Chesapeake Energy
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| In January, 2010 a press release surfaced regarding a planned joint venture between Chesapeake and [[Epsilon Energy Ltd|Epsilon Energy]] regarding the latter's ''Highway 706'' acreage and several producing Marcellus shale wells located roughly 8 miles southwest of the Borough of Montrose in Susquehanna County, PA. According to the agreement, Chesapeake was to earn a 50% interest in Epsilon's project assets in exchange for $5 million up front as well as a $95 million carry, spread over 30 months, for Epsilon's 50% of drilling and other expenses in the joint venture. Epsilon's leasehold consisted of 11,500 acres located in close proximity to acreage already controlled by Chesapeake. Epsilon's management estimated that at least 120 wells could successfully be drilled on the property. The existing wells there already produced in excess of 10 Mmcf/d. '''''Update:''''' The deal closed on February 1, 2010. All told, Chesapeake planned to invest $195 million in developing the Highway 706 Project. The $95 million carry requirement was to be met by by August 1, 2012. | In January, 2010 a press release surfaced regarding a planned joint venture between Chesapeake and [[Epsilon Energy Ltd|Epsilon Energy]] regarding the latter's ''Highway 706'' acreage and several producing Marcellus shale wells located roughly 8 miles southwest of the Borough of Montrose in Susquehanna County, PA. According to the agreement, Chesapeake was to earn a 50% interest in Epsilon's project assets in exchange for $5 million up front as well as a $95 million carry, spread over 30 months, for Epsilon's 50% of drilling and other expenses in the joint venture. Epsilon's leasehold consisted of 11,500 acres located in close proximity to acreage already controlled by Chesapeake. Epsilon's management estimated that at least 120 wells could successfully be drilled on the property. The existing wells there already produced in excess of 10 Mmcf/d. '''''Update:''''' The deal closed on February 1, 2010. All told, Chesapeake planned to invest $195 million in developing the Highway 706 Project. The $95 million carry requirement was to be met by by August 1, 2012. | ||
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| - | A late March, 2010 press release mentioned that [[Statoil-Hydro]] had purchased another 9,000 acres of Chesapeake's [[Marcellus shale]] leasehold in Pennsylvania. The purchase price had been $253 million which amounted to $4,325 per acre. This increased Statoil's stake in its joint venture with Chesapeake to 42%. | ||
| === Spotlight Issues === | === Spotlight Issues === | ||
Revision as of 18:45, 1 April 2010
Chesapeake Energy Corporation (NYSE: CHK) is the number two driller of natural gas in the U.S. It is the most active driller in the Marcellus shale play as well as the largest leaseholder. Its headquarters is in the near-northwest side of Oklahoma City, Oklahoma.
Chesapeake has approximately 1.6 million net acres under lease in the Marcellus shale with total proved reserves of 265 Bcfe. It is the largest leaseholder in the Marcellus play and its most active driller. The company has projected its ultimately recoverable unrisked unproved reserves almost 70 tcf. Much of its activity in the Marcellus shale formation is conducted through a wholly-owned subsidiary, Chesapeake Appalachia LLC headquartered in Charleston, West Virginia. While still maintaining a presence in Charleston the bulk of the personnel for the company's Eastern Division were transferred to Oklahoma City early in 2009.
