Chesapeake updates progress in Barnett, other shale plays

When talking about figures in the thousands of feet, a few hundred more feet might not seem like much, but in drilling that extra push horizontally can mean quite a bit more gas.

Progress – that was one theme addressed during Chesapeake Energy Corp.’s annual investor and analyst conference in which the natural gas exploration and production company outlined its activities in shale and other energy plays nationwide.

In the Barnett Shale, for example, Chesapeake Energy has cut drilling times by two days or 10 percent, decreased average well drilling costs and completion costs each by 15 percent, increased its proved reserves by 17 percent and increased its average lateral drilling length by 500 feet, or 15 percent, to 3,500 feet. (In early 2005, the company’s average Barnett Shale lateral length was about 2,300 feet.)

“We’re still finding ways to unlock the Barnett Shale in what you would call a mature or low-risk play but I think we’ll find ways to continue to grow and unlock the potential there,” said Allen Middleman, geoscience manager for the Barnett Shale at Chesapeake Energy.

Chesapeake Energy drilled its first horizontal well in Tarrant County in 2006. In total, there have been more than 7,800 horizontal wells drilled in the Barnett Shale, which produces 70 percent of all U.S. shale gas. Chesapeake Energy has drilled more than 1,800 wells and produces more than 630 million cubic feet of natural gas equivalent per day.

The Oklahoma City-based company estimates its proved reserves at 3.2 trillion cubic feet of natural gas, but Middleman said the company expects to be able to double that over time as existing technologies are improved or new technologies are developed.

“It has the maturity, the organic carbon content, the thickness…, the gas saturation that all translate into meaningful gas-in-place calculations,” Middleman said.

Currently, however, area operators have sought to curb spending and activity in order to rein in costs and account for natural gas prices below the break-even point. Middleman said the company’s current break-even point is $4.96 per thousand cubic feet, less than the $5.14 per mcf break-even cost one year ago and moving closer toward its stated goal of $4.79 per mcf.

Gas futures traded at about $4.40 per mcf at time of publication.

The company’s average operating rig count during the past several years is representative of the activity cutback: 33 rigs in 2007; 40 rigs in 2008; 20 rigs in 2009; and a projected 18 rigs in 2010.

Much like what it did in other shale plays, Chesapeake Energy continues to search for a Barnett Shale partner.

Shifting resources to other plays

Chesapeake Energy operates in each of the Big 4 – the Barnett, Marcellus, Haynesville and Fayetteville shales – along with dozens of other plays of various sizes across the United States. The company also is exploring overseas opportunities in China, India, Australia and elsewhere with StatoilHydro, a Norwegian company that in 2008 acquired for $3.9 billion a stake in Chesapeake Energy’s Marcellus Shale assets.

“The Barnett and Fayetteville shales, we’re cutting back our rig count and efforts there and what that has allowed us to do is transform – those are the new teams in the Marcellus and Haynesville using the people and equipment that we’ve transferred out of the Barnett and the Fayetteville,” said Steve Dixon, executive vice president and chief operating officer.

The Marcellus Shale is expected to become one of the two largest plays in the U.S., the Haynesville Shale being the other. Chesapeake currently produces about 50 MMcfe per day and expected to produce 390 MMcfe per day by the end of 2011 in the Marcellus.

Estimates put the Marcellus Shale as high as 489 trillion cubic feet of potentially recoverable gas, compared to the Haynesville’s 250 Tcf, the Barnett’s 44 Tcf and the Fayetteville’s 42 Tcf.

“The Marcellus is far and away much larger than the other three shale plays combined in terms of aerial extent,” said Tom Layman, Chesapeake Energy’s vice president of geoscience-eastern division. “We think there are about 15 million acres that are prospective across a pretty wide area of the Marcellus play. What we think makes the Marcellus work is the favorable depths, thicknesses, pressures, rock characteristics and that’s spread across a wide area of the basin.”

The company currently produces about 210 MMcfe per day in the Haynesville Shale with 35 rigs operating. There were 14 rigs in the area at the same time last year, and Chesapeake Energy expects to top out at 40 rigs in 2010, said John Sharp, geoscience manager for the Haynesville Shale in Louisiana and East Texas.

Chesapeake Energy has about 50,000 acres of Eagle Ford Shale, with plans to acquire another 50,000 acres to 100,000 acres in the future. The company plans to spud its first well in the fourth quarter of 2009.