24
Mar

Chesapeake Announces 8 New Shale Plays

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Chesapeake (CHK - $45.01)  Announces 8 New Shale Plays; 3 Gas and 5 Oil / And Ups Guidance: 

Favorite Quote From A Recent Press Release Watch:

 

"Chesapeake believes the Haynesville Shale play could potentially have a larger impact on the company THAN ANY OTHER PLAY in which it has participated to date." !!!

That's bold but not overly ballsy. I think (HK) outed them on the Haynesville play with their March 12th analyst meeting in which they highlighted it in more than "science project" fashion.

 

CHK Announced Three New Gas Shale Plays:

  • Haynesville Shale (North Louisiana).
    • 200,000 net acres; goal is to obtain 500,000,
    • 4 rigs now, going to 10 by year end,
    • Description (from my notes on the HK call 2 weeks ago): HK described the Haynesville Shale as it related to the shale underlying their Elm Grove field as a rich, organic, shale below 10,000 feet and greater than 200 feet thick bounded by wells drilled by other operators (CHK), (ECA), (STR) and (HK) all with similar sections on logs. That’s a really big area, much bigger than HK's Elm Grove field itself (see map below and not that those are longitude and lattitude lines).
    • It is overpressured, especially outside Elm Grove.
  • Map of the greater Haynesville area:

haynesville.jpg

    • If you assume 60 acre spacing and risk it by 50% that's still over 1,650 drilling locations. Take that to 500,000 acres and you have over 4,100 locations.
    • If you further assume reserves of roughly 3 Bcfe per well (pre call guesstimate but I think possible/reasonable) then you are taking about net reserve addition potential in a range of 4 to 13+ Tcfe! The whole company has just under 11 Tcfe booked now.
    • No EUR or costs in the press release but the magic level must be sub $2.00 / Mcfe F&D here.
    • Of note, (HK) has 30,000 net acres here. This is good news/bad news for HK in my book since it will prove up the efficacy of the play to the Street but it also means they won't be able to cheaply grow their position.
    • Tiny (QBIK) has also announced a successful well here recently.
  • Colony Granite Wash Shale (West Oklahoma). This play is already producing 40,000 Mcfepd and the 60,000 net acres they have should add another 250 net horizontal wells to their inventory. No mention of continuing to grow the position and no details on EUR or costs in the press release.

[Addendum 4/16: (CHK) and (OGE) Make Plans To Process Higher Colony Granite Wash Volumes. (OGE) is building a natural gas processing plant to accommodate volumes of 120 MMcfgpd by 2009. (CHK) said this recently announced shale play is now producing 55 MMcfepd gross (that's up from 40 on March 23) from 18 wells and that they have 12 rigs running there. Chesapeake still saying they have a location inventory of 250 horizontal wells in the Colony Granite Wash play and a total of 650 locations in the combined Granite Wash Shale Plays (Colony (West OK) and Mountain Front (SW OK, TX Panhandle)) of the Anadarko Basin. ]

  • Mountain Front Granite Wash (SW Oklahoma, Texas Panhandle). Drilled 3 Hz wells along the Mountain Front area of the Anadarko Basin. They think they have 400 locations on their 75,000 acres but again, details were not in the pr.

Five New Oil Shale Plays: The plays range in size from 100,000 to 1,000,000 acres spread over 4 states. There is a deliberate lack of data here and I'm sure the reason is that they are still in the middle of acquiring their positions. Recall that announcing just one oil shale play in the Barnett is what drove (EOG) mania at the end of February. 

Other Good Stuff For (CHK) In The PR: (all good news for gassy North American onshore service companies, especially (HAL) which I re-entered Monday)

  • Barnett Shale Update: Big Gets Bigger
    • net production reached 450 MMcfepd (up from 410 MMcfepd at last mention on 2/21/08),
    • continuing to acquire acreage,
    • continuing to focus drilling in the core of the play,
    • planning to step up drilling from 40 current to 45 rigs by year end,
    • ... and they're telling us the Haynesville may ultimately smoke their position here!!!
  • Fayetteville Shale Update: Ramping Up
    • net production reached 130 MMcfepd (up from 100 at last mention),
    • 12 rigs at present, doubling to 25 by early 2009 (guess the certainty of an increased Arkansas severance tax isn't scaring them off),
    • (HK) has one of its three core areas here by the way with 155,000 net acres
  • Marcellus & Lower Huron Update: Emerging Giant
    • 1.6 million acres. As of their 4Q report this was 1.03 million acres.
    • Drilled a mix of 26 vertical and horizontal wells to date and liked what it saw enough to plan on drilling 165 wells in 2008 and in 2009.
    • This play has seen a lot of hype so it will be interesting to see if they answer any rate and EUR questions on the conference call Tuesday morning.

Boosts Volume Guidance: 

  • 2008 goes up by 30 MMcfepd to 2.370 Bcfepd (21% growth over 2007),
  • 2009 up by 100 MMcfepd to 2.740 Bcfepd (up 16% over 2008 which by the way equates to 1.0 Tcfe of production). Guidance here was 12% YoY just last month so they're off to a good foot on "under-promise and over-deliver" for 2008).

Most Dangerous Sounding Phrase In A Recent Press Release Watch:

"...the company now expects to fund some or all of these additional expenditures through the public capital markets"  

The key word above is additional which amounts to potential needed funds of just $275 million in 2008 and $675 million in 2009. I'm sure the strip's recent elevation will afford CHK's savvy set of bankers at Randall & Dewey the opportunity to get a better price for their planned producing property sales at auction thus negating the need to dilute the common shareholder.  

As much as I'd like these guys to take HK out of the game and as much as I think a deal would make a good fit for both, its hard to make an accretive deal given the depressed value of CHK's currency...maybe given time.

chk-vs-hk-032408.jpg

Conference Call: 9 Est, Tuesday morning. 

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