Chesapeake well site, Susquehanna Co., PA
Photo credit - Dave Messersmith, Penn State Cooperative Extension
Contents |
Latest Operating Results
As of February 16, 2010 Chesapeake had a record average net production from the Marcellus shale formation of approximately 65 Mmcfe/d. Its production at the end of the fourth quarter, 2009 (45 Mmcfe/d) represented a 26% increase from the third quarter of 2009. As of the end of the fourth quarter, Chesapeake had 56 company-owned horizontal wells in the Marcellus shale. The company was fielding 24 rigs. This number was expected to grow to 32 rigs during 2010 to drill 175 net wells. A few of its most notable wells from the second and third quarters '09 included:
Well Qtr. Location peak rate Mmcf/d ---- ---- -------- ----------------- Vargson-1H 209 Bradford Co., PA 4.6* Evanchick-2H 209 " " 5.3* Messenger-3H 209 Wetzel Co., WV 3.5* Clapper 2H 309 Susquehanna, Co., PA 10.1 Otten 2H 309 Bradford, Co., PA 8.9 White 2H 409 Susquehanna Co., PA 8.7 White 5H 409 Susquehanna Co., PA 8.6 Benscoter 3H 409 Susquehanna Co., PA 8.4 _____________ * 30 day Mmcfe/d average only
2008 Development Timeline
Chesapeake pursued a very aggressive leasing program throughout the Marcellus shale formation during 2008.
Leasing and Drilling Activities
Typical activities during the year:
- A September, 2008 report indicated that Chesapeake was drilling in the Elmira, N.Y area.
- The company also had a large number of drilling permits either accepted or pending in Pennsylvania especially in Bradford, Susquehanna, and Wyoming Counties.
- An October, 2008 report noted a great deal of leasing activity by Chesapeake Appalachia LLC in Bradford County, Pennsylvania. The Bradford County Registrar of Deeds stated that as of that date 2,018 gas leases had been signed with Chesapeake and recorded during 2008.
- Also in late December, 2008 the company had taken out drilling permits in the Town of Hancock in Delaware County, New York. Five wells were proposed with drilling slated to begin in 2009.
Delaware Basin Water Withdrawals
In October, 2008 Chesapeake had applied for a permit to the Delaware River Basin Commission (DRBC) to withdraw roughly 100,000 gallons per day of water from the East Branch at Peas Eddy, Delaware County, New York. The water was for use use in drilling and fracing gas wells.
Statoil-Hydro Oil Joint Venture
In November, 2008 Statoil-Hydro Oil bought about a one-third share in Chesapeake's Marcellus leasehold for $3.4 billion. This sum consisted of $1.25 billion in cash and an agreement by Statoil-Hydro to fund $2.13 billion of Chesapeake's Marcellus drilling costs. As of February, 2010, Statoil-Hydro's leasehold position amounted to 590,000 net acres of Marcellus shale.
Update: A late March, 2010 press release mentioned that Statoil-Hydro had purchased another 9,000 acres of Chesapeake's Marcellus shale leasehold in Pennsylvania. The purchase price had been $253 million which amounted to $4,325 per acre. This increased Statoil's stake in its joint venture with Chesapeake to 42%.
2009 Development Timeline
During the first half of 2009 Chesapeake intensified its Marcellus exploration activities especially in northeastern Pennsylvania and northern West Virginia
Robson Well
In January, 2009 the company was found taking out a drilling permit for the Robson Well on Foxhill Road near Brill Road in Oregon Township, about four miles north of Honesdale in Wayne County, Pennsylvania. According to one account, Chesapeake has approximately 100,000 acres leased in the county. The Robson well targeted the Oriskany Sandstone. Since considerably less fracing fluid is required for Oriskany wells, there was no review of the well permit by the Delaware River Basin Commission, nor did the Pennsylvania Department of Environmental Protection (DEP) need a Marcellus Addendum for it.
Robson well site shrouded in fog, Wayne Co., PA
Photo credit - Dave Messersmith, Penn State Cooperative Extension
Nevertheless, there was some concern expressed by environmental advocacy groups that once the well infrastructure, such as holding pit and gas pipelines, was in place that Chesapeake might then reapply to permit the well for drilling to the Marcellus formation. DEP approved clearing the well pad, and the drilling permit was issued in February. A late April, 2009 report found Ziegenfuss Drilling, casing the well point with reinforced steel. In July, 2009 there was a spectacular partial rig collapse as drilling was underway. No injuries were reported.
Towanda Field Office
In 2009, Chesapeake opened a field office in Towanda, Bradford County, Pennsylvania located on Fox Chase Road in a former Ames department store. This office coordinates Marcellus shale development for the company and outreach to residents, community groups and local governments.
