25
Mar

Chesapeake 8 Shale Play Wrap + More HK Notes

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Last night I wrote a piece breaking down (CHK)'s new shale plays. Here's an addendum with notes from the conference call and additional thoughts. If you want this kind of analysis combined with my trades on a daily basis there's only one way to get it: subscribe! And the time is now. New rates apply beginning 4/1/08. Get in before they go up and stave off inflation for at least a year. Click here to check it out how to become a subscriber.

CHK closed pretty much where it opened the day, up about 3%. I've been out of (CHK) since exiting my March contracts last week but added April and May calls during the Q&A portion of the conference call. The big movers on the day were:

  • (HK) which shot ahead by nearly 10% closing at an all time high of $19.31. We already held a good sized load of April $17.50 and $20 calls from before and after their analyst conference on March 12th...those ripped higher,
  • tiny (QBIK) which soared 28%, and was mentioned in last night's post as having drilled a single vertical well in the Haynesville Shale,
  • and (GDP) which advanced 16% on the news (they have 18,000 acres in the area)
  • See the holdings page (subscription only) for strikes and prices paid on the (CHK) and (HK) calls.

So What Was On The Call That Wasn't In The Press Release?

Favorite Recent Quote From A Conference Call Watch:

"Yesterday’s PR was the most important press release in CHK’s history" ~ Aubrey McClendon.-

Combined New Play Reserve Potential of 16 Tcfe. That's the low end and in need of some more drilling to pin it down but the upside takes you close to 30 Tcfe. This for a company with 10.8 Tcfe booked after 19 years in operation. This pushes CHK's total reserve potential well over 100 Tcfe.

  • Haynesville Shale: Reserve Potential: 7.5 Tcfe (if they only stay with their current 200,000 acres - fat chance) to 20 Tcfe (if they get to the full 500,000 acre position they). This compares to the reserve potential they think they have in:
    • their Barnett Shale acreage - 8 Tcfe,
    • their Fayetteville Shale acreage - 10 Tcfe

Second Favorite Recent Quote From A Conference Call Watch: Speaking about the three horizontal wells drilled at Haynesville by CHK to date:

...much better wells than in any other first wells in a shale play... ~ A.M.

  • They declined disclosing per well metrics on the call due to competitive reasons, but it's safe to say they are seeing rates that are at least as good as in the first horizontal test (2.8 MMcfepd) or the comment is harder to explain. Initial production is likely to correlated to ultimate recovery or their acreage vs reserve potential wouldn't work.

 

  • Colony Wash Shale Play - expect 2 Tcfe adds here.  Expecting 5 Bcf per well with a 5% natural gas liquids cut which ups the value of the play nicely.
  • Oil Shale Plays: Aubrey said CHK believes they are onto in excess of 1 billion barrels (that's another 6 Tcfe ) in aggregate reserves of oil from 5 stealth oil shale plays in 4 states. Still acquiring acreage so there was little detail but the idea of adding more oiliness to the Chesapeake story, a story that has given you what will be the largest natural gas producer in North America by year end and over the dead bodies of many a naysayer analyst, certainly is welcome at a time when trip-digit oil has become common place. 

Tomorrow's Post Will Have A Gas-Field Beneficiaries List. The list includes drillers, OCTG, proppant, and frac players. Tune in in the a.m.

One Last Thing On (HK): Jefferies analyst Subash Chandra notes Petrohawk “has substantial acreage” about 50,000 acres total in the same area. “We estimate the Haynesville is worth $10 per share” to Petrohawk, he adds.

ZComment: That’s an additional 20,000 acres from 2 weeks ago (the date of their analyst meeting) and I doubt Subash just flubbed the number. $10 a share is easy to get to with 50,000 acres. Say 65% of it is prospective, that gives you over 500 drilling locations on 60 acre spacing. At 3 Bcfe a well that’s about 1.6 Tcfe versus the 1.1 Tcfe HK has booked now. $10 per share = $1.9 billion vs 1.6 Tcfe. Yeah, that’s more than fair. Prior to today, the company was valued at just under $5 billion.

 

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