Chesapeake (NYSE: CHK) Banks on Eagle Ford

Brian Hicks

Written By Brian Hicks

Posted May 9, 2013

Chesapeake (NYSE: CHK), in its recent Q1 conference call, cited some fairly impressive numbers with regards to the Eagle Ford shale. The company expects some 570,000 barrels of oil equivalent from each of the 600 wells it has (so far) drilled, amounting to a total of nearly 342 million barrels of oil equivalent. quotes acting CEO, Steven Dixon:

“We are pleased to raise our 2013 oil production guidance by 1 million barrels (mmbbls), largely as a result of improving performance in the Eagle Ford Shale, where we are drilling longer laterals, achieving better-than-expected well performance and encountering improved gathering system pressures along with fewer gas processing constraints.”

Moreover, Chesapeake was able to cite additional bits of good news. For one, average oil well drilling time in the Eagle Ford is now down to 18 days from its previous levels of 25 days. That translates into increased oil production levels without the need for nearly as many oil wells.

For another, this quarter the company is moving ahead with agreements that’ll see its northern block acreage in the Eagle Ford sold off, which should improve revenues a fair bit.

Chesapeake’s Eagle Ford Presence

Overall, Chesapeake’s expecting an added 1 million barrels of oil through 2013. Bear in mind that over Q1, the company’s production in the Eagle Ford region remained at roughly 61,600 barrels per day, a figure that represents a 251 percent improvement (up by 44,100 barrels) over the previous year.

It’s also an increase of 20 percent over the quarter before that. Now, the company expects to improve further, reaching 71,000 bpd.

And the company isn’t even close to being done. Currently, each well represents an investment of nearly $7 million, but Chesapeake is working to bring that down to around $6.5 million. However, the company’s “conservative” estimate means a drilling inventory in excess of 3,500 locations. In other words, they’re good for the next ten years if current estimates don’t change radically.

And further improvements and adjustments abound. Currently, Chesapeake has 15 rigs operational in the Eagle Ford, according to It hopes to reduce that to 13, while also working to reduce drilling time by yet another five days.

If you’re keeping up, that means the total number of rigs will be reaching a third of Chesapeake’s 30+ levels of some years ago, yet the company will actually be drilling wells at much faster rates.

Chesapeake’s wells are producing oil equivalents, which include oil, natural gas, and natural gas liquids. The actual split is something like 65 percent oil, with the remainder representing an even split between natural gas and natural gas liquids.

The Eagle Ford shale region under Chesapeake’s operation currently has 650 operational wells. Of the total 887 wells drilled, 34 have yet to be connected to pipelines, and another 203 are in development. Over the past quarter, the company successfully completed 111 wells and expects to finish up with another 300 by 2014.

Eagle Ford’s Oil and Gas Promise

Eagle Ford first hit the news back around 2008, when the first well was drilled there. The shale zone lies in Texas and is a very liquids-rich play. It’s about 50 miles wide and 400 miles long, with an average thickness of 250 feet.

A quick overview of its impact makes clear just how interesting the Eagle Ford shale is to prospective developers, energy companies, and a whole bunch of other parties. The University of Texas (San Antonio) released a report that indicated the Eagle Ford shale is responsible for generating in excess of $61 billion in overall economic impact.

Some 116,508 full-time workers are employed in related or direct fashion, and Texas received more than $1.2 billion in revenue as a consequence.

Nearly $4.7 billion was paid out to workers in salaries and benefits as a result of Eagle Ford-related employment. And all that’s through 2012; the $61 billion figure is more than double that of 2011.

Meanwhile, Chesapeake continues to consolidate its leading position in the Eagle Ford shale, where it operates on a total of 691,000 net acres. The company employs some 2,000 employees across Texas (figures from 2010), and its business is expanding rapidly.

Particularly attractive is natural gas development, and Chesapeake is now the second-biggest producer of natural gas in Texas.


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