West Virginia: Parks and Helicopters
A June, 2009 report found Chesapeake having proposed to the Wheeling, WV Park Commission to lease drilling rights near Oglebay and Wheeling parks in northern West Virginia. The lease was to be approximately 2,200 acres. Update: The Park Commission approved the proposal in early October, and a similar motion was later approved by the Wheeling City Council on October 21, 2009.
Another report, later in June, was made of Chesapeake using helicopters to conduct seismic testing in Wetzel County, West Virginia. Dawson Geophysical Co was contractor.
According to one September, 2009 account, Chesapeake was believed to own a large leasehold in Marion, Monongalia, and Preston counties.
Drilling in Bradford County
A late June, 2009 report identified one site where two wells had been drilled by Chesapeake in Bradford County, PA on the 80-acre Morris Otten farm in rural Asylum Township about 45 northwest of Scranton, PA. Another location was identified at year-end 2009 on the Eileen farm in Smithfield Township, PA. It was the site of the horizontal well, Eileen #5h. Smithfield Twp. is roughly 10 miles northwest of Towanda, PA.
Water issues in northeast Pennsylvania
A March, 2009 report indicated Chesapeake had applied to the DRBC to withdraw 1 million gallons of water per day for 30 days from the East Branch of the Delaware River, near Hancock, NY in Delaware County.
Also, in a June, 2009 report Chesapeake had applied for withdrawal of 499,000 gallon/day from Wyalusing Creek, in Rush Twp about twenty miles west of Montrose in Susquehanna County, PA. It was approved by the Susquehanna River Basin Commission for use on a well on the Venderfeltz farm.
July, 2009 found Chesapeake again applying to the DRBC for permission to withdraw one million gallons of water per day from the West Branch of the Delaware River in Buckingham Township, located in Wayne County, PA. In order to minimize the environmental impact on the neighboring communities, the company planned to remove the water using a pipeline system rather than with tanker trucks.
Leasing In Wyoming, Susquehanna, Bradford and Broome Counties
Chesapeake was in the news in September, 2009 when it had made nearly identical offers to two large landholder groups in northeastern Pennsylvania:
- Wyoming County Landowners Group - 37,000 acres - 600-700 landowners.
- The Friendsville Group in Susquehanna and Bradford Counties, PA and Broome County, NY - 30,000 acres - 600 landowners.
The terms of both offers were very similar - $5,750 signing bonus, 5 year lease, 20% royalties. The Friendsville offer had essentially been a counter-offer to one made earlier to the group by Fortuna Energy.
Drilling in a Pittsburgh's suburb
In late December, 2009 a news account appeared about Chesapeake proposing to drill two Marcellus shale wells in Allegheny County's North Fayette, an outer suburb of Pittsburgh, PA. The wells were to be drilled on a property owned by Champion Processing Inc. that had been used as a strip mine. Chesapeake had leased 143 acres for the wells located in an industrial zone bordered by State Route 980, Steubenville Pike, Beech Hollow Road and Candor Road very close to the Washington County line. As of December 15, the wells were conditionally approved by the North Fayette Planning Commission pending final approval. The wells were to be drilled vertically to a depth of 7,000 feet with a horizontal leg extending out 4,000 to 5,000 feet. The drilling was expected to last about 3 months. Chesapeake planned to drill additional wells on Champion Processing's adjacent land in Washington County.
Update: In March, 2010 a follow-up article mentioned that Chesapeake's proposal had been approved by the township supervisors of North Fayette and Robinson. Chesapeake had finalized plans to drill five wells on the formerly strip-mined Champion Processing Inc. property. Three wells were to be drilled in Robinson and two in North Fayette.
New Pipeline Facility
In December, 2009, a press release appeared noting that Chesapeake and Spectra Energy had teamed up to expand two pipelines bringing natural gas from the Marcellus shale into New York City. The expansion was to include Spectra Energy's Texas Eastern pipeline as well as its Algonquin system. There was also to be included in the expansion a 16-mile, 30 inch pipeline segment connecting Staten Island to Manhattan. The expansion was expected to be complete by the end of 2013 and to give Chesapeake 800 Mmcf/d of additional pipeline capacity.
2010 Development Timeline
Susquehanna County Joint Venture
In January, 2010 a press release surfaced regarding a planned joint venture between Chesapeake and Epsilon Energy regarding the latter's Highway 706 acreage and several producing Marcellus shale wells located roughly 8 miles southwest of the Borough of Montrose in Susquehanna County, PA. According to the agreement, Chesapeake was to earn a 50% interest in Epsilon's project assets in exchange for $5 million up front as well as a $95 million carry, spread over 30 months, for Epsilon's 50% of drilling and other expenses in the joint venture. Epsilon's leasehold consisted of 11,500 acres located in close proximity to acreage already controlled by Chesapeake. Epsilon's management estimated that at least 120 wells could successfully be drilled on the property. The existing wells there already produced in excess of 10 Mmcf/d. Update: The deal closed on February 1, 2010. All told, Chesapeake planned to invest $195 million in developing the Highway 706 Project. The $95 million carry requirement was to be met by by August 1, 2012.
Spotlight Issues
- Water disposal issues became a key concern throughout the Marcellus shale play industry during the second half of 2009. While water remained very plentiful, the disposal of flowback water from hydraulic fracturing gas wells became the focus of much public debate. Chesapeake sought to avoid most of the controversy by placing its emphasis on frequent recycling and reuse of water from fracing operations.
- Chesapeake continued to ramp up its acquisition of 3-D seismic data with 70 square miles in its database. According to an October, 2009 update it was in the process of shooting 400 miles of 3-D seismic and planned to grow this total up to 900 square miles by the end of the first quarter of 2010.
- The July, 2009 Chesapeake operations update indicated a very high investment return on wells in the Marcellus shale--as estimated at a long run price of $7 for gas and $70 for oil. At 71%, it is more than twice the IRR for Chesapeake's Barnett shale wells. IRR, or "internal rate of return", is a measure often used for comparing rates of return on alternative investments.
- In the same report the company increased its estimated ultimately recoverable (EUR) gas from 3.75 to 4.2 bcfe per Marcellus well and indicated that decline rates on their wells were lower than expected. This is in line with the experience reported by at least one other major company that has been extensively drilling the Marcellus shale formation.
Executive contacts
- Aubrey McClendon is Chesapeake's Chairman, CEO and co-founder.
- Martha A. Burger is Senior Vice President for Human and Corporate Resources.
- Scott Rotruck is Vice President of Corporate Development and spokesman on Marcellus shale drilling.
- Yvonne E. Marciano is an Albany, NY-based attorney who represents Chesapeake Energy in New York State.
- Mike John is Vice President of Corporate Development for Chesapeake’s Eastern Division, headquartered in Charleston, West Virginia.
- Tom Layman is Vice President of Geoscience-Eastern Division.
- Dave Spigelmyer is Vice President of Government Relations for the Eastern Division
- Steve Turk is Vice President of Operations–Southern Division.
- Paul Hagemeier is Vice President of Regulatory Compliance.
- B.J. Carney is a Senior Geophysicist-Appalachia.
- Matt Sheppard is Senior Director of Corporate Development.
- J. Kevin McCotter is Director of Corporate Development.
- Brian L. Grove is Director of Corporate Development in Chesapeake's northeastern Pennsylvania field office located in Towanda, Bradford County.
- Maribeth Anderson is one of Chesapeake's Corporate Development Manager.
- Stacey Brodak is also a Manager of Corporate Development.
- Dave McDougal is a Chesapeake representative in Allegheny County, PA.
- Tom Price is a spokesman for Chesapeake Energy.
- Jim Gipson is also a Chesapeake spokesman.
