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Chesapeake plans to increase activity in Utica Shale

FPS staff report

Walker well
The Nomac rig #70 drilling rig operates on the Walker farm, just off SR 164 in Loudon Twp.

During his first full day as acting CEO of Chesapeake Energy Corporation, Steve Dixon held a national conference call where he praised the company’s efforts in the Utica Shale of eastern Ohio.

Dixon, who formerly served as the company’s chief operating officer, was named acting CEO Friday to replace Aubrey McClendon, who stepped down Monday.

“Looking ahead, I am very excited for Chesapeake’s future – and our senior management team is energized about our opportunities ahead as we convert the great resources we have discovered and captured into production, cash flow and investor returns,” Dixon said during the call.

Dixon was named as one member of a three-man committee that will undertake a search to find a replacement for McClendon in a position the board of directors established called the Office of Chairman. Others on the committee include Chesapeake’s non-executive Chairman Archie Dunham and Chief Financial Officer Domenic Dell’osso.

During the call, Dixon directed his comments to “several positive developments underway in the Utica Shale play in eastern Ohio and western Pennsylvania. 

“As many of you know, Chesapeake discovered the play in 2010 and completed an important joint venture with Total in 2010,” he said.  “We are the largest leaseholder with approximately 1 million net acres in the play.  To date we have drilled more than 240 wells in the Utica, representing approximately 75% of the wells drilled in the entire play thus far.” 
He said production in the Utica was fairly minimal in 2012 due to infrastructure constraints (pipelines and processing facilities).

“We anticipate a substantial ramp up in completions as we progress through the year.  We are only producing 75 million cubic feet equivalent (mmcfe) per day from the play, net to Chesapeake, due to processing constraints, but we believe this well set is capable of producing approximately double this level if unconstrained,” he stated.  “We are targeting net production of more than 330 mmcfe per day, or 55,000 barrels of oil equivalent (boe), from the play by the end of the year.  Achieving this level will be dependent on the timely startup of critical processing infrastructure at multiple facilities in the months ahead.”

As an example of the outstanding recent well results we are achieving in this play, he said the company recently completed a six well program on the Scott Unit in Loudon Twp. Carroll County. “We drilled six wells from a common PAD with average 24-hour restricted test rates of 1,250 boe per day, which included 310 barrels of oil, 200 barrels of Natural Gas Liquids (NGL), with ethane not recovered, and 4.4 mmcf of natural gas per day, at flowing tubing pressures exceeding 3000 psi.  Well costs for this group averaged approximately $6.5 MM, indicating just some of the potential cost savings we expect to realize as our operations mature and we focus on development in the future.”  

He said the company recently submitted 2012 annual production data and other information on wells drilled in 2011 and 2012 to the Ohio Department of Natural Resources (ODNR). ODNR is expected to release all production numbers later this week. 

“Due to the infrastructure constraints, it was necessary to curtail and restrict production on the wells placed into service last year.  As a result, we believe the data reported to the ODNR is not indicative of the productive capacity of Utica Shale wells in our development fairway,” he said.

Based on Chesapeake’s geoscientific, petrophysical and engineering research during the past two years – and the results and detailed analysis of wells we have drilled to date – he noted the company is targeting ultimate reserve recoveries of 5 to 10 billion cubic feet equivalent (bcfe) per well in the Utica, depending on location and commodity mix within the play.  

“Our analysis of the play to date indicates a very prolific resource base is in place that varies across the play with an increasing condensate yield from east to west following a strong correlation to reservoir maturity,” Dixon stated.  “Given our view of per well reserve and production potential and in consideration of product mix, planned well costs and current market prices, we are targeting drilling rates of return of 30-80% with an average return in excess of 40% within our joint venture AMI with Total, which is largely in the wet gas window of the play.”

Chesapeake is involved in the installation of pipelines and processing facilities in the area. A Cryogenic processing facility is under construction near Kensington in Columbiana County, just across the northeastern Carroll County border, and a fractination facility is being build in Harrison County near Scio, just across Carroll County’s southern border. A second cryogenic facility is scheduled to be built near Leesville.

Construction is underway on an extensive system of pipelines through the county to transport the raw natural gas to the Kensington facility where the NGL will be extracted and sent to the Scio facility were products such as ethane, propane, butane and natural gasolines will be separated and sold. The natural gas removed at the Kensington facility will be sold to companies such as Dominion and Tennessee Gas and entered into pipelines near the facility.  When plans for the Kensington and Scio facilities were announced last fall, they were scheduled to be in online in May or June 2013. Plans are to construct the Leesville complex in 2014.

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