Chesapeake Reports Promise of New Utica Results
YOUNGSTOWN, Ohio – Oklahoma City-based Chesapeake Energy Corp. said Thursday that its drilling operations in eastern Ohio's Utica shale continue to show promise in what the company calls the core of the play, although production was hampered last year for want of pipeline infrastructure.
However, the latest results from Chesapeake's Utica wells are dwarfed by some of the production numbers delivered last year by competitor Gulfport Energy Corp., which has also staked out a position in what is emerging as the most lucrative part of the play.
"Production in the Utica was fairly minimal in 2012 due to infrastructure constraints," said Chesapeake Chief Operating Officer Steve C. Dixon during a conference call Thursday morning that addressed Chesapeake's fourth-quarter and year-end 2012 earnings. "But, we are anticipating a significant ramp up in 2013."
Dixon pointed to a well Chesapeake recently drilled in Carroll County, the Coe well in Fox Township, which returned a peak production rate of more than 2,200 barrels of oil equivalent per day, with 33% of the content natural-gas liquids.
"We believe we've captured the industry's largest position in the Utica and look forward to solid results in the years to come," Dixon told analysts.
By the end of this year, Dixon projected that Chesapeake wells in the Utica could be producing 55,000 barrels of oil equivalent per day.
Key to achieving this goal is completion of four critical processing plants now under way, Dixon said.
Chesapeake plans to send some of its liquids gas to a Dominion plant in Natrium, W.Va., which should be completed in April.
In the meantime, work continues on a cryogenic processing plant near Kensington in Columbiana County that will process liquids from Chesapeake wells in the Utica.
The first phase of that project is expected to come online by the middle of this year, while the second phase is scheduled for completion by the end of this year.
A partnership consisting of Access Midstream, M3/Momentum Midstream and EV Energy Partners, is developing the $900 million infrastructure project. The plan also includes the construction of a 33-mile pipeline that will connect the Kensington plant with another plant under construction in Harrison County to the south.
Another plant is under development in Leesville in southwestern Carroll County.
"We continue to focus our drilling efforts in the wet gas window of the play inside our joint venture with Total, where we hold more than 450,000 net acres," Dixon said. "We are projecting average EUR [estimated ultimate recovery] per well to range around five [billion] to 10 billion cubic feet depending on the area and phase of the play targeted."
Chesapeake also announced results from three other wells completed during the fourth quarter.
The Houyouse 1H well in Carroll County achieved a peak rate of 1,730 barrels of oil equivalent (boe) per day, the Cain South 8H well in Jefferson County registered a peak rate of 1,540 boe per day, and the Walters 8H well in Carroll County hit a peak production rate of 1,140 boe per day.
Still, Chesapeake's peak production rates pale in comparison to the results Gulfport has mined from the same region of southeastern Ohio.
In October, Gulfport reported the singlemost productive well in the Utica with its Shugert 1-12H well in Belmont County. That well tested at a peak rate of 28.5 million cubic feet of natural gas, 300 barrels of oil, and 2,907 barrels of natural-gas liquids per day. When combined, the peak rate amounts to 7,482 barrels of oil equivalent per day.
In comparison, Chesapeake's most productive well reported to date is the Buell 8H well in Harrison County. That well yielded a peak production rate of 3,010 BOE per day, including 9.2 million cubic feet of natural gas and 1,425 barrels of liquid gas and oil per day.
Noticeably absent from Thursday's call with analysts was Chesapeake CEO Aubrey McClendon, who just a day earlier was cleared of wrongdoing in an internal investigation that looked into a potential conflict of interest related to his private business deals and the company's interests.
The embattled CEO endured almost a year of scrutiny and lack of shareholder confidence when it was revealed last year that he used his equity stake in company wells as collateral to leverage more than $800 million in private loans from Chesapeake's financial backers.
The inquiry revealed that McClendon engaged in “no intentional misconduct.” McClendon announced earlier this month that he will retire from the company April 1.
Chesapeake Thursday reported a profit of $300 million during the fourth quarter, or 39 cents a share, down 36% from $472 million, or 63 cents a share the same period a year ago. Revenues climbed 30% to $3.54 billion.
The energy giant is in the process of shifting its focus from natural-gas production to oil and natural gas liquids. Low prices of natural gas, the high cost of transitioning exploration to "wet" gas, plus heavy debt incurred because of the company's aggressive lease-acquisition policy, has strapped Chesapeake of cash.
The company reported that it intends to sell off more of its acreage positions this year to alleviate debt.
In 2012, Chesapeake completed the sale of its midstream assets in a deal worth more than $2 billion. The company has also cut back in drilling and leasehold expenses. During the fourth quarter, Chesapeake said it spent $1.4 billion in drilling and leasehold agreements, down from $2.4 billion a year earlier.
Chesapeake also reported its long-term debt was reduced by $3.6 billion from the third quarter of 2012 to $12 billion.
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