal of reaching $4-$7 billion in sales through the year. Several more sales are due to be announced soon.

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Utica Shale Growth

The Utica Shale is particularly attractive for liquids-focused drilling operations. Back in late 2012, the USGS indicated that the Utica contains nearly 38 trillion cubic feet of natural gas, in addition to about a billion barrels of technically recoverable oil reserves.

But the Ohio Department of Natural Resources, a year before that, pegged the volume of oil reserves at 5.5 billion. For comparison, the USGS estimated the Bakken shale to be worth 4.3 billion barrels on the higher estimates.

A report on Utica Shale production over 2012 is due shortly from the Ohio Department of Natural Resources, which should provide updated figures. However, regardless of the more accurate estimate, there are some very big names invested heavily in the play—ExxonMobil (NYSE: XOM), Anadarko Petroleum (NYSE: APC), Chesapeake Energy.

Rex Energy (NASDAQ: REXX), which is focused particularly on the Carrol County area, is also of note.

Moving toward Pennsylvania, the Utica becomes drier, which is something that has made for comparisons between the Utica and the Eagle Ford plays. Ohio has seen increasing drilling and exploration activity over the past two or three years, with more than 250,000 drilled wells and some 60,000 (and counting) oil and gas wells operational.

With Chesapeake ramping up its operations, the overall picture in Ohio should be improving rather dramatically over the near future. The Utica has not been exploited nearly as effectively as the Marcellus or the Eagle Ford plays, but that seems bound to change soon.

 